Debt Management Checklist

It is never too late to get debt under control. While a small amount of debt can seem harmless, it does not take long to for it to grow into a situation that may feel inescapable. When you make the decision to turn the tides on your cash flow situation, sticking to a debt management checklist can help you regain control over your finances.

The Big Picture

To gain control over your debt, you must know your debt-to-income, or DTI, ratio, which compares your monthly income to the amount of money you pay creditors on a monthly basis. To figure out your DTI ratio, divide the amount of money you pay each month towards your debts by your monthly income. Then, multiply your answer by 100. Your goal is to have a DTI ratio that equals zero.

Part of knowing the big picture when it comes to your debt is knowing exactly how much you owe each creditor, your minimum monthly payments to each and the interest rate each creditor charges. Knowing this information can help your create goals.

Spending Trends

Gather all your receipts and bank statements from the last three months so you can see if there are spending habits that you can change. For example, you may notice that you spend more money at fast food restaurants or coffee shops than you thought.

Budget

Creating a budget can help you stay on track with your goals and control your spending because you set aside a certain amount of money each month to spend on certain items. Your monthly budget should include housing payments, utility bills, childcare costs, gasoline, regular medical expenses, payments to creditors, groceries and nonessential items, such as eating out, gym memberships or movie rentals. Examine the amount of money you set aside towards nonessential items and see if you can reduce your spending on a particular item. For example, if you have a gym membership you never use, you can cancel it and use the money you save towards paying off a credit card faster or building a savings account.

Use Cash

Spending money you do not have is often the reason for debt accumulation. A debt management checklist should include paying with cash for all purchases. This will prevent you from adding more debt to a credit card.

Pay Your Debt

Refer to your list of debts and make a goal to pay off the smallest amount of debt first. Dave Ramsey, a financial advisor, states that if you pay your smallest debt first, you will have more money to pay off towards your larger debts faster.