A debt management strategy is important to get you out of the woods as safely and early as possible, without messing with your finances and way of life much. However, the best debt management strategy is a prevention plan. This means your savings should always have two parts to it, saving for the expenditure you can foresee or predict in the future and saving for contingencies and the unforeseeable expenditures that are most likely to run you into debts.

The best debt management strategy starts with honest and accurate assessment of your finances. This means you should sit down and review what you earn and what you spend. You can also develop a good idea of your expenditure by studying your credit card bills. This will tell you where most of your expenditure is going, and are there any costs that you could probably avoid or cut upon to allocate money to paying off your debts.

Once you review your expenditure, you should look at your contingency saving and your loans. The thumb rule is that you should never ever take a loan where the monthly interest rate or EMI is more than what you can adjust with your regular income. When you are paying off your debts, the most important ones that should be given prior consideration are the loans with the higher rate of interests. If they are way too high, it is a calculated risk to use your contingency savings to pay them off to avoid paying high interest rates.

At the same time, you should be able to keep a tab on the money you need to repay for mortgage or car loans etc. If you are not able to make it, it doesn’t harm to talk to the lenders who might chip in with suggestions as it is beneficial for them too compared to a situation where your house or vehicle goes up for auction.

It is very important to not let the interest rates of loans add to your existing debt and the only hope of saving it by actually trying to reduce the amount of your loan, because the lesser the loan, the lesser would be the interest you pay too. Credit card bills should hence be the first to be paid off. House loans are important, so you should keep paying the monthly amount diligently. It also helps to cut down on your expenditure as much as possible, to bare minimum till you break even.