Anxious about your debt? You need a debt management plan
Financial worries don’t go away unless you do something about your debt. Here are practical tips on how to create a debt management plan.
Being able to borrow the money you need to make important purchases can help your dreams come true. Yet, if payments on debts become more than you can manage, the situation can quickly turn into a nightmare of struggling paycheck to paycheck and having trouble paying your bills and debt every month.
Debt can cause a lot of damage, and not just to your credit score. It can take a severe toll on your mental and physical health over time. And, find out that over half of the UK adult population is in the same situation having personal debt, owing over £10,000 in loans and credit, according to a 2019 poll.
Now, the temptation to ignore your debt is big, but denial isn’t the answer. You need to get serious about addressing the situation and become debt-free once and for all. A good debt management plan can help.
Debt management plan explained
A debt management plan is exactly what it sounds like: a plan to manage your debt efficiently. It is a broad umbrella for strategies used to pay off debt, whether that means reaching out to a credit counselling agency for help or becoming more conscious of how you manage your money.
Now, debt management plans are provided by credit counselling agencies. An expert credit counsellor goes over your financial situation, including income, debt, worries, and so on, and presents different options. In other words, they offer debt management plan advice that will help you get out of debt.
These debt management plans cover unsecured debts, like credit cards and personal loans that you’re struggling to pay off. More precisely, during a program, you’ll only make a single monthly payment that will cover all of such unsecure debts you have.
While you’re on the plan, you need to expect some financial changes in your life, including:
- Your credit card account might be closed during the program.
- You will have to avoid any new obligations on your credit report for the duration of the plan.
- You will have to make the payments on time, every time.
Practical tips for debt management
Managing debt isn’t easy, but the sooner you start taking steps towards paying it off, the sooner your financial worries will come to an end.
How do you get started with a debt management plan? Here are a few practical tips to help you:
Face the financial facts
The first step towards an efficient debt management plan is to address the elephant in the room. Facing the fact that you’re overwhelmed by your debt obligations isn’t easy, but it is productive. So, you need to accept that you have debt, track it, and figure out a number.
Start by listing out all of your debts, including creditor name, interest rate, total balance, the minimum amount required for each monthly payment, and total payoff number. Next, sum up all your debts and identify precisely how much you’ll have to pay.
Financial experts consider that not all debts are equal. Some debts are considered good and others bad. The difference? Good debt is that considered an investment in the future, such as a student loan debt, mortgage loan, or business loan. In contrast, bad debt is that involving paying for things you want instead of need like an auto loan debt or credit card debt.
Once you identify which of your debts are good and which are bad, decide which debt you want to focus on paying off. It’s wise to start with bad debt first and those that have the highest interest rate. Another essential tip is to consider paying more than the minimum amount if you can afford it. This will help you pay your debt much faster.
Remove the obstacles of paying your debt
There are many “obstacles” that may come in the way, preventing you from paying off your debt quickly. Luckily, by being aware of these challenges, you can avoid them and ensure that you stay on a good financial track.
Here are the obstacles that may occur and how to tackle them:
You take a new financial obligation: To avoid that, make sure that you don’t seek any more debt. Don’t agree to purchase things that you don’t really need. Hide your credit cards and stay away from new financial obligations.
You don’t separate necessary and unnecessary expenses: Create a budget and learn to recognize essential and unnecessary expenses. For example, debt, rent, living expenses are essential costs, while new clothes, a vehicle, or a Netflix subscription aren’t necessary. For the period you’re paying off debt, stay away from unnecessary expenses.
You forget making your monthly payments for debt: Make sure to set reminders to make your debt payments. Paying late for your debts can result in higher interest rates or late fees.
Live more cheaply
Living expenses are some of the most significant costs you pay every month. Thus, you need to see how you can cut them down. Like it or not, the only way to get rid of your debts is to make some sacrifices on how you are used to spending money.
Think of ways to cut down costs each month and add the money you save to your debts payments. Here are a few strategies to save money on living expenses:
- Move in with a roommate.
- Cook dinners and take lunches for work from home instead of eating out.
- Cut your unnecessary subscriptions to digital entertainment services like Netflix, YouTube or Spotify.
- Take public transit, walk or bike to work instead of taking cabs or commuting with your own car.
Look for a credit counsellor
Once you have your finances all figured out, it is time to look for guidance with paying off debt from a credit counsellor. A credit counsellor will help you stand your ground with creditors and convince them to meet you halfway so that you can afford to pay them back.
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