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How to Manage your debt

Updated on March 18, 2010

Debt Management

  • Moneylenders

The buck stops with the moneylenders, they should take responsibility, limiting the amount any one person can borrow. The amount of credit or money lent needs reducing to an amount the person can afford, by their income.

Until excess borrowing is stopped, the problem will continue to esculate out of proportion. Financial bodies not complying need penalizing for allowing this to continue, not their innocent clients.

Having said that, if you have a humongous debt and it will not go away by itself. Will you handle this with debt management or is there another choice?

  • How debt management works

The way debt management works is they organize payment of all your debts. In theory, you will repay a lesser amount to them on the amount of the loan. Which you would think is a great idea, leaving you more money to live on, with these debts consolidated into one. You have to pay them an agreed amount every month less their charged fee. The repayments may be less, although it will result in a bigger debt because of the extended time of the loan.

  • Debt management Companies

Debt management companies can be a good idea, although you need to be aware that these are not all they appear to be. There are debt management companies that advise you not to pay your creditors. No matter what they advise you, do not stop paying off your accrued debts. If you do, you will succeed in adding penalty charges to the amount you owe.

Be aware of the so-called nonprofit agencies that claim not to charge high fees, in fact some do. Do not sign an agreement without understanding all the details. Never sign without reading the small print. Obtain information from friends who have used that particular company you are thinking of dealing with before signing anything.

  • Be responsible for your own debt

Do you really need to pay someone else to manage your debt? You put yourself in this position why not be responsible enough for reducing it.

Contact your bank and explain your situation. They may offer you a personal loan, which will consolidate all your debts into one. Then you agree to have a set amount direct debited from your savings onto the loan on a specific date each month. By doing this you will save by not accumulating credit card or bank fees charges, and prevent debt collectors knocking on your door.

Even though you have met that payment try to find that few extra dollars to pay extra onto that loan. Do without that extra morning coffee, or bag of sweets. Be firm with your spending, it will reduce your loan and save you money in the long run.

The next thing to do is create a budget by making a list of all your monthly expenses. If paid weekly, divide this amount by four. If fortnightly, divide by two. You will need to pay the bills each week or fortnight with this amount.

Do not spend any of that money on anything else. If possible, put extra aside in a savings account for any unexpected breakdowns or medical expenses.

Take charge of your own life and finances, do not let the debts rule you, or ruin your life. You can do it yourself with a little bit more organisation and self control.

Cut up those credit cards and you will reduce your debt even more.

Take Control of your Debt to Make ends Meet

To make ends meet, you need to take a good hard look at your own situation. Different lifestyles will have different situations and expenses.

Prevention is better than the cure. So organize yourself into creating a budget.

  • The best way to create a budget is:

Sit down and write a clear list of all your expenses for the whole year, on a piece of paper. Rule the page up into several columns with the names of the different categories across the top:

  • House payment or rent
  • Insurances
  • Vehicle expenses: Licenses, Petrol, gas, allow extra for repairs etc
  • Electricity & other utilities
  • Estimate Food etc.
  • Doctors, no one wants to be sick but it happens
  • Include, extras like Christmas, birthdays, entertainment.
  • Incidentals, holidays

Fill in the accurate or estimated costs and add them up.

Divide this by 52 if paid weekly or by 12 if paid monthly. You will now have a rough idea of how much your weekly or monthly expenses will be. Put this money away into a savings account and only draw out the expenses as they become due. This way you will always have enough to pay for your bills as they come in. Do not overspend on the allotted amount for grocery shopping.

When shopping, take your list DON'T be tempted to buy extras, nor spend more than you allowed for on your budget. Go without.

Buy larger quantities, cook double of everything. Eat one and freeze one. Or eat one and curry the other to change the taste. This will cut down preparation time, leaving you time for those other things.

Start up a pool of friends and share your resources by one person buying the meat, one, vegetables etc. Then of course you can also share the gardening produce; one plant potatoes and tomatoes, one grow the peas and beans. This of course varies season to season. I think you get the idea.

If you have had a regular income for many years, then it is hard to suddenly adjust to un-employment. If you have done the above it won't be such a shock because you already have some of the bills covered.

If on the other hand you work for yourself, it is very hard to budget. You won't know how much you are going to earn from week to week. You may do seasonal work like lawn mowing or similar. In this example, you will earn more in the summer months than in the winter. So pay your licenses, insurances yearly instead of half yearly, during the summer months. This will lesson the expenditure for the winter.

By following this example you should be able to live a less stressful life. You may even be able to save some money for that much needed holiday.


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    • Eileen Hughes profile image

      Eileen Hughes 9 years ago from Northam Western Australia

      I agree with all you have said. So many people see something and have to have it. Then it sits in the cupboard and never used. The impulse marketers are responsible for that because they put things right where you are patiently waiting at checkout. Low shelves for the kids and higher ones for the adults.

      They prove it works. Actually I used and still us microsoft money and I record everything in that. Thanks for your very good comments.

    • Caregiver-007 profile image

      Margaret Hampton 9 years ago from Florida

      Wise advice, Eileen. Responsibility must be taken by the borrower and lender alike. And there are very many ways most people can get a grasp on their cash flow and reduce expenses, beginning with analyzing WHERE the money has gone... then budgeting for known expenses (with a sum for the unexpected, as there is always something).

      Between college and graduate school, I was an airline stewardess flying out of New York and really not making enough to live on, even with 5 girls sharing a 2-bedroom apartment in Manhattan. To make ends meet, I carried a tiny spiral notebook in my purse. One page per day. I recorded EVERY expenditure, even for a postage stamp. Every penny AS I spent it (so nothing was forgotten). I totalled it each day, quick and simple. (Don't let it pile up, or it's a chore.) I saw little places where savings could be had, here and there, without drastically affecting my life.

      In later years, there was Quicken. How does anyone manage a life without it?!! To get a grasp on household and business expenses, I made myself go through months of recording EVERYTHING (even set up a "cash" account), including item-by-item from my credit card bills, and assigning each entry to a category (such as house: supplies or clothing or medical:dental).

      Quicken makes the rest simple, with pre-formatted reports. I like the Cash Transactions report by Categories. It takes all the different accounts (checking account, credit card accounts, investment accounts, cash account, whatever I set up) and reports either by ONE account OR by combining them all... and reports each transaction by CATEGORY with category totals, so you know exactly where your money went. Boy was it an eye-opener on my son's pet expenses! Saved money by recycling paperclips and file folders, using the backs of draft or discard pages for new drafts (instead of new bond), judiciously used paper towels (select-a-size, and if dried clean hands, used that same paper towel to wipe a counter or floor before discarding it), no fast food or expensive prepared foods (bad for you, anyway), etc. Lots of little things... And saved hundreds of dollars monthly!

    • Eileen Hughes profile image

      Eileen Hughes 9 years ago from Northam Western Australia

      you are not wrong there. Its too late then though.

    • Hot Rocks Review profile image

      Hot Rocks Review 9 years ago

      Great article Eileen, especially since the Christmas season is here. We all don't realize the damages that occur from using Credit Cards...till we get those bills and, what have I done!