It is not that uncommon and we can see every 1 of the 5 people who is dealing with a debt. With the present economy, no job authentication and more family expenses, sometimes it is crucial for a person to get a loan or debt in order to provide for his family. But eventually he has to pay off his debt and then the problem starts when the debtor couldn’t find any way to save some money and pay off his debt.
A debt management plan is a process by which you understand your situation and by making some changes in your lifestyle and cutting short on some expenses, you arrange for some extra money which you can pay back to clear your debt.
Types of Debt Management Plan:
- Self-managed debt management plan
- Debt consolidation loan plan
- Debt management counseling service
- Use of a debt settlement company
- Filing bankruptcy
Here is preview of a Free Sample Debt Management Plan Template created using MS Word,
Here are the tips to create a Debt Management Plan:
- Defining why are you in debt:
This is important that before planning the management process, you describe your situation and understand it. You should ask yourself why you are in this debt and why did you put yourself in such situation. This will explain if it was necessary for you to stay in debt or you are living above your means i.e. spending more than your earnings. This way you can easily manage your debt problem.
- Explaining your monthly earning and expenses:
At the second stage, you enlist all of your earning means i.e. your salary, return on investment, profit from your business and any other type of income. Secondly, you also explain what your expenses are and how much you spend every month. This includes, rent, grocery shopping, utility bills, entertainment and out of station visits.
- Enlisting ways to cut the expenses:
Then you need to find loop holes in your expenses and that means you need to find ways to cut short on the expenses. If you are spending $1200 on grocery shopping, you can easily manage it to keep under $1000 and this way you will save $200 every month.
- Preparing a budget:
By cutting short on all expenses and calculating your final expenses which are absolutely necessary to make, you can find the total amount of expenses that you make every month. After that, you can easily make a budget plan and it will help you to stick to it.
- Consolidate your debt:
At this stage, you define how much extra cash you have every month and how much you can arrange from your friends and family members. This way you can explain your situation to the creditor and let him know that you will pay off the debt very soon.
- Avoid additional debt:
This is an additional step that you should take in order to eliminate the similar debt situation in the future and pay off your debt as soon as possible. You need to make sure that you don’t get any additional debt during the time you are paying off your existing debt.