Strategic debt management and figuring out how to save money while you are paying off debt, is crucial for succeeding with your personal finances. The key to it all is creating and implementing an effective spending plan for your monthly income.
Knowing exactly how much money you have coming in each month isn't typically the hard part -- it's figuring out where it's all going and why there's sometimes nothing left at the end of the month that typically causes consternation. If someone is just starting to get serious about personal financial management, the first step is to track expenses -- where and how you spend money -- for a month.
Once you have recorded your daily expenses and set bills for 30 days, as well as looked at bank account history to recall bi-monthly bills and quarterly payments for things like utilities and insurance, a picture of your spending habits will start to emerge. By finding areas where you can trim expenses, you can free up money to l essen your debt load and save money while you are paying off debt.
The best way to manage your debt is to get rid of it all -- credit cards, personal loans, student loans, car notes, and the like. Debt cripples your ability to effectively save money for the future and build wealth. By tying yourself to monthly payments, or neglecting to rid yourself of them, you are building wealth for banks and others instead of making your money work for you.
Begin your active debt management by negotiating lower interest rates on current debts or consolidating loans with a new loan with a lower APR. Be sure to stop taking on new debt -- use cash and debit cards and stop carrying credit cards -- as you move toward becoming debt free.
If you have upcoming large expenses or simply want to build a larger emergency fund, you can save money at this time as well. Simply create a spending plan that accounts for every dollar you earn, with appropriate amounts allotted to your se t expenses and discretionary expenses, and the extra earmarked for ad ditional debt payments and savings. Open a savings account that is separate form your checking account and add to it every time you receive a paycheck.
The key to making this approach work is a realistic spending plan -- also known as a budget -- that you can stick to. Evaluate it each month and tweak as necessary. Look for ways to earn extra income to build savings more quickly and get out of debt faster. The peace and freedom that come from having no debt and a large savings account are more than worth the sacrifices to get there.
Learn how to make a budget from author Maria T. Miller, who shares insights gained from becoming debt free, on her Tips: How to Save Money site.
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