Chapter 2. In order to manage my debt where should I start?

If you know you need to manage your debt, but you don't know where to start, you are not alone. This chapter will walk you through step-by-step to help you bring your debt under control. 

How to

1. Identify your personal debts

• • Make a full and comprehensive list of each and every credit card, personal loan, business loan, and mortgage that you have
  • Need to list principal, interest rate, and minimum monthly payment broken between principal and interest amount, and terms of the debt (how many years to be paid off)

2. Add outstanding debt

• • Add up outstanding debt to grasp the total amount that you owe if you were to pay in full at that moment (present value of your debts)

3. Add minimum monthly payment

• • Add your minimum monthly payment to help you compare your debt and your monthly budget.
    • (a) If your mortgage or rent monthly payment is higher than 30% of your monthly net income, you are carrying way too much mortgage/rent and you need to think strategically of solutions (get a roommate, rent your house for seasonal events such as football games, move to another location, etc.)
    • (b) If your credit card and personal loan (car, student loan, etc.,) is more than 10% to 15% of your net monthly income, you are carrying way too much personal debt. You need to halt all spending on these credit cards. Think strategically of how you can start reducing the debt on each category.

4. Eliminate high-interest loans

• • Eliminate high-interest loans first as you work to find room in your budget to speed up your monthly payments

5. Call creditors and negotiate lowering your interest rates on your cards

6. Freeze the use of these cards and focus on paying them down quickly

 

Practice

As you see, in order for you to accomplish the above steps to start managing your debt, you will need to have all of your financial information organized in an accessible fashion for you to use as needed. 

We have prepared a worksheet Download worksheet

for you that has everything that you need to list your personal debt. This one sheet will help you to make sense of the overall outstanding amounts that you owe.

 

Congratulations! You can move on to Chapter 3. What are debt management plans?

To review the full module on Debt Management, click here.