What I Wish I Learned in School 7 of 12: How to Manage Debt

Carrying ongoing debt can be uniquely challenging. The debt carrier is often stuck paying high interest rates, which means making little headway on the actual balance. This, in turn, can prompt the debtor to only pay the minimum due each month and give up on ever getting out of debt. As the months and years pass, they’ll continue to acquire additional debt, falling deeper and deeper into the trap.

The good news is, it doesn’t have to be this way. With the right tools and information, you can climb out of the debt sinkhole and learn to manage, and ultimately, eliminate all consumer debt.

Here are nine steps for managing your debt and creating a plan for paying it down for good.

1. Organize your debt

First, list all your debts. Include credit cards, student loans, auto loans and any other outstanding balances you carry. For each debt, note the following details:

• Total amount owed

• Interest rate

• Minimum monthly payment

• Due date of monthly payment

Tally up your total debt payments each month. Then, list your debts in the order of interest rates, and then in the order of outstanding balances.

Organizing your debt in this manner will enable you to move forward and prioritize which debts to tackle first.

2. Create a realistic budget

Before you start thinking about paying down your debt, make sure you have a realistic budget you can stick to each month. If you don’t have one already, track your income and expenses for several months to give you a clear picture of how much money you have coming in and what your actual costs of living are at this time. Then, set aside a reasonable amount for each spending category, ensuring you can adequately cover all of your monthly expenses. Finally, review your spending and look for ways you can increase your income and/or trim your expenses in any manner. Allocate these extra funds toward your debt payments.

3. Choose your debt payoff strategy

Now, it’s time to choose a debt payoff strategy. You have two primary choices here:

• The avalanche method. Here, you’ll start with the debt that has the highest interest rate or highest balance and maximize your payments toward paying it down. Once you’ve paid the complete balance, you’ll move on to the next until you’re debt-free.

• The snowball method. In this method, you’ll pay off the smallest debt first, and then work through the rest in ascending order.

Each method has its pros and cons. Review each strategy carefully and choose the one that best aligns with your lifestyle and personality.

As you work toward paying down your chosen debt, do keep making your minimum payments on all of your other debts each month.

4. Consider debt consolidation

If you’re dealing with a substantial amount of debt that is difficult to manage, you may want to consider debt consolidation. This involves combining multiple debts into a single loan with a lower interest rate. Doing so will simplify debt management by giving you just one monthly payment to manage, and can potentially lower the overall interest paid as well.

If you think that debt consolidation is for you, consider a personal loan from Advantage One Credit Union. Our loans always feature competitive rates, easy eligibility for qualifying members and our trademark personalized service and attention.

5. Avoid accumulating additional debt

While focusing on repayment, it’s important to avoid taking on additional debt. Limit the use of credit cards and refrain from financing new purchases. This is the perfect time to develop disciplined spending habits to prevent yourself from falling into the debt trap again. It may be helpful to destroy your credit cards or give them to a friend to hold onto for now. It can also be a good idea to have your personal devices “forget” your credit card information so you don’t spend mindlessly.

6. Seek professional advice

If managing debt becomes overwhelming, consider consulting a financial advisor or credit counseling service. These professionals can provide personalized guidance and may assist in negotiating with creditors or developing a debt management plan. It’s important to verify any service you use by checking for an online presence, reading customer reviews, demanding complete transparency and being wary of any service that demands upfront payment and/or promises outrageous results.

7. Monitor your credit 

It’s always a good idea to review your credit usage on a regular basis, and this is especially relevant when you’re working toward paying down debt. You can obtain free credit reports once a year from each of the three major credit bureaus and check your score on sites like CreditKarma. As you make headway on your debt-payoff journey, you should gradually see your credit health improve. It’s also important to review your monthly credit card statements for fraud and suspicious transactions, which can significantly impede your progress.

8. Build an emergency fund

Establishing an emergency fund can prevent the need to incur additional debt during unforeseen circumstances. Aim for a fund having three to six months’ worth of living expenses. Start small, setting aside a portion of your income regularly until you reach your goal.

9. Stay committed and patient

Debt repayment is a marathon, not a sprint. Celebrate small victories along the way to stay motivated and remember that consistency and perseverance are the keys to achieving financial freedom.

It’s never too late to take control of your debt! Follow these tips to learn how to manage and pay down your debt for good.