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Take control of your debt with these 6 easy steps

While they usually start out small, debts can end up spiraling out of control if not managed properly. With the responsibility to pay your creditors, you can not only find it exceedingly difficult to pay your monthly bills on time but also miss out on the valuable opportunity to make an investment in your future. It is imperative to make sure that you take care of your debts by keeping up with the repayment schedule and avoid increasing your liabilities beyond your control, but it is also important to plan for the future.


But what do you do if you already have a large debt to pay?  You should put in the effort to plan to manage, reduce and eventually satisfy your debt to help you achieve financial stability. A little judicious planning will go a long way in helping you erase your debt in an efficient manner. To make things easier for you, we have compiled a list of ways in which you can take control of your debt today.


Evaluate your debts

The first and most important step that you need to take in creating an efficient debt management plan is to understand how much you owe to your creditors. Start by making a list of all your debts, including the amount owed, the finance charge, the monthly payment requirements and the scheduled maturity date of each obligation.  This will give you an accurate assessment of your current liabilities.  This is only a start, however, and will do little good if you don’t follow through on the plan this will allow you to create.


Figure out your spending habits


Next, you need to evaluate exactly your money goes. Again, you can do this by making a simple list, noting who and how much you are dispersing your funds to.  Doing this will help you understand your personal spending habits and allow to identify any unnecessary expenditures that you might be minimize (such as bringing a lunch to work instead of purchasing lunch at a restaurant), or even eliminate.  Once you subtract the funds you must pay during a month from your monthly income you are left with your disposable income, income that can be spent any way you choose.  It is by utilizing a portion of your disposable to further reduce your debt that will allow you to satisfy those obligation more quickly than scheduled.


Create a repayment schedule

Once you have an accurate assessment of your income and liabilities, you can start planning how to repay your creditors.  To do this you can create a monthly calendar to keep track of your income and the due dates of your bills.  This calendar could help remind you to make your monthly payments in a timely manner and allow you to plan for the use of your disposable income.


Take charge of your bills

Obviously, a plan and good intentions only go so far.  Missing payments, or making them late will negate the benefit of any planning you have done.  More importantly, it will increase the amount of time it takes you to repay those debts and will increase the cost due to late fees, higher interest costs due to principles (the amount borrowed) not being lowered or perhaps even higher interest rates being charged.  Even if a payment is made late you can minimize the damage by paying it as soon as possible rather than waiting until the next due date to make a payment.


Which debt should I pay off first?

As discussed earlier, it is by utilizing some of your disposable income to pay extra when making payments on credit cards or loans (those debts for which you are being charged interest) that you can satisfy those obligations earlier than scheduled.  There are two schools of thought as to which of those bills you should try and pay off first, and which one you choose depends on you.  If you need or like to achieve smaller goals more often and have trouble following through on plans when the reward is still far off in the future than you may want to pay off your smallest debts first.  You will feel rewarded each time a debt is satisfied and will have an increased amount of disposable income to make the next target disappear even faster.  If, however, you are oriented to long term goals it is cheaper in the long run to pay off the debts that carry the highest interest rates first.  Although it will take you longer to get the first debt satisfied the long-term savings will be significant.  No matter which way you choose to go about it, it still goes back to following through on your plan.


Create an emergency fund

It is natural for an individual struggling with debts to never even consider the idea of saving. However, it is beneficial to set aside a portion of your income for tackling any future, unforeseen financial emergencies.  Again, this can be done by utilizing your disposable income and setting aside a portion of it each month.  It may take a while for that savings to grow but it will be very rewarding to watch it do so.  One way to start a bit of a buffer is to get in the habit of paying bills as you get them instead of waiting for the due date, especially when dealing with accounts on which you pay interest.  This will not only reduce future interest charges but also give you some time to decide the best way to deal with financial emergencies when they occur.  That bill you have gotten used to paying on the 3rd but is not due until the 20th can give you some time to plan when situations arise, rather than forcing you to make a poor decision due to a lack of time to decide on the best strategy.  It can also be very rewarding, as well as liberating, when a problem can be solved without having to go to an outside source for assistance.