21 May 2008

Steps to manage your debt

The world is drowning in debt. It’s not just you and me, it’s 1.9 million Aussies, it’s governments and nations. We all owe each other a financial obligation for one reason or another. Perhaps you took out a mortgage to buy a house, or maybe you took out a personal loan to buy a car, it could even be your credit card, child support, or even the monthly bills. Whatever the reason, if you now find yourself struggling to sort out your finances, we’re here to help.

What you need is a debt management plan (DMP). Debt management allows you to sort out your debts through a well-constructed financial plan. The goal of a debt management plan is to employ strategies to help you lower your current debt and move toward eliminating it completely. You can do this on your own or with the help of finance experts.

Step 1: Identify your debts

The first step is to sit down and figure out exactly how much you owe and to whom. Write them down, then sort by priority. Utility debts or those with a legal obligation should be highest on your list. Second come those with the highest interest rates.

The bottom of the list will be the debts with the longest repayment period (such as your mortgage or car loan).

Step 2: Create a budget – identify your income and expenses

Now that you have a clear picture of what your debts amount to, it’s time to look at your income and expenses. Create a budget that highlights what you make and your monthly expenses. You can sort your expenses into necessary and unnecessary items.

When you know what you spend your money on, you can figure out where you can minimise your expenses.

Step 3: Strike out the unnecessary things

Look at the unnecessary items on your budget and see which ones you can live without. Don’t be too harsh, certain items may be frivolous, but if they bring a little bit of joy to your life, leave them in there. This doesn’t mean you can justify a huge shopping spree or a night out with friends where you start poppin’ bottles. In fact, it’s important to set aside some money to spend on a drink or two or to buy yourself that shirt you’ve been eying for a month. This allows you to reward yourself without feeling guilty.

Step 4: Take action and ask for help

This is the most important part. The plan is easy to create, but hard to follow. You know yourself and your financial situation better than anyone else. If you don’t think you can do this on your own: get help.

There is no shame in asking for help, the shame is in letting your ego get in the way of a better life. There are many options a professional could offer you to make your payments a little easier. For example, a debt consolidation loan could help if you’re struggling with multiple debt repayments. Another strategy could be refinancing your mortgage. Or perhaps you could transfer the balance from multiple credit cards to one with 0% interest.

The choice is yours. Just know that you are not alone in this. We fully understand the stress that comes with managing financial matters and assure you that this is not a permanent situation.

We’ve helped hundreds of Australians take back control. Contact our friendly debt reduction specialists today to help put you back on track and not only get yourself debt free, but start saving for your future.

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