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The four 'ings' of debt management

If you're tired of living without a full understanding of your financial situation or feel like every penny earned simply disappears into a black hole, then you might want to consider following the four 'ings' of debt management. The steps are: budgeting, negotiating, prioritizing and paying down.

Budgeting is an oft-overlooked but critical step in strong financial management no matter where you are in the process or how stable — or unstable — your money situation might be. Budgeting lets you truly understand how much money you owe, what your real income is and how you spend your money. Even if you think you know these things, if you've never made a budget, you may be surprised at the financial truths you uncover when you do.

Once you make a budget, you might realize that you simply don't have enough income to go around or discover that you are paying more in interest on a credit card than you thought. These facts might prompt you to begin negotiating. While you want to be careful what agreements you enter into with creditors, it usually doesn't hurt to ask for a lower interest rate.

Next, it's time for prioritizing. Some debts might be more important than others. Yes, not paying any debt can have consequences. But missing a couple credit card payments won't result in the foreclosure of your home, for instance.

Finally, if you can make all your minimum payments with at least a little to spare for extra payments, then it's time for paying down. This involves making extra payments on one or more accounts to pay them off faster than if you made only the required minimum payments. If you can't make your required minimum payments, then you might want to consider speaking with a legal professional about your bankruptcy options.

Source: Consumer Reports, "5 tips for managing your debt," accessed Sep. 02, 2016

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