10 Steps for Understanding & Managing Debt - No BS Investing
Posted 272 views September 6, 2021, 1:40 - Dylan in Debt Management

10 Steps for Understanding & Managing Debt

Debt can negatively impact all areas of your life – from your personal activities to your professional lifestyle.

And without debt education, it’s easy to borrow too much money and sink further into financial chaos. We’ve got you covered. Check out these 10 comprehensive steps for understanding and managing debt (and learn how to get out of debt once and for all!).

Key Takeaways:

  • Debt is the total amount you’ve borrowed and have to pay back.
  • Lower your expenses to have more money to pay off debt.
  • Know what you owe and list every debt/balance/interest rate you have.
  • Create a budget to track income and expenses (including debt payments).
  • Control high-interest debt like credit cards and pay off quickly.
  • Research debt management strategies like refinancing.
  • Save as much money as you can per month.
  • Organize your bills so you never miss a bill payment.
  • Check your credit card statement balances to ensure you’re paying enough.
  • Make lifestyle changes (e.g. cut expenses) to become debt-free.

Step 1: Understand the definition of debt.

Debt is your total amount of outstanding loans and an obligation for you to pay back money that you borrowed.  You might owe money to a credit card company, a bank, or even family members or friends.

People most often go into debt when they don’t have enough money to cover expenses or other purchases. They then borrow the money they need and spend it.

Debt balances grow thanks to interest rates. Interest is the amount charged to borrow money and a percentage of the amount loaned. Your original loan amount can double, triple, or more depending on your interest rate (e.g. 15% interest rate to borrow $1,000).

Debt can typically be paid off through monthly payment plans, but it can take a while thanks to interest rates and if you only make minimum payments.

Step 2: Lower your expenses.

An expense refers to the cost of purchasing something (normally the cost of living). Expenses can be essential (e.g. rent and food) or non-essential (e.g. entertainment and new clothes).

The higher your expenses, the easier it is to borrow money as you attempt to cover costs, and the harder it is managing debt and getting out of it. Take steps to lower your expenses as much as possible to avoid borrowing more money.

Here are a few effective ways to do that:

  • Reduce your housing costs. Live with family and pay less in rent. Or move into an apartment with multiple roommates to split the costs.
  • Avoid high transportation costs. Look for remote jobs so you can work from home or take public transportation. You’ll pay less for gas and car repairs.
  • Meal plan every week. The cost of food can quickly siphon your money away. Plan weekly budget-friendly meals to avoid overspending on eating out.

Calculate the total of your current monthly expenses to find other ways to cut costs. Keep expenses at a minimum to better manage your debt.

Step 3: Explore your own debt. 

The first step in managing debt and paying it off? Know what you owe. Track down exactly what you owe in loans and your interest rates.

Here’s a checklist for tracking your debt information:

  • Grab a piece of paper or open an Excel spreadsheet.
  • Write down the names of individuals or organizations that you owe money.
  • Sign into your debt accounts (e.g. Great Lakes for student loans).
  • Jot down the amount owed, interest rates, and potential penalty fees.
  • Use a debt payment calculator to calculate how long it will take to get out of debt if you make substantial payments.

This practice puts you in the driver’s seat of your debt and ensures that you’re making progress to get out of debt.

Plus, be very careful borrowing any more money. Always make sure you have enough income to pay off the debt at the end of the month or as quickly as possible. Avoid borrowing money as much as you can (especially with credit cards!).

Step 4: Create a budget. 

A budget is a financial plan over a specific time period such as a month or even a year. It tracks money coming in (your income) and money going out (your expenses).

Not only can it help you guard against poor financial decisions, but it helps you prioritize debt payoff. The 50/30/20 is one budget that’s easy to use and automatically encompasses your debt.

This budget says that 50% of your money goes toward expenses (including debt payments), 30% goes toward “wants” like shopping and trips, and 20% goes toward savings or investing. Here’s how to prioritize 50% of expenses and debt within your budget each month:

  • Pay your expenses first (e.g. rent, utility bills, and child support).
  • Cover your essential loans like car payments and other secured loans (e.g. pawnshop loans or mortgage).
  • Finally, pay the minimum amount and any extra you can on non-essential loans like loans from friends or relatives or your student loans.

Mark the dates when each debt payment is due so you don’t forget to pay. Or, even better, make your payments automatic so payments come directly out of your bank account each month.

Review your budget each month and note how much of your paycheck goes toward each expense. Check how much you can pay over the minimum on your debt and also use a debt payment strategy (e.g. the debt avalanche method) to get out of debt faster.

Step 5: Control high-interest debt. 

High-interest debt (aka credit cards) typically has interest rates ranging from 15-30%. These high rates can quickly wreak havoc on your original loan amount, causing the amount to increase every month. It’s then much harder to get out of debt.

The first step to controlling high-interest debt is to look carefully at credit card interest rates before signing up. It’s sometimes necessary to have a credit card such as for renting a vehicle, but choose one that has the lowest interest rate and no annual fees.

