There is a tendency to think that debt management is something we do only when our debts become a problem or start to spiral out of control. This is a pity. There is nothing intrinsically wrong with debt and its management is something we should all feel more comfortable about doing on a regular basis.   

The good news is that debt management – especially when done as an everyday, commonplace part of a personal budget – is not a complicated or long drawn out process. Even better news is that when you have done it once, and assembled all the information you need, then the process of debt management becomes steadily easier.

The core of any form of debt management is simply a question of setting out in one column all your sources of income each month and, in another column, all your outgoings.

Although that might make things sound very easy, it is important to keep the figures for both income and expenditure as accurate as you can for the debt management plan to be as useful as possible. Remember, for example, that although your credit card statements will demand at least a minimum payment each month, you should be aiming to repay more than that – the higher figure is the one you should include in your debt management plan.

Effective debt management should also try to take some account of those nasty surprises that crop up once in a while. Whilst it is difficult to budget for unexpected expenditure, the best management plans will include some provision for saving for such contingencies as surprise bills, parking tickets or unplanned travel expenses.  

Debt management is not a one-off process, of course. When you have listed your income and detailed your expenditure, it will have served little purpose if it is consigned to a drawer to gather dust. Look at it often, review it, and amend it with updated figures whenever necessary. Compare how the theoretical figures match up to the practice. Debt management should then become a question of fine-tuning.

If there is more money coming in than there is going out, for example, then you are in the fortunate position of being in control of your debts. If it is the other way around, however, then it is a signal that something needs to change, since debt cannot afford to spiral upwards indefinitely.  

Your personal debt management plan could also prove useful if you need to apply for credit. A check of your credit-worthiness will involve a similar balancing of income against expenditure, so you will be one step ahead of the game if you have already prepared the figures.

Similarly, if things do begin to go wrong and you need to seek debt advice or debt help in the future, your debt management homework will make the process of getting the most appropriate advice so much easier. Indeed, the figures you have assembled will help to show whether there are opportunities for debt consolidation to reduce the overall expenditure on the cost of borrowing. If you reach the stage where you need to discuss the rescheduling of your debts with your creditors, then a debt management plan will again be one of the first things they will need to see. If the difficulties have really piled up and you are considering an Individual Voluntary Arrangement (IVA) then the basic principles of debt management will again be core to the arrangement.   Debt management is an everyday process for comparing our outgoings against our income. It is important because it: 

• is an integral part of a personal budget of income and expenditure;
• is neither complicated nor long-winded; 
• can be used for fine-tuning a personal budget;
• helps to inform a credit-worthiness check;
• is useful when seeking debt advice or help;
• contains the information necessary for a more formal debt management plan.

Mike Magners has written this debt management article. 

This article does not represent ‘financial advice’ as everybody's individual requirements will be unique to their own specific needs. If there is something in the article which you want to rely on, please ensure you check those details with the person or business with whom you arrange a financial service.

The views in this article represent those of the author and not those of Netbasic Limited.