Manage Your Debt

There are many different theories as to how much debt is acceptable. Some people, like Dave Ramsey, believe that you should do everything in your power to remain debt-free.

Others, such as Robert Kiyosaki, considered debt, even substantial debt, to be necessary part of building your financial future, something you can’t do without if you hope to retire rich. And of course, there are many opinions that fall in between these two extremes.

Regardless of which tactic you prefer, it’s important to know how to manage your debt in a way that will keep it from overwhelming you. If your amount of debt continues to rise beyond what you have the capability to manage, it can overwhelm you, wrecking your financial goals and your life.

debt burdenThe first step in managing your debt is knowing where you stand. You need to take an honest inventory of your current debts and obligations.

It might be painful, but it’s important that you know what you owe, whom you owe it to, and how much interest you’re being charged in order to know how to get out of debt.

Once you know where you stand, it’s time to work out your plan. There’s a variety of techniques you could use in order for you to get out of debt. I’ve covered several of them previously, even comparing their effectiveness, but it’s worth a quick review.

The most effective technique is to pay down the highest interest debt first and then go to the next highest interest debt, pay that debt down, and so on. This has the advantage of being the most efficient means of paying down your debt.

Dave Ramsey, on the other hand, favors paying down the lowest balance debt first. While not as financially efficient, unless of course your lowest balance debt also happens to be the debt with the lowest interest rate, it does have the advantage of a quicker repayment of the first debt, giving you a psychological boost as you attempt to pay down your other debts.

Rather than spending too much time worrying about which is the most effective or “best” method, it will be much better for you to simply begin paying down your debts in whatever fashion you prefer.

Put extra money (beyond the minimum payments, which you should be making for all your debts) toward one of your debts, and you’ll slowly wear down the debt and eventually eliminate it.  Keep doing that for all the other debts, and you’ll soon be debt-free (or at least, free of non-productive debts like credit card debt).

I that all of this is easier said than done, as there will be no one in uncontrollable debt if repayment was as simple as I make it sound