Do-It-Yourself Debt Management Plan

The quickest way to reduce your debt and implement a debt management plan is to do a combination of all of the following:

• Negotiate lower interest rates on your debt while keeping your payments the same.

• Put extra money towards paying down your debt and pay off either the highest interest rate debt or the lowest balance debt first. Mathematically speaking, paying off the highest interest rate debt first is faster than paying off the lowest balance debt first.

• Create a snowball effect by keeping your monthly payments the same even when you pay off a debt. Simply add the monthly payment from a paid-off debt to the next debt on the list with the highest interest rate or lowest balance.

There’s no way around it: A debt management plan takes some time and commitment. Unfortunately, there is no magical solution. There are two ways to come up with extra money to put towards paying down your debt faster:

1. Spend less.
2. Earn more money.

Spend Less

Nobody likes to be told to spend less. Unfortunately there is no easy answer when it comes to managing your debt. However, having a debt management plan is one of the most important things you can do financially and it will help you avoid taking on any more bad debt.

The fact of the matter is that the extra money to put towards paying down your debt has to come from somewhere, which means that you are going to need to spend less.

Before you can figure out where you can spend less and where your money leaks are, you need to know where your money goes. You probably have a pretty good idea how much goes to your fixed expenses such as your rent or mortgage payments, loan and credit card payments, utility bills and food. But after that, it starts to get somewhat foggy, doesn’t it?

For the purposes of managing your debt, you do not need to track your expenses indefinitely, just long enough to identify your money spending triggers so you can find ways to avoid them. There are a plethora of worksheets and lists on the Internet that can help you.

Once you have a record of where your money goes over 1-2 months, examine your spending habits, such as eating out for lunch daily, buying a specialty coffee daily, or smoking, for example. Now find ways to continue your special treats so that you don’t feel deprived. For example, instead of buying a coffee daily, you could buy a carton of flavoured cream and make your own at home for much less. You can reduce the number of times you eat out for lunch and pack a lunch the rest of the time. You could cut your smoking consumption by a third or half. How much would you save over the course of a year if you did these things? Calculate what your savings would be to find out. You’ll find that even these small changes will quickly add up over a year.

Also, find ways to avoid spending triggers. For example, make a shopping list before you go shopping and only buy what’s on your list. Another way is to reduce the number of shopping trips you make and avoid window shopping. If you make 2 or 3 shopping trips per week, try reducing them to once per week. If you go once per week, reduce it once every other week and so on. Also, don’t shop when you are hungry, tired or depressed.

Earn More

Wouldn’t you prefer to spend your time and energy on finding ways to earn more money rather than scrounging to find ways to spend less money? There are an unlimited number of ways to earn extra money. One of the best ways is to create streams of passive income. By focusing on building streams of passive income to pay down debt, you will still have that income coming in every month after your debt is paid off. This way your debt management plan can also help you achieve financial freedom in the long run.

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