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How to Manage Debt Step by Step

Developing the right strategy to manage debt is essential if you want to avoid debt problems that will stress you and your budget. You need to have the right plan for paying off credit cards and loans, so you can keep debt minimized and save money. This guide will walk you through how to manage debt correctly, so you can work towards achieving financial stability.

5 steps you can’t afford to miss

There are five basic steps you should always follow to manage debt in order to avoid credit problems and financial distress.

  1. Always pay your bills on time, because missed payments are extremely bad for your credit and lead to penalties.
  2. When possible, refinance or negotiate lower interest rates to minimize interest charges and make it easier to reach zero.
  3. Never allow credit card debt minimum payments to exceed more than 10% of your take-home income.
  4. Talk to your creditors ahead of time if payment challenges arise to make special arrangements, such as forbearance.
  5. As long as you won’t incur prepayment penalties, make larger or extra payments to eliminate debt faster.

If you’re having trouble managing debt on your own, we can help. Talk to a certified credit counselor.

How to check that you’re managing debt effectively

In addition to making sure that the total minimum payment requirements on your credit card don’t exceed 10% of your income, you can also check your debt-to-income ratio periodically to ensure you’re not overextended.

A debt-to-income (DTI) ratio is the metric lenders use to make sure you qualify for a new loan. Lenders want you to have a DTI of 41% or less. For your purposes, you want to keep your ratio below 36%. That way, if you buy a car or get a loan, you can qualify easily and get your approval without any hassles.

We recommend checking your debt-to-income ratio every few months (one a quarter) to make sure you’re on track. If your ratio is over or even near 36%, you should take action to eliminate some of your balances. This is the best method for maintaining financial stability.

How to manage debt if your debt-to-income ratio is too high

It’s important to note that if your DTI is over 41%, you can’t get loan approval. However, you can get credit cards and take on credit card debt. You can also qualify for alternative financing solutions (AFS) that don’t require credit checks, such as payday loans. This is how you can get overextended with debt and end up with a DTI of over 41%.

If your ratio is above 50% it’s a sign of debt problems and you need to take immediate action. Which actions you take depend on your financial situation, budget, credit, and the types of debt you hold. Here are some options you should consider to help you get out of debt faster:

If you’re spending over half your income on debt payments, find a better way to pay off your debt.

Option 1: Refinance or negotiate for lower interest rates

This is something that you want to do routinely to make sure that you don’t overpay as you manage debt. It’s especially relevant for credit cards, which have relatively high interest rates. Particularly if your credit score has improved since you opened the account, periodically call creditors to ask for lower rates. This will help ensure you don’t waste money on unnecessary interest charges.


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If you have excessive debt to repay, start by revisiting each if your accounts to see if you can negotiate. Call each creditor to ask them to reduce your rate. If you have been a loyal customer who always pays your bills on time, you have a higher chance of success. Lower your rates will allow you to pay off the actual debt you owe faster.

You should also review your loan agreements. If you have a high rate on an auto loan or student loans, reducing it makes it easier to repay. Just by reducing the rate, you can keep your monthly payments the same and still be out of debt sooner.

So, when you first see signs of potential debt problems, start with rate reduction first.

Option 2: Set up a credit card debt reduction plan

Once you have interest rates minimized, you can focus on debt elimination. The first place you’ll want to start is with a credit card debt reduction plan. You start here because credit cards have higher rates than most loans (except payday loans). If you eliminate your debts with the highest rates first, you save money.

There are two methods you can use to reduce debt within your budget. Which one you use largely depends on your financial situation.

Learn two methods to reduce debt »

Once you pick your strategy, you can see how long it will take using our credit card debt calculator. Just total up your credit card debt and take the average of all your interest rates. If you don’t know your minimum payment schedule, 2% is fairly standard for most major credit cards.

Option 3: Consolidate your debt

If you can’t reduce credit card debt within your budget within three years (36 payments), you need a better strategy. You must find a more efficient way to pay back what you owe. This usually involves debt consolidation.

Debt consolidation allows you to roll multiple debts into a single monthly payment. With credit card debt consolidation, you also simultaneously reduce or eliminate interest charges. This dramatically accelerates repayment and makes it easier to manage debt effectively, even on a limited budget.


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It’s worth noting that credit card debt is not the only type of debt you can consolidate. You can also consolidate student loan debt and back taxes. In general, you must keep debts separate. So, you must consolidate each type individually. You may need multiple consolidation plans and it’s absolutely possible to run plans at the same time. This leads us to…

Option 4: Seek professional help

Call us today for certified credit counseling

There’s nothing wrong with consulting with a professional to get the help you need. People often resist reaching out because of feelings of embarrassment, fear, or just a desire to keep debt problems private. But sometimes you need a professional to help identify potential solutions and to help you unravel complex challenges.

When it comes to credit card debt, professional help usually involves contacting a certified credit counselor. Nonprofit consumer credit counseling provides professional debt analysis free of charge. You can learn about your options and find out which will work best, based on your total debt owed and credit.

In many cases, the credit counselor will recommend a debt management program. This consolidates your debt into a single payment through the credit counseling agency. They negotiate to reduce or eliminate interest charges with your creditors.

Debt management programs are effective if you have:

  1. Bad credit
  2. Too much debt to pay off efficiently on your own
  3. Failed to negotiate lower rates on your own

Here are a few examples of how debt management programs have helped borrowers pay off their debt faster and more efficiently:

Case Study

Mickey from Apex, NC

“The program is working great! This has given me the tools I need to rid myself of my accumulated debt faster than I could on my own. ”

Where he started:
  • Total unsecured debt: $38,272.83
  • Estimated interest charges: $22,837.22
  • Time to payoff: 17 years, 10 months
  • Total monthly payments: $1,530.91
After DMP enrollment:
  • Average negotiated interest rate: 10.93%
  • Total interest charges: $7,954.05
  • Time to payoff: 4 years, 3 months
  • Total monthly payment: $916.00
Time Saved

23 years, 7 months

Monthly Savings


Interest Saved


Case Study

Karen from Orlando, FL

“This has been a great experience. Customer service is great. Everyone is very patient and understanding. ”

Where she started:
  • Total unsecured debt: $30,193.00
  • Estimated interest charges: $17,610.00
  • Time to payoff: 14 years, 1 month
  • Total monthly payments: $1,207.72
After DMP enrollment:
  • Average negotiated interest rate: 7.75%
  • Total interest charges: $4,700.42
  • Time to payoff: 4 years, 6 months
  • Total monthly payment: $664.00
Time Saved

9 years, 7 months

Monthly Savings


Interest Saved


Case Study

Jorge from Taylor, Mi

“The monthly interest amount was reduced to a small fraction of what I was paying before. Thanks! ”

Where he started:
  • Total unsecured debt: $53,937.00
  • Estimated interest charges: $31,477.00
  • Time to payoff: 15 years, 3 months
  • Total monthly payments: $2,157.48
After DMP enrollment:
  • Average negotiated interest rate: 2.46%
  • Total interest charges: $2,640.90
  • Time to payoff: 4 years, 10 months
  • Total monthly payment: $985.00
Time Saved

10 years, 5 months

Monthly Savings


Interest Saved


Consolidated Credit has helped over 10 million people find better ways to get out of debt. Now it’s your turn!