Do It Yourself Debt Management Plan

Do you have debts at the moment? While we all need to make a debt at some point, debt is only good if you take care of it properly. As it is allowed to grow, anybody’s ability to pay it becomes more and more difficult.

While it is true that just making minimum monthly payments will eventually lead to a debt free life, debt can be eliminated so much faster if a person pays more than the minimum required amount. The difference can be thousands of dollars saved over the life of the balance. This is especially true of credit cards which traditionally carry higher interest rates than other loans.

How do you start to eliminate debt in the nip?

Eliminating Debt The Snowball Method

Make an ascending list of your existing debts. This means listing down the lowest debt on top and the highest on the bottom. Do not pay attention to the interest rates first, just the rankings of the debts from lowest to highest.

The next step is to make sure to pay off the minimum monthly payment of each debt on the list, except the smallest debt which is the first on the list. For this #1 item on your list, pay the minimum monthly payment plus whatever else you can scrape up.

When this “smallest debt” high on top of your list is paid off, scratch it out the list. Now you can focus on the next debt which is item #2 … and so on. This second debt that has turned into your focus now (since the first debt has been paid off) will be paid the usual minimum balance plus the money you have saved since you paid out the first debt on the list.

When you have several debts, it is important to list it down like this and commit to the system of payment. It takes will power not to spend the saved money from the paid off debts for something else other than what’s on the list but one needs to have it if one has to avoid the trap of being buried in debts.

Debt Consolidation

This is another popular method to manage debts and eliminate them. Are you the kind of people who have trouble keeping track of your bills and spending? Don’t worry, it’s not the end of the world for you.

Consolidation allows a person to gather up all of their debt into one balance and pay off that debt with one simple monthly payment. By only having to worry about one debt account each month you will be able to budget yourself better and take care of your debt quicker. Like the first method, this one uses the power of psychology – mind tricks to keep you motivated in paying and taking care of your debts properly.

In reality, there is no difference between paying $100 to 5 accounts a month or $100 to a single account each month, but there is something different in the way the mind perceives the number of accounts. Having to send out one check instead of five is something that most folks in debt recovery can appreciate. Making a program easy to follow is the first step to designing a program that people want to follow.

You are given two options to better manage debts and evade the trap of a financial hell. Which do you think suits you best?