Summary of Managing Your Debt

Debt is not a bad thing; too much debt is. The bad thing about debt is not the amount you have, but the fact that you may not be able to handle your monthly payments and provide for your and your family’s financial needs. There are many reasons for falling into too much debt. Regardless of the reason, the way out requires behavior modification—doing things differently.

If your minimum monthly payments toward your debt, exclusive of your home mortgage, exceed 15% of your monthly take-home pay, then you may have too much debt and need to do something about it. You need to have a strict spending plan to provide additional cash to repay your debt and curb you from falling deeper into debt. You might be able to combine your debts by refinancing some higher-interest rate loans for lower-rate ones, or by extending payments over a longer term (but this costs more in the long run). You may need to speak with your creditors about modifying your debt arrangement so you can lower your monthly payments to a level you can afford.

You may need professional help in getting out of debt. Consumer credit and debt consolidation services may be able to help you. If they cannot, then you might need to seek protection from your creditors using the federal bankruptcy laws—but this should be your last resource.

Once you have the discipline to economize and get out of debt, use that discipline to start saving extra money each month to build an emergency fund and to save for future needs and avoid future debt problems.