Debt Consolidation and Debt
Management For Maximum Relief: Part 1
Bankruptcy and financial stress
are at an all time high. In increasing numbers, people are turning to debt
management counseling for relief. Both debt consolidation and management
provide valuable assistance. However, you need both for maximum results.
"Easy credit” is the underlying problem. That mindset is half the problem.
It is true that credit is easy to obtain. However, each person must accept
responsibility for how they choose to use their money.
The misuse of finances can be an addiction, just like drugs or alcohol. It
can also result from lack of understanding. Regardless of how the debt
occurred, once the person can accept financial responsibility and commit to
change, the road to a debt free life is possible.
Bankruptcy is not a good alternative. It will only cause more stress and
financial problems for many years to come. So, with a little determination
and resolve, let’s examine how to get a handle on your finances and what you
can do to reduce financial stress.
Debt Management
Debt management is very important. It helps you understand how to get a
handle on your finances. Here are debt five debt management principles that
work.
1. Debt Management Counseling
It is usually important to get an outside, objective opinion on your
financial situation. A debt management counselor can help you organise your
current financial status, offer honest and objective advice, and provide a
road map for you to pay off your debts.
You should feel comfortable in talking with the counselor. The counselor
should have your best interest at heart. However, you may not like
everything you hear. Talk to several different counselors before you commit
to one. Learn as much as you can about him/her. You’re looking for someone
with a proven track record. Someone that will listen carefully to you and
then offer specific advice that will best meet your financial situation. If
they don’t listen, are not honest and objective, keep looking.
2. Follow Budget
Part of your road map to a debt free life is a budget. Your budget should
allocate sufficient money for your living expenses and your debts. Be
diligent in following your budget. The more you write down and record your
financial transactions, the more likely you are to stay on track.
To be successful at reducing debts, pay your debts first. When you pay your
obligations first, then you know exactly what you have left to live on.
Some people take envelopes and put money in them for each item on the
budget. When the money is gone, the budget category is used up. The only way
to use more money for a specific area is to borrow it from another envelope.
Others like to use a software program for their finances. They record each
item and put it in a specific category. Then, their reports let them know
where they stand on each budget item.
It really doesn’t make any difference how you use your budget. The important
matter is that you have a budget. You know how much is in each budget
category at all times and you don’t spend more money than you have budgeted.
3. Get Rid of Credit Cards
Successful debt reduction is primarily dependent upon not increasing your
current debt. Many debt management companies will be able to work out
arrangements with your creditors for reduced payments and interest. As part
of the agreement, you agree not to accumulate more debt. Tearing up your
credit cards is a good idea. Get rid of the temptation to increase your
debt.
4. Consciously Reduce Expenditures
Once you become aware of where your money is going, you can begin to
eliminate unnecessary expenditures. For example, when you leave the house,
do you turn down your air conditioning or heating? Do you turn off lights
and appliances that are not being used? How much would you save by taking a
sack lunch to work rather than eating out? If you’re a smoker and gave up
smoking, how much would you save?
You’ll find that small reductions in a few expenditures will begin to add
up. The more you are aware of where your money is going, the better you will
be able to reduce unnecessary expenditures.
5. Focus on Debt Payment
Each of your debts will have a different interest rate and amount.
Individual personalities tackle problems in different ways. You need to
figure out what is the best method for you.
For example, some people concentrate on paying off their most expensive
debts first. It saves money in the long run. They figure out the maximum
amount they can pay each month on their most expensive bill. Once that is
paid off, there is a huge relief in cash flow and stress.
Others have so many different debts. They choose to pay off as many little
ones as fast as they can, so they can concentrate on the bigger debt.
It really doesn’t make too much difference what method you choose. The
important point is that you have a focused plan you feel good about. Good
debt management, in contrast to bad debt management, is being consistent
over time.
In part 2, we will discuss how use the financial resources you have to
consolidate your debt.
