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How to manage your debt - Making the most of what you have

Nearly everyone has debt. Not everyone has a plan on how to get out of debt. Even people with only a small bit of debt will be happier when it's paid off. Let's look at how to accomplish that in a fast, and relatively painless way.

How much debt do you have?

This has to be your first step. When you know how much debt you have, you know if you need professional help, and what you have to do to pay your debt off. To add up your debt get all of your bills out, and add up how much you owe on your credit cards, bank loans, car loans, line of credits, mortgage, student loans, and any other debts you can think of. Write up a list of each debt including what it is, and how much is owed. Keep the list around, you will need it later on.

What are the minimum payments?

On that list, write down beside each debt how much you need to pay on that debt each month to keep your creditors from knocking on your door. At this point, do not worry about how fast it will be paid off - you just want to pay enough each month to keep your knees working. Now add up all those minimum payments, and you will have the minimum payment on your total debt each month. If you pay less than this, you get into trouble. If this number looks really big to you, it is likely time for you to go get professional help from a debt consolidation expert.

How much income do you have?

This will hopefully be easier and more fun than the debt side. On another sheet of paper, List all your sources of income for the month. This could be a day job, a part time job, money from parents, money from a renter, money from writing articles for Helium, or anything else that is a steady source of income month after month. Now add them up to get your total monthly income.

How bad is it?

At this point we can start to get an idea of your debt situation. A good rule of thumb is that your debt payments should not exceed 30% of your income. This number leaves money for you to pay rent, food, utilities, and so on. To find out your debt servicing ratio (that number we just talked about) divide your total minimum monthly debt payments into your monthly income, and multiply by 100 to get a percentage. If this number is more than 40%, you should talk to a professional for financial help. If its 30-40%, you need to save your pennies and pay down your debt fast to get it under 30%- and no more adding to your debt until then! If it is under 30%, then you are in pretty good shape.

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