What is Debt Management?
Successful debt management can be the difference between wealth and bankruptcy. Mortgages aside, the equation for freedom from debt is simply to spend less than you earn, and apply the savings to your debt.
Who Needs Debt Management?
Perhaps the largest part of debt management is figuring out where your debt came from. I don’t mean which store the debt came from; I’m referring to the reason behind the spending. Of course, some are forced into very heavy debt by catastrophe, such as job loss or medical expenses. But most people I know who need debt management simply don’t know how to say no. Debt management is only successful if you don’t slip back into heavy debt as soon as you’ve eliminated your current debt.
Good Debt vs. Bad Debt
Debt management does not necessarily mean debt elimination. Some debt can be considered “good debt.” Having a home mortgage might not seem like the ideal, but you’ll surely be grateful you have one as you approach the middle of April; the interest on a home mortgage is tax deductible.
A common debt management practice is to change bad debt into good debt wherever possible. For example, a wise approach to debt management is to use the equity in your home to consolidate credit card debt. The interest from your home equity loan or line of credit is tax deductible, not to mention the interest rate will likely be much lower than that of your credit card.
Debt Management and Interest Rates
One of the most common approaches to debt management is simply to pay off the loans with higher interest rates first. For example, if you have two credit cards with balances, you should aggressively pay off the one with a higher balance while simply paying the minimum on the balance with the lower rate. Once the higher rate balance is paid off, you can concentrate on the other card’s balance. With this debt management strategy, you can eliminate credit card debt several months sooner than if you split your payments equally between your two cards.
Where to Go For Debt Management Help
One of today’s most savvy financial counselors is Suze Orman, whose books and TV shows have helped many with debt management. Her Web site, Suzeorman.com, can be a powerful tool for understanding debt and how to eliminate it. Her weekly CNBC show is an hour full of financial information and advice, and it’s free!
Debt Management Services
If you simply can’t escape debt on your own, you may want to consider debt consolidation. Many debt management companies offer relief from heavy payments and high rates by allowing you to pay them with one lower monthly payment that will cover all your debts. They simply take your money and make arrangements with your creditors to pay them over a longer period of time. However, debt consolidation services should be used only as a last resort of debt management, in order to avoid bankruptcy. Also, be sure to thoroughly research the company you choose to go with to ensure you can trust them and rely on them.
By Aaron McCullough