On average, each American is estimated to have $8,000 or more in credit card debt, which can cause financial strain and difficulties for even the most financially fit. While a debt management plan may be the best option for managing this debt, it can be a process that is overwhelming and even alien to many. However, creating a budget doesn’t have to be scary or difficult. By simply following a few tips to save money, it can help you budget your money better and help you manage your money.
Here are some tips for managing your money with a debt management plan:
Develop A Planning Worksheet
A planning worksheet is an important first step in developing your debt management plan. This worksheet is a tool that helps you outline your income, as well as your current expenses. While some of your expenses may fluctuate from month to month, you can provide a ballpark number to approximate how much you are spending. This planning worksheet will help you find gaps in your debt management plan. For instance, are you spending more money that you are making? Are there some expenses that you can cut out (such as the morning latte) and put that money towards your debt?
Determine A Repayment Schedule
After evaluating your income and approximating your expenses, you can determine how much money you can allocate to your debt repayment plan each month. The amount of money that you put towards debt repayment plan should be allocated under expenses. Once you add this to your budget, your income should still be higher to make sure you aren’t spending more than what you earn. To create an effective repayment schedule, some financial experts think a debt snowball is the best strategy. A debt snowball takes the amount of money you can put towards your debt repayment schedule, and allocates it in the best way so you are able to pay it off quicker. For instance, if you have to spend at least $300 in minimum payments for your debts, but you are able to dedicate an extra $200 to your debt repayment schedule, that means you will put $500 towards your debt repayment as part of the “snowball” plan. You would pay the minimum payments on all of your accounts and with the extra $200 you are able to allocate towards debt, you will put that towards the account that has the highest interest rate. Once you have paid that off, you will move that money to the next account and “snowball” the payment to include the $200, the minimum payment on the paid off account and the minimum payment on the current account. You continue this pattern until you are out of debt. The debt snowball plan creates an easy plan to follow and rewards you along the way as you pay off accounts, which is why many say it is so effective.
Give Yourself Goals
Many people create a debt management plan and try to quit some of their spending habits cold turkey. This may be effective for a short period of time, but before long, you will go back to your old habits. It’s best to create a debt management plan that is realistic and includes goals that you can easily achieve. While you may be tempted to put all of your funds toward your debt management plan, it is better to still give you some spending money each month to ensure you are able to enjoy month. This will ensure you continue to pay off your debt and don’t lose focus.
Budgeting and saving money is an important part of managing your finances, but it can be a lengthy process. For many, managing their debt repayment plan can be frustrating and even overwhelming. Because of this, some may opt to work with a debt management company. Either way, the first step in effectively managing your debt is to create a plan and develop goals to create a healthier personal finance landscape.