Debt Management Criteria

It's easy to lose track of how much debt you're accumulating, especially if you usually don't pay for things with cash and you don't tally small expenses. Successful debt management requires a change in spending habits, which includes considering how much you're paying in interest charges and fees to determine what your overall debt is costing you.

Organizing Debts

List how much money you earn and what you spend to get a realistic picture of your debt situation. The U.S. Federal Trade Commission recommends listing your monthly income from all sources, not just your main source of employment. Tally all of your fixed costs next, which includes car payments and other expenses that are the same amount each month. List expenses that vary monthly too, including small costs such as subway fares.

Debt Reduction

Documenting all of your expenses also can help you create a debt-reduction plan. One method is to list your debts in order from the ones with the highest interest rates to the ones with the lowest rates. Concentrate on paying as much as possible toward the high-interest debts while making the required minimum monthly payments on the others. The quicker you pay off high-interest debt, the faster you'll reduce your overall debt load.

Debt Ratio

Consider your debt-to-income ratio before making a major purchase, such as buying a house. The ratio is the percentage of your pre-tax monthly income, or gross income, that goes toward paying debts. Mortgage lenders usually allow a total debt-to-income ratio of no more than 36 percent when considering whether to approve a home loan. Yet you also should consider how much you want to set aside in savings for emergency expenses, retirement accounts and other costs. CNN Money and other financial websites provide online calculators to help people determine how much they can comfortably afford to pay for a home. You also should avoid maxing out your credit cards because about 30 percent of consumer credit scores are based on how much debt people have accumulated. Lenders typically view large amounts of credit card debt unfavorably.

Considerations

You could lower your monthly costs through debt consolidation by taking out a second mortgage on your home. Such loans allow homeowners to borrow money against the equity in their properties to pay off debts, which make them risky because the home is used as collateral. You could lose your home if you can't repay the loan. The cost of debt-consolidation loans can be expensive if you don't get a low interest rate and if you get hit with several processing fees. However, you may be able to recoup some of your costs because the interest paid on second mortgages is often tax deductible.