5 Principles of Debt Management[*]

Updated August 5th, 2022

All too often, people make the mistake of simply ignoring their debt. This is often due to being unable to pay off large amounts all at once and remaining in what feels like a never-ending cycle of repayment. Instead of hoping for a big windfall from the lotto or the death of a rich uncle you didn't know about, you can start to take control of your debt and start paying it down now. Take some simple steps toward managing your debt and start reducing your stress while also actively working toward a better financial future.


Here are 5 principles of debt management that will get you started on the right path and keep you there.

1. Understand your debt

This is perhaps the hardest part of debt management because it requires you to take an honest look at what you owe and compile a list that includes:

●       Amount(s) owed

●       Interest rates

●       Due dates

●       Any relevant expiration dates. For example, some credit cards may offer a low introductory rate. You want to be aware of when your rates could increase.

During this process, it is also important to request a free credit report that includes your credit score from the three major bureaus: Experian, Equifax, and TransUnion. This report will provide you with a list of all your debts. The FTC has information on obtaining a free credit report here on their site.


2.  Making a budget is important for managing your debt

A key to success with debt management involves making a budget.  Once you have an idea of what you owe, you can create a practical budget that you can reasonably follow. At first, it might seem like you are depriving yourself, but you are actually prioritizing your spending so that you can enjoy a better financial future. By doing this, you are investing in yourself.


3. Only charge long-term purchases

Another debt management tip is to only charge major items with a lifespan that will outlast the payment schedule, such as furniture or appliances.  Sticking to a budget will also help you avoid using a credit card to charge smaller items like groceries just so you can make it until the next paycheck. Keep in mind that those groceries will be long gone before you pay them off.


4. Pay off debts with higher interest rates first

At first, it can feel like you want to put as much money as possible toward each bill, but the best strategy is to first pay off the debts that come with the highest interest rates. This will save you hundreds, if not thousands, of dollars over the life of your debt. Instead of continuing to pay interest, you will actually be contributing money to paying down the principle of the debt.


5. Don't be afraid to negotiate and ask for help with your debt management

It doesn’t hurt to see if your credit card company might be willing to work with you when you need it. If you know you're going to be late on a payment that month, why not call and tell them about your situation? They may be able to delay your payment or provide you with a more convenient due date.  This is something that not everyone thinks is an option for debt management, but it is an important factor in dealing with your debt. You should also ask about lowering your interest rate. Instead of viewing them as the enemy, show them that you are a reliable consumer and actively engage in your debt repayment.


Debt management is about taking small, strategic steps that help you work toward your goal. Trying to tackle it all at once can feel overwhelming and discouraging, but it you follow these simple debt management principles, you can make meaningful progress. Don't wait any longer to start paying down your debt and building a more secure financial future.

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