How to Manage Debt of Any Size

Everyone with even a little bit of debt has to manage their debt. If you just have a little debt, you have to keep up your payments and make sure it doesn’t get out of control. On the other hand, when you have a large amount of debt, you have to put more effort into paying off your debt while juggling payments on the debts you’re not currently paying.

Know who and how much you owe.

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A woman is sitting on the floor looking at bills and receipts. © David Sacks / Digital Vision / Getty Images

Make a list of your debts, including the creditor, total amount of the debt, monthly payment, and due date. You can use your credit report to confirm the debts on your list. Having all the debts in front of you will allow you to see the bigger picture and stay aware of your complete debt picture.

Don't just create your list and forget about it. Refer to your debt list periodically, especially as you pay bills. Update your list every few months as the amount of your debt changes.

Pay your bills on time each month.

Late payments make it harder to pay off your debt since you’ll have to pay a late fee for every payment you miss. If you miss two payments in a row and your interest rate and finance charges will increase.

If you use a calendaring system on your computer or smartphone, enter your payments there and set an alert to remind you several days before your payment is due. If you miss a payment, don’t wait until the next due date to send your payment, by then it could be reported to a credit bureau. Instead, send your payment as soon as you remember to.

Create a monthly bill payment calendar.

Use a bill payment calendar to help you figure out which bills to pay with which paycheck. On your calendar, write each bill’s payment amount next to the due date. Then, fill in the date of each paycheck. If you get paid on the same days every month, like the 1st and 15th, you can use the same calendar from month to month. But, if your paychecks fall on different days of the month, it would help to create a new calendar for each month.

Make at least the minimum payment.

If you can’t afford to pay anything more, at least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. But, it keeps your debt from growing and keeps your account in good standing. When you miss payments, it gets harder to catch up and eventually your accounts could go into default.

Decide which debts to pay off first.

Paying off credit card debt first is often the best strategy because credit cards have higher interest rates than other debts. Of all your credit cards, the one with the highest interest rate usually gets priority on repayment because it's costing the most money.

Use your debt list to prioritize and rank your debts in the order you want to pay them off. You can also choose to pay off the debt with the lowest balance first.

Pay off collections and charge-offs.

You can only pay as much on your debt as you can afford. When you have limited funds for repaying debt, focus on keeping your other accounts in good standing. Don’t sacrifice your positive accounts for those that have already affected your credit. Instead, pay those past due accounts when you can afford to do it.

Be aware that your creditors will continue collection efforts on your account until you bring the account current again.

Use an emergency fund to fall back on.

Without access to savings, you’d have to go into debt to cover an emergency expense. Even a small emergency fund will cover little expenses that come up every once in awhile.

First, work toward creating a small emergency fund - $1,000 is a good place to start. Once you have that, make it your goal to create a bigger fund, like $2,000. Eventually, you want to build up a reserve of six months of living expenses.

Use a monthly budget to plan your expenses.

Keeping a budget helps ensure you have enough money to cover your monthly expenses. Plan far enough in advance and you can take early action if it looks like you won't have enough money for your bills this month or next. A budget also helps you plan to spend any extra money you have left after expenses are covered. You can use this extra money to pay off debt faster.

Recognize the signs that you need help.

If you find it hard to pay your debt and other bills each month, you may need to get help from a debt relief company, like a credit counseling agency. Other options for debt relief are debt consolidation, debt settlement, and bankruptcy. These all have advantages and disadvantages so weigh your options carefully.

If you think you have a spending problem, seek help through Debtors Anonymous, a debt-help group similar to Alcoholics Anonymous.