Creating and Implementing a Debt Management Plan
A Debt Management Plan is a method that can help an individual reduce his debts by making a payment plan with a lender, gradually paying off the debt while sticking to a practical budget. In a DMP, the debtor will deposit standard resources via a credit-counseling group. In turn, the group or organization will disburse these resources to the lender so that the debtor’s outstanding debt will be paid down.
Creating Debt Management Plan
You may be snowed under your debts but this doesn’t mean that it is the end of the world. You stay awake at night just thinking of making both ends meet; but, actually, you don’t need to. The answer is to make yourself a debt management plan and take charge of your own life. Yes, a number of companies offer this kind of service but this is also something that you can do for yourself. Here’s how:
1. Why are you overdrawn?
How did you end up with so much liability? Were all your procurement necessary? Do you live within your means? These questions are essential. Finding out what put you in the situation will prevent you from making similar mistakes again. You need to find ways to prevent yourself from acquiring more debts.
2. How much is your monthly expenditure?
Yes, this one’s sustained but knowing where your cash is going is essential so that by the month’s end, you can compare your monthly expenditure with your monthly income. Realizing that your income is going out and not coming in is a serious issue.
3. Cut your costs.
There are various ways on how you can cut your costs. For instance, you can use a generic brand or turn off certain services that you don’t really use or need. The savings you can make will be based on your monthly expenses. Take a look at your monthly expenditure and cross out those which you can actually live without or determine the ones which you can trim down.
4. Make a budget.
A good tool used in making budgets is the spreadsheet. First, fill in all of your expenses like electricity bill and grocery among others. Then, determine the total. It is important to have leftover cash that you can save for contingencies. The solution is to make a budget and stick to it. Avoid spending more than your monthly salary.
5. Combine your debts.
You have two options for this one. The first alternative, which is typically for homeowners, includes refinancing by using a percentage of your equity to pay the debt. The second one entails debt consolidation loans from the bank which lets you pay monthly.
6. Steer yourself clear of additional debts.
After you have merged your debts, put away your credit cards. You can simply hide them in a safe or somewhere in your house so that you don’t have the cards on hand when shopping. However, you can also shred the cards into pieces, if you want. Instead of closing all of your accounts promptly, do it gradually to avoid the negative effects on the credit score.
Implementing Debt Management Plan
After determining your spending problems, prepare a debt management plan that works well with your routine. At first, this may be difficult; but, when you’re debt-free in the end, everything is worth it. Hence, here are some tips that can help you stay on your course:
• Make and stick to your monthly budget.
• Take note of all your incoming and outgoing cash.
• Start paying your old debts especially the ones with the highest interest.
• Do not let yourself get on the charge card before the previous amounts are fully paid.
• If you are having a hard time managing your debt on your own, seek the help of a professional.