In order to manage debt effectively it is important to understand the reasons why the problem has arisen. It could be that an uncontrollable life event such as losing a job has been the cause. Through no fault of their own, people suddenly find themselves unable to pay the mortgage and household bills. On the other hand, emotional spending on unnecessary items in order to feel good is also a major cause of debt. If this aspect of the financial problem is not addressed, it will continue to be a problem even after the debt has been cleared. For practical ideas and assistance in formulating a plan of action to tackle debt look for UK debt management solutions on the internet.

The first step towards managing debt is to stop spending unnecessarily. Make a budget for the week or month ahead and find out exactly where money is being spent. Cut up all credit cards apart from one, which should be used for emergencies only.

There are two conflicting schools of thought when it comes to deciding which debt to repay first. Should it be the debt with the highest interest rate or the one with the lowest balance? The logical approach is to pay off the loan with the highest interest rate first, as this is the cheapest way to clear debts. However, psychology plays a part here. If a small debt is cleared quickly, it provides motivation to keep going.

It is very important to pay off the same amount each month, even though the minimum payment will reduce as the balance becomes smaller. This will clear the debt in a shorter space of time.

A debtor may wish to discuss the possibility of a debt management plan with his creditors. This formal agreement is usually a good option to take. The plan incorporates different types of debt and gives the debtor a chance to gain control of his finances. When a debt management plan is formulated, accurate figures for income and outgoings are established. If income is greater than outgoings, the difference will be divided between creditors according to criteria set out in the plan. Administrators of a debt management plan should attempt to negotiate with creditors to reduce interest rates and waive late payment fees. This is in order to prevent the debt increasing.

It is possible to reduce debt fairly and quickly once the problem has been recognised, with simple steps taken to identify exactly how much is owed and to whom.

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