Implementing a Good Debt Management Program

One of the most important aspects of managing personal finances is having a good debt management program in place. The fact of the matter is that if you are successfully managing your debt you should have little to no debt to worry about. The unfortunate thing is millions of Americans do not know how to do this and are experiencing cash flow problems that are approaching crisis proportions.

The problem many people have when it comes to accumulating debt is distinguishing between their wants and needs. Needs always come first because you need those to survive. Things such as shelter, food, clothing, and reliable transportation are things that just about everyone needs. The problem many people have is coming to terms with the fact that even needs can be turned into wants, and this is where they get in trouble.

As an example think about buying a car. Nearly everyone needs a form of good reliable transportation, but no one needs a $400 a month car payment. Wanting to buy a $35,000 car because you think you need one when you make $40,000 a year makes no sense. This is particularly true when you consider that a new car loses 60% of it value within four years of driving it off the dealer's lot. Filling your transportation need with a good used car that costs five to ten thousand dollars makes much more sense from a financial perspective.

The point is any good debt management program takes care of the needs of you and your family first. Money that is left over after all the needs are met can be put into a savings account or be used to satisfy those wants that we all have. But those wants need to be paid for with cash. Creating new debt simply because you want something is one of the easiest ways to overextend your financial situation.

Managing debt is more than trying to decide between wants and needs; you will also need to create a game plan to tackle whatever existing debt you may have. The easiest way to manage this type of debt is to make a list of all your creditors, the balance currently owed, interest rates, and interest paid each month. Knowing how much you owe and to who is an invaluable debt management tool which allows you to build a monthly budget that is accurate and sustainable.

The next step in managing your debt is coming up with a workable plan that allows you to pay off your outstanding balances. For many people handling money is an emotional issue and it needs to be handled in this fashion. Start with your smallest debt and pay extra on it while paying the minimums to all your other creditors. The psychological benefit of doing it this way is you will make quick work of that smallest debt which will give you the motivation to continue your quest to being debt free. Once that debt is paid take that payment and roll it into your next smallest balance and so on up your list.

The goal of any debt management program is to decrease your debt in a timely manner until you can become debt free and take back control of how your money works for you, not your creditors.