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Your Easy Debt Management Strategy

Debt management might sound like a contradiction of terms, given how many times we hear that debt is bad. But debt reduction is just part of the story - there are many useful purposes that properly-managed debt can serve, such as enabling you to qualify for low-interest mortgages, maintain business and personal travel expenses on a low-cost credit card account (pay it off each month and you have what amounts to a free accountant!) start, acquire or expand a business, and a host of others. Simply put, creditworthiness opens doors.

A proper debt management strategy includes keeping your accounts out of arrears, carefully considering options before taking on any liability, being aware of your balances and obligations at any given time - not just when the bill comes - knowing and understanding your credit record, and if you are currently in debt beyond your comfort zone, a realistic plan to get back out.

Here are some basic tips to get you started on getting your debt working for you:

Be aware of your debt situation. As elementary as it might seem, a debt management plan goes nowhere if you are not aware of how much money you owe, to whom, and how much that debt is costing you on an ongoing basis in the form of interest and other fees. Take time to sit down and get it all down on paper - even if you need more than one sheet.

Avoid consumer debt in almost any conceivable situation. The best way to keep your bills from being more than you can handle is to avoid purchases you can't afford. Except in rare cases, that bookshelf, stereo or summer wardrobe can wait. Set aside a reasonable amount each month in an interest-bearing savings account and make your purchase when you have the money - then the bank is paying you for a change!

Calculate your total cost of interest. Be aware of what your debt is really costing you: each month figure up the total interest charged on your mortgage, credit cards, car loans and any other debts you have, and write that figure down. Getting your cost of interest down is what will get your debts truly under control. It's not about the monthly payment, it's about what the debt is costing you in interest every month!

Use credit cards as surrogate emergency funds. Everyone needs money socked away for emergencies. But it isn't always easy to build savings. Set aside enough "empty" - 100% free and clear - credit cards to cover, at the very least, all of your insurance deductibles (auto, health, homeowner/renter -- all of them!) Once a year or so, keep these cards active by buying a Christmas or birthday present on them and pay the balance due in full when the bill comes. This builds your credit and gives you peace of mind in knowing that in the event of disaster you are covered. Note that this is a temporary solution and should be replaced as soon as possible by savings in a safe but interest-bearing account!

Never surrender your home equity. A booming housing market, easy credit and attractive opening terms have made second, third and rotating home equity loans very popular. Avoid this temptation at all costs! Home equity is the largest portion of net worth wealth for most Americans; treat it as such and never use your home as an ATM. Major "lifestyle investments," such as going to college, making a business investment, improving the value of your home (thereby increasing your equity) are the only sort of things on which home equity should ever be leveraged -- in other words, things where you stand to see a rate of return far greater than the cost of the debt. Not a vacation at Disney, a new car, or any other "lifestyle accruments."

Never go into debt for intangibles. Borrowing money for intangible services - for example, golf course dues - is a foolish choice.

Pay fixed bills with your debit card. Any debt that you can, as long as the payment is the same every month, have the payment deducted from your bank account directly rather than letting it sit on your desk to be lost or assigned a low priority.

Debt management is a not just a project, it's a responsibility. You have a duty to yourself and your family to make a commitment to keeping your debt under control. Paradoxically, proper debt management can help you achieve lasting wealth.