Personal Debt Management

Large amounts of debt will subtract thousands of dollars away from your bottom line each year. For relief, it is critical for you to put together a solid debt management plan. Your debt management plan begins with goal setting, which works as motivation to stay the course. From there, you will perform an analysis of your personal finances in order to leverage cash flow towards make strategic debt payments.

Goal Setting

Common financial goals include saving up enough cash to provide for a first-time home purchase, four-year college tuition, or a retirement lifestyle. From here, these goals will be categorized further according to total costs and time frame. For example, you may need to save up $1 million for a comfortable Florida retirement within the next twenty years. These dreams, however, will never materialize if you cannot get out of and stay out of debt.

Order Credit Report

Consumers are entitled to one free credit report per year through AnnualCreditReport.com, as part of the Fair Credit Reporting Act. At any time, you can also purchase a copy of your credit report from Experian, TransUnion, or Equifax. The credit report will help you to organize your debts according to type, size, and lender. You should also verify that the information on the report is indeed accurate. Each credit-reporting agency does provide online resources that help you to file disputes.

Debt Refinancing

Consider contacting each of your individual lenders to negotiate lower interest rates. Lenders will be more likely to offer lower rates, if you have demonstrated a good history of making timely payments. If the lenders refuse to offer lower rates, you may consider debt refinancing as means to lower carrying costs.

For larger balances, such as a mortgage refinancing, you will weigh the benefits of long-term interest savings against up-front closing costs. A mortgage refinancing is likely to add value, if you can lower your rate by more than one percent and plan to own your home for at least the next ten years.

Leveraging Cash Flow

You may consider liquidating underperforming assets to harvest cash for paying off debt. For example, you may sell off a $10,000 bond fund that only generates a 3-percent return, if you are sitting on top of $10,000 worth of high-interest, 18% credit card debt. For improved cash flow, you should also eliminate discretionary spending from your budget. Discretionary spending is associated with consumer items, such as, designer jeans and vacation packages that do not add value to your bottom line. Psychologically, it is critical that you differentiate between needs and wants to save money and get out of debt.

Strategic Payments

You will make strategic debt payments according to interest rates. Your goal is to preserve cash for paying off your most expensive debt, first. To do so, you will make minimum payments on all debt balances, except the balance that features the highest interest rate. Once your most expensive debt is paid off, you will then prioritize making payments on the loan with the next highest interest rate.