If you have good credit, managing your debt helps you maintain a high credit score. If you have bad credit, debt management can help you improve your score. There are companies that provide debt management plans by setting up a budget and contacting your creditors to negotiate your debts. This is something you can do just as well yourself and save the fees you'd have to pay the debt management company.
Know How Much You Owe
If you don't know your total debt or if your income will not cover your expenses, you can't start to manage your debt. Make a list of all the debts, whether it's secured, such as your car loan, or unsecured, such as your credit cards. Note the amount owed, monthly payment and interest rates. Start paying off the unsecured debt with the highest interest rate first while making minimum or required payments on all your other debt. When that first debt is paid off, take the amount you were paying on that debt and combine it with the payment on the debt with the next highest interest rate.
Develop a Budget
Develop a monthly budget that covers all your required expenses. Go back through your checkbook, bank account and credit card statements to make sure you include everything. Some expenses, such as medical services or car repairs, don't occur on a regular schedule but should still be included in a budget.
Cut Back Expenses
Look at what expenditures you can cut without affecting your standard of living too much. For example, you may be paying for premium movie channels as part of your cable bill. Instead, consider borrowing the movies from the library. Many will order the movies for you as soon as they're available. Make a goal of cutting back 10 percent on your total expenses and putting that toward a debt repayment plan.
Sell Unused Assets
Go through the garage, attic and closets to find items you no longer use or need. Consider taking photos of sentimental items that you never use, such as Aunt Ruth's china, and selling the china itself. Use the cash to pay off debt.
Increase Income
If you've cut expenses to the bone, you may find that the only way to start managing your debt is to increase your income and put that towards the debt. If members of the household only work part-time, it may be necessary to start working full-time, work after hours or work the weekends.
Refinance
If your credit is good, you own your home and have equity in the home of more than 30 percent, consider refinancing the house and paying down your other debt with the proceeds. You most likely won't be able to refinance the mortgage if your credit is bad. However, you may be able to negotiate with the lender to bring down your payments to a manageable level. If your mortgage was insured by Fannie Mae, the lender may be obligated to refinance.
Renegotiate
Credit card interest can be as high as 30 percent. That means the sofa that cost you $1,000 to buy will end up costing $1,300 if it takes you a year to pay down the card. If your credit is bad, renegotiation may bring down your expenses to where you can start to make headway on paying off the debt. You may be required to close an account to decrease the interest rate. This will be viewed as unfavorable on your credit report but help you in the long run since you'll be getting rid of the debt faster.
Warning
If you decide to go with a debt management program administered by a company, do your homework and make sure the company is reliable and ethical. Most of them make money by charging you hefty fees on top of what you pay your creditors. Some hold the money you pay them until it reaches the total they've negotiated with your creditors as the payoff amount. If they go out of business before that total has been reached, you're out of luck. You still owe your creditor.
