Debt Management Plan
A debt management plan is just what is says…a plan for managing your debt. And the best way to do that is to incur as little debt as possible. Many people use the term “good debt” to mean student loans and home loans. But this still has to fit into your budget. Having more home than you can afford or more student loan debt than your income can cover in a reasonable amount of time is still not smart no matter how “good” it is considered.
In an ideal world debt management means living within your means and paying your credit card off in full each month. For many people being consumer debt free can be several years away, but it does not have to be. If you want it bad enough, most people can be out of debt in 3 years or less. Gail Vaz Oxlaide is an author and the host of a show called “’Til Debt Do Us Part”. On this show, her debt problem couples have to be out of debt within 3 years and she shows them how to get there.
Now she does give them $5,000 to pay down there debt, if they follow her plan and complete her challenges. Many of her couples are actually out of debt long before the 3 years are up. The plan she sets up is very basic. They couples go on a budget, they live on cash, they do not use credit or debit cards and they take responsibility for their finances. The important points are that the budget has to balance and the debt has to be paid off in three years or less.
Budgets have to be manageable. You cannot setup a budget that is so tight that you cannot stick to it. Variable expenses (food, transportation, clothing and gifts and other) are all paid for and tracked out of a cash budget. There are some cases where Gail cannot balance the budget and the couple has to come up with more money and in almost all instance when push comes to shove, they do come up with the extra income.
If you have consumer debt, the best way to get started is to do whatever it takes to stop using your credit cards. Keep in mind that most people that have trouble with plastic should probably also eliminate their debit card use and live on cash. This is something that most debt professionals advise.
If you are going to get out of debt, you have to know where your money is going. This means filling out budgeting paperwork and keeping track of where every penny is going. If you are going to get out of debt, you are going to have to pay more than the minimum payment. Credit card companies are required to tell you how long it will take you to pay your account in full, if you make only minimum payments. The number will scare you. It is usually 9 to 12 years. Do you really want to be paying for things that you no longer have for that long?
Then you have to figure out how long of a repayment period you want and use the online calculators to figure what you are going to have to pay each month in order to complete your plan on schedule. It is a good idea to plan a small amount of money into your budget each month for an emergency fund. You have to have a plan for emergencies if you are going to become debt free and stay that way, even if it is only $1,000.
Paying off your debt will take hard work, but it will be well worth it in the end. Debt can lead to problems with your health and relationships. Being in debt will limit the options you have in your life. The sooner you are able to get your debt under control, the sooner you will be able to move forward with your life.