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Financial Planning with Debt Management

Unless you are extraordinarily lucky, debt is just part of life. This makes financial planning with debt management in mind a fact of life.

Debt is the bane of all financial planners. Debt is usually considered to be amounts that are owed that are not balanced by an asset of equal value. This is how an accountant would approach the problem. For example, if you buy a $10,000 car and have a $12,000 loan to repay, you actually have a debt of $2000 from a balance sheet point of view. It is that $300 car payment each month that is considered your debt from a practical financial planning viewpoint.

Financial planning with debt management is going to look at your debt also as the amount of funds that are being spent on items that are not routine and expected expenses of living such as rent or food. Your loan repayments, credit card debts, and overdue bills are the type of items that the financial planner sees as problematic in your overall financial picture and seeks to eliminate. The key to doing this is developing a good plan and sticking to it.

The purpose of the plan is to free some extra cash to be used for the purpose of debt reduction. There are several ways to increase your cash level. It might be possible to make more income. This could be done by working extra hours if possible, or taking on a part time job. Another way to increase income is to reduce expenses. If it is necessary to cut down on certain unneeded items, then this is what you must do. Until you generate some extra income that can be applied to the debt, you cannot reduce it.

When you have generated extra income, you begin to make regular payments. It is good to send something to each of your creditors. This usually keeps them somewhat happy and satisfied. But send the most to the debts that have the highest interest rates. These are usually your credit card bills and they generally have to be paid first because of the high interest rates. When you have completely paid off one debt, keep sending out the same amount of money as you have been, just redirect the payments to the next highest interest account.

There are some organizations out there that advertise themselves as financial planners who specialize in debt management. Some of them are exactly that, but others are simply companies that will end up increase your debt and the only change is that you will owe it to them instead of the previous creditors. Be very careful and insure that any debt reduction service you engage is reputable and really in the business of debt reduction and not debt redirection. Excess debt will often derail a good long-term set of financial planning goals. Such things as insurance, retirement accounts, and investments will usually be put on hold and neglected while you struggle with the debt. The quicker it is managed, the more likely you will reach your goals.

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