How to Manage Debt

Managing Debt

If you are reading this post, then there is a good chance that you have some debt.  Maybe you have a student loan, auto loan, a home mortgage, and maybe a credit card or two?   

We need credit to establish our financial worthiness and gradually build toward the things we want. However, if you aren’t careful it is easy to get lost in the debt, and digging a way out is daunting and may sometimes seem impossible.  Everyone must learn how to manage debt.

Managing Your Budget

In order to successfully manage debt, you need to start with a personal budget and be diligent about sticking to it.  Some people may think that they know how much they have to spend and don’t think that it’s necessary to sit down and work out an actual budget.  This is wrong.  You need to manage your finances like it’s your business so you always know where your hard-earned money is going. 

By creating a budget, you are basically creating a map of where you are now and where you want to be. 

It’s important to not only account for the bills that you need to pay, but also take a look at what you are spending on the essentials like, food, gas, going out, and socking away some money into savings.  Creating a budget is not the most fun or easiest thing to do, but it is an essential part of managing our debt.

Creating Debt

Owing money is a burden that no one wants to have; however, it is necessary if we don’t have enough cash on hand to buy the things we want. 

There are not many people who have $200,000 to buy a house, $30,000 for a car, or an unlimited amount of funds in the bank to buy whatever they want, whenever they want.  This is where credit comes into play. 

We accrue debt through loans and credit cards so that we can live the lifestyle that suits us best.  It’s so easy to accrue debt quickly if you don’t know how to properly manage it. 

Managing Debt and Racking Up Your Credit Cards

Racking up your credit cards faster than you can make money is so easy to do.  You have this piece of plastic in your wallet that has a limit of $5000 that allows you to get whatever you want at any time.  However, you need to keep in mind that this is NOT YOUR MONEY!  You are borrowing it from a bank and the bank is charging you interest every time you use it.  

The coffee you paid $4.50 using your credit card is actually costing you $4.95 (assuming your interest rate is 9% and you don’t pay it off right away). 

What if you found a great deal on a new bike that retailed for $300 and you got it for $250?  You paid for it with your credit card and you just pay the minimum each month?  That bike could end up costing you $275.  How much is it really worth to you? 

Credit not only buys us what we want, but it also buys us time.  We can have what we want even quicker…for a price.

Managing Your Credit Cards

Ideally, if we are using a credit card, we want to try to pay that off in the quickest amount of time.  We don’t want to have to pay any more than what we need to on the things we buy.  The following tips will help you manage your debt and keep you from going overboard:

tips for using credit cards

  1. Keep the mindset that the available credit is NOT your money.
  2. Don’t use a credit card unless you really need to.
  3. Always plan to pay off credit cards the following month or at least factor the monthly payment (with interest) into your budget.
  4. If you purchase a high-priced item, always pay more than the minimum payment due (I recommend at least 10% more).  The more you pay will apply to the principal and you will have less interest to pay over time.  This goes for any loan or line of credit you have.
  5. Don’t keep credit cards in your wallet.  If you don’t have it, you won’t be tempted to use it!

Bill Consolidation Loans

If you have a lot of debt you may begin looking into a bill consolidation loan.  These loans are great and work really well if you have a lot of high-interest debt.  You can roll it all up into one, easy to manage monthly payment with possibly a lower interest rate.  However, after you do that, you need to put your credit cards on lockdown so that you aren’t tempted to use them and rack up even more debt.  

The interest rate is key here.  If you choose this route, make sure that your bill consolidation loan rate is less than the rate that you currently have; otherwise, it won’t be worth it.

Credit Counselling Services

There are several companies that offer services that help you negotiate a better interest rate on your loans if you are having trouble making your payments.  Keep in mind that many of these companies will charge you a fee upfront, so be sure to weigh your options before choosing this service.


The final and last resort option to manage your debt is bankruptcy.   If you are truly drowning in debt and there is no feasible way to get out of it, then it may be necessary to go down this road. There are two options for bankruptcy, Chapter 7 and Chapter 13. 

bankruptcy options

If you need to file bankruptcy, it would be ideal to file a Chapter 7.  This will completely wipe out all of your debt and provide you with a clean slate; however, depending on your income and your household size you may not qualify for this and need to resort to a Chapter 13. 

Although Chapter 13 does not wipe out your debt, it does significantly reduce the amount you owe.  A payment plan will be established with a trustee for a specified length of time, typically 5 years. Regardless of the option you choose, your credit report will take a big hit, making it difficult for you to get loans and credit cards at a good rate. However, after 10 years the negative mark “falls off” your report. 

It’s important to make sure that you pay your bills on time and keep your credit usage at a minimum.

Taking Control of Your Finances

Nobody ever wants to be put into a position where they need a bill consolidation loan, credit counseling service, or to consider filing for bankruptcy, but it is good to have options should you need them.  

Taking control of your finances will help you manage debt. This will improve your financial worthiness and help reduce the stress that comes along with your debt.

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