If you’re already in credit card debt, pay your bill on time every month to avoid penalty fees and poor credit history. Also, throw as much extra money as you can on this debt to pay it off as quickly as possible.

Step 6: Research strategies for managing debt. 

According to Business Insider, the average debt in America totals $52,940. This amount includes mortgages, home equity, auto, student, and personal loans, and credit card debt.

With this crushing amount, it’s sometimes necessary to search for other options (aside from regular debt payments) to provide some relief.

Here are three tips when researching debt strategies:

  • Consider debt counseling. Debt counseling is a debt relief program that teaches borrowers the whole credit card process, money management tools, and how to avoid going into debt in the future.
  • Look at refinancing your mortgage. Refinancing your mortgage is one way to get a lower interest rate and save money. However, carefully research refinancing options and use a mortgage financing calculator to check costs.
  • Beware debt consolidators. Debt consolidators make enticing promises to roll all of your debt into one payment and convert interest rates for as low as 0%. However, you’ll normally end up paying more money over time and 20%+ rate of debt consolidators. Consider alternatives like home equity loans.

In short, do your research when looking at options for managing debt outside of debt payment strategies.

Step 7: Start saving your money. 

Saving money is a financial habit that takes practice, but can help break poor spending and borrowing habits.

When you save, you have extra cash on hand to pay off debt and cover emergencies and expenses. You also don’t need to borrow money. Check out the following ways to build up your savings account:

  • Place all loose change in a savings jar at the end of the day. Even $0.25 per day can add up to $84 over a year.
  • Set up automatic contributions with your bank to move money from your checking account to your savings account every payday. You’ll save money without thinking about it.
  • Take on a side hustle such as freelance copywriting or driving cars for Uber to increase your income and save more money each month.

You can also save money by cutting back on things like electricity or having movie nights at home rather than going to the theatre.

Above all, have a plan for the money you save. Write down how much you’re going to save in your budget. Use the funds to become financially stable.

Step 8: Stay on top of your bills. 

Like taxes, you can always count on bills to arrive every month. Whether you receive physical or digital copies, have a bill payment strategy to avoid missing payment due dates and going into debt.

For starters, place all your bills in one place when received. If they’re in letter form, have physical bill folders. If received via email, place in email folders. Label four folders “Week 1,” “Week 2,” “Week 3,” “Week 4.”

Organize bills according to when they’re due in each folder. Write down due dates in a single location such as a notebook or spreadsheet. When Week 1 comes up, check your bill due dates, take out the “Week 1” folder, and pay the corresponding bills. Repeat this process each week so you stay on top of expenses.

Step 9: Read credit card statements carefully. 

Unfortunately, many credit card companies promise low-interest card offers but hike the interest rates after a couple of months, increasing your debt.

Carefully check your credit card statements every month. Look at what monthly interest rates you’re paying and check if there are any transaction fees. Pay off any delinquent interest.

To stay on track, follow this checklist every month:

  • Make a list of your credit cards and payment due dates.
  • Like your bills, place statements in a specific physical or digital folder.
  • Keep track of all credit card receipts and place with the appropriate statement.
  • Compare all purchase receipts with the credit card statement balance each month to detect any discrepancies.

This practice ensures that you’re paying enough and your credit card balance isn’t skyrocketing.

Step 10: Make lifestyle changes to become debt-free. 

Debt can literally push people over the edge, causing so much stress and worry that they struggle with health problems (or worse).

Implement ongoing lifestyle changes to become debt-free AND stay debt-free. In addition to the steps discussed already, here are other ways to live a financially healthy life:

  • Create a daily or weekly budget. A budget doesn’t have to be something you only check monthly. Track how much you spend each day to identify poor spending habits and make sure you don’t spend more than you earn.
  • Be thrifty. Shop at consignment stores. Make coffee at home rather than purchase at Starbucks. Avoid expensive subscriptions. Look for ways to save money.
  • Recognize good debt vs. bad debt. Not all debt is bad. While going into debt over sports cars and luxury bags is ill-advised, a business loan can help you start your dream company. Recognize the difference and don’t be afraid of all debt.

These tips don’t mean that you have to be a financially obsessed, penny pincher. However, do take the time to identify what areas in your life are most important. Let your money go toward those areas.

For example, if you want to prioritize travel, spend less on eating out each month (or vice versa). Use your money as a tool to live the life you want rather than letting money control you.

Use these steps for managing debt.

Your debt doesn’t have to be permanent. By taking these steps toward managing debt and creating strong financial habits, you’ll be on track to live a debt-free lifestyle.

Want to learn more? Check out Understanding Debt – The Basics on Udemy to dive deeper into the world of debt education – from the basics of managing debt to loan interest rates. Plus, use our link and receive a discount!


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Elisabeth O. is an MBA graduate with a specialization in International Finance & Investments and over six years of financial writing experience. She is passionate about long-term investing to build wealth, avoids day trading and speculations, and loves a good Warren Buffet quote.