The Theory of Debt Management

Debt management is the act of getting your monthly obligations under control and living within your means. Consumers that are looking to get into a debt management program, whether it is something they do on their own or something they hire a financial professional for, should understand the theory behind debt management. Understanding why you need a debt management plan will help you to stay dedicated to its success.

Scheduling

When you set up a budget, the payment schedule is based on the due dates of your various bills. Paying your bills on time helps you financially because it prevents you from having to pay late fees, penalties and the additional interest that is involved in not making your monthly payments on time. Another added benefit of paying your bills on time is that it improves your credit score, according to credit expert Pat Curry writing on the Bankrate website.

Expenses

One of the helpful theories behind debt management is that it allows you to analyze your monthly expenses and find ways that you can reduce how much money you spend each month. Your monthly expenses include food, entertainment, gas for the car, money into a savings account and repairs to the home. By monitoring your spending through a monthly budget, you can see how much you would save each month if you brought your lunch to work as opposed to always eating out. That extra money you save can be funneled into your savings account for a rainy day.

Debt Payment

A debt management system allows you to see all of your debt on one spreadsheet. You can add your account payment information, including the interest rate you are paying on your credit cards, and then create a plan to pay down your debt. This is the part of a debt management plan that helps you to get your outstanding accounts under control by applying extra money to paying off existing debt.

Control Spending

Credit card spending can be one of the activities that creates substantial financial debt. By monitoring your credit card spending through your debt management program, you can improve your credit score and create the ability to finance large purchases in the future such as a home or a car. You should not close out old credit accounts, according to Pat Curry writing on the Bankrate website. Spend on your cards, but avoid running up balances that meet the maximum limits. Using your cards, but managing your spending through your debt management program, will help you to increase your credit score and learn responsible spending.