Establishing a Debt Management Plan

Establishing a debt management plan is the first step to getting out of debt. Here's what your plan needs to include:

Make a List
Painful as it may be, you need to start by listing all of your debt on a single piece of paper. You should list the person or company the money is owed to, the amount that is owed, your monthly minimum payment and the interest rate that applies to the debt. Be sure to include any and all debt. This includes, but is not limited to, credit cards, student loans, personal loans, car loans, mortgages, second mortgages, loans from family and friends and medical bills.

Assess the Situation
Once you have everything listed, you can begin to assess the situation. First, add up your total debt load and your monthly minimums. This will

After you've computed these figures, you may find it beneficial to write your list out again, starting with the smallest balances and

Take a Financial Inventory
The next step is to determine your overall financial health. This includes recording your monthly income and your monthly financial obligations (debt repayment, utilities, food, gas, entertainment, etc.).

Also record the amount of money you have left at the end of the month and the balances of all of your accounts.

The Whole Picture
Now that you have a complete picture of your finances, you can begin to form a plan to pay off your debt.

The first step is to decide which debt to tackle first. There are two common approaches to consider: You could either start by repaying the smallest balance and working up or start by tackling the highest-interest debt first. Both approaches are effective; it's just a matter of determining which approach works best for you.

The second step is to determine how much you can afford to apply to debt repayment each month. Obviously you'll need to make the minimum payments for each debt, so start with this figure. Then add to that the amount the additional money that you plan to put towards paying off your first debt. You should choose this figure based on what your financial

Put the Plan Into Action
The final step is to put your plan into action. Start making your additional payments to your chosen debt, and continue to do so until the debt has been paid in full. Then turn your attention to the next debt on the list. Before long you'll be debt free and fully in charge of your finances.

Keep Your Motivation
To realize a debt-free lifestyle, you'll need to stay motivated. Be sure to review your progress regularly, and don't be afraid to offer yourself a few rewards along the way. If you want to succeed, you've got to find ways to make debt repayment fun.