Debt Management - How To

The first step to being able to manage your debt effectively is to work out what debt you owe, to who and the payment terms. You need to sit down and work out how much you owe to each lender be it your bank, credit card company or private lender. You then need to work out how much you’re paying back each month to each lender and on what terms i.e. are you paying back a personal loan over 5 years and are you paying the minimum amount due on your credit cards, or more. As well as this information, you should also work out and document what the interest rates are for each borrowed amount and if possible, work out how much each loan or credit card is costing you in interest over a 12 year period. This will come in handy later for deciding which debt to focus on clearing first.

One you have all of the above figures together, you then need to work out your other finances, work out what you need to pay each month for your rent and general living expenses leaving the full and maximum figure that you can devote to clearing your debts each month. Now that you have both of these figures, you can start to manage your debt effectively. If you can make all of the minimum payments on your credit cards and service your personal loans, it’s a good start. If that’s the case, forget about the personal loan for now and concentrate on your credit cards. These I imagine will be the highest interest and what we need to focus on first. If you have funds spare after calculating the above payments, you need to throw 100% of them at your highest interest credit card with a view of clearing that first. Once that is cleared, pay off the next one and then finally your loan. Do not make the mistake of paying a bit of each every month. This won’t get you out of debt. You need to target them one at a time.