- 6 min read
- Start by creating a personal budget, trimming expenses and saving money.
- Learn about debt relief programs.
- Debt management is up to you, but many need professional help.
Debt Management: It's Up to You
Who doesn’t have debt? We borrow money to buy a house (mortgage loan), a car (auto loan), get a college education (student loan), buy furniture (installment loan), and purchase all kinds of items from groceries to computers to … (credit card debt). Sometimes we have emergencies and then we take on more debt (usually credit cards again) to pay for medical bills, car repairs.
Some of us are great at managing our finances, and others…well we do have good attributes, but personal finances is not one of them. Even if we are great at handling money, those emergency costs, or sudden loss of income can hit us hard. Emergency funds are always limited and sometimes not enough.
Debt management is for everyone. There are different types of solutions, depending on your financial situation, including your cash flow, debts and assets. You may be looking for a credit counseling and debt management plan, loan consolidation, debt consolidation, or debt settlement plan. Alternatively, you may just need a do it yourself budget and debt payoff plan through maximizing your monthly payments.
Follow these steps to help you get the debt management plan that is right for you:
- Create a budget and other financial basics
- Learn about debt management solutions
- Debt management – It’s up to you
Debt Management: The Basics
Managing you debt means that you are managing your finances. Debt Management is not a one-time event, rather an ongoing endeavor. Once you get your game plan set up, it becomes easier to track your progress. Here are the basic steps that you need to take:
- Make a personal budget: Debt Management begins with a personal budget. That means you know how much money is coming in, how much is going out, and where the money is going I recommend that you read the Bills.com personal budget guide. You will find tips on how to start and maintain your personal budget.
- Trimming expenses/increasing income: Your next step is to analyze your spending habits. Look for areas where you can save money. Are you overspending on groceries, a gym membership, or costly phone and cable plans? Use the Bills.com Saving Machine to find areas where you can cut your expenses. Obviously, in addition to cutting your expenses you can also look for ways to increase your income. Although it isn’t easy you can look into turning your hobby into a home business, or taking on a second job.
- Create a savings and retirement plan: Any budget plan should include a savings and retirement fund section. Ideally, you should have an emergency fund that covers at least 6 months of your regular expenses. In addition, make sure that you are building up a retirement fund and savings plans. A good rule of thumb is to save at least 10% of your gross income. However, if you are in debt, then work on paying off your expensive debt. Credit card interest rates are high, commonly over 18%. Your minimum payments take a big bite out of your budget and make a small dent in your overall debt position.
If you are not sure which is the best debt relief solution, then use Bills.com Debt Coach. The debt coach will help you analyze your personal situation and give to you a recommendation based on five proven debt relief solutions to get a personalized recommendation.
Learn About Debt Management Solutions
There are a number of debt management programs and there is no one size fits all solution. By following the first steps listed above, you have moved in the right direction. Your next step is to become familiar with debt relief solutions. Here is a list of popular debt management programs:
- Do-it-Yourself: Many experts advocate a do-it-yourself approach. Pay back your debts faster. Budget carefully, be frugal and start paying back debt. Some (like David Ramsey) advocate paying back your smallest debts first and others (Suze Orman) advocate paying back your highest interest rate debts first. In any case, always make your minimum payments, and then start adding more money to your other debt. Check out Bills.com minimum payment calculator to see how much you can save in money (and time) by making fixed payments on your credit card debt.
- Loan Consolidation: A popular debt management solution is a loan consolidation. If you have student loans then look into student loan repayment and student loan consolidation programs. If you have a good credit rating then look into an unsecured debt consolidation loan or a cash-out refinance mortgage, if you have equity in your house.
- Professional help: If you need help with your budgeting and lowering your financial costs then look into a professional debt management program including:
- A credit counseling and (debt management plan): If you can afford your payments, but need help in organizing your finances and budget, then a credit counseling program can help. Your credit counselor may recommend that you enroll in a debt management plan, which negotiates lower fees and rates with your creditors and consolidates your payment.
- A debt settlement plan: If you are struggling to make payments, your credit score is damaged, or on the way to be damaged, then a debt settlement company might be the right debt management solution. You stop paying your creditors and the debt settlement company negotiates a settlement for less than you owe. You make payments into a special designated account, in your name, to build up funds for the negotiated settlement. One important point: Don’t pay upfront fees. Only pay the debt settlement company when they make a settlement.
Although, many experts say that you can do everything by yourself, including budgeting and debt negotiation, we all know that, that isn’t true. Some people are more financial proficient, some are more adept at negotiating, and some of need help. The important thing to remember is to understand what the program is offering, how it will help you, and how much it will cost. No debt management program will help you if you don’t fully participate.
Contact one of Bills.com's pre-screened debt providers for a free debt relief quote.
Debt Management: It’s Up to You
Although, many experts say that you can do everything by yourself, including budgeting and debt negotiation, we all know that, that isn’t true. Some people are more financial proficient, some are more adept at negotiating, and some of us need help. The important thing to remember is to understand what the debt management program is offering, how it will help you, and how much it will cost.
No debt management program will help you if you don’t fully participate. Some people make the mistake of signing up for a program, and then dropping out. A debt management company can help you, get a loan, lower your fees, or negotiate a settlement. However, it is up to you to meet your long-term commitments. Your debt can be managed, either through a do-it-yourself approach, or with professional aid.
Most importantly: Debt management is up to you.
Struggling with debt?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q3 2023 was $17.291 trillion. Student loan debt was $1.599 trillion and credit card debt was $1.079 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Collection and delinquency rates vary by state. For example, in Nebraska, 16% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.
While many households can comfortably pay off their debt, it is clear that many people are struggling with debt. Make sure that you analyze your situation and find the best debt payoff solutions to match your situation.