Strong budgeting skills are one of the best forms of personal debt management available. When you are able to live within your means, debt management comes easily.
Set a monthly budget for yourself. Plan for all your bills, including necessities, loans, rent, food, transportation, insurance, credit cards, an emergency fund, any “extras,” i.e. cell phones, dance lessons, date nights, going out to eat, etc., and also be sure to set some aside for savings. Debt management is about planning for what you know you will spend and then living under your financial ceiling. Also, pay all of these bills on time or early to avoid “knocking” your credit. It is also simply a good habit to get into.
By developing good debt management habits on your own, you will continue to have a good credit rating, which will make it easier for you when you go to apply for a loan for a home or a car. But be sure when you look for this loan you will be able to budget the payments in and also try to pay it off as quickly as possible.
One easy debt management tactic to practice on your own with loans is to ask the loan officer about early payment penalties. Loans without early payment penalties are your best bet because you can pay more than the minimum payment every month and then pay down the principle faster and end up paying less in interest. See if this tactic will fit into your monthly budget. If not, pay the minimum. Your do-it-yourself debt management will not work if you are trying to pay off a loan with money you do not have.
To practice debt management on your own, do not go into debt by spending more than you have budgeted out in your monthly plan. The “emergency” fund is not for the great pair of shoes you saw yesterday at Nordstrom’s. Do-it-yourself debt management means that money goes into savings and builds until your car breaks down and needs a new transmission.
Many people do not subscribe to this form of debt management and live beyond their means, or they have more emergencies than their “emergency” fund can cover. When this happens, bills start piling up; creditors start calling. You can earnestly try to continue do-it-yourself debt management as long as possible, but may need to look into a commercial or non-profit debt management company.
Do your research first. Professional debt management groups work with your creditors to help you consolidate your monthly bills into one bill. But each debt management group’s policies and practices vary. Some of them will have you pay them a set amount each month and THEN they approach your creditors for negotiations, while your credit rating steadily drops for delinquent payments and you continually receive collection phone calls. Others do the negotiations first and then you pay them the set amount. Many debt management companies charge you a fee for their services on top of your bills. The creditors also pay them a fee. Also some debt management organizations show up on your credit report.
Remember, bankruptcy is your last resort. Bankruptcy stays on your credit report for 10 years or more and you still have to pay court costs and attorney fees. No one wins in bankruptcy.
Working on your own personal financial management is the best way to stay out of debt, keep your pocketbook healthy and your mind at peace.