There are companies that offer debt management services as one of the debt management strategies. Those companies will usually setup payments plan with creditors to help you reduce balance. This is also credit counseling. If you wish to read more about credit counseling, read here.  This article is about handling debt yourself and using a debt management strategy to completely pay of your debt.

Debt Management Strategies

Debt Consolidation

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If you are able to you can consolidate debt. Consolidating debt is an effective strategy especially when you have multiple debts with several payments. If you look at the below table you see several debts with different minimum payments and interest rates.


The total minimum payment amount for the $97,250 of debt is $1,771 a month. The loans range from 60 to 300 months. In this case, consolidating debt might be beneficial.  A single loan for $97,250 at 9.49% over 10 years has a payment of $1,258 a month. This is a savings of $513 a month. This does extend one of the loans by five (5) years and another by three (3) years.

At this point you can either keep the $513 and do other things, make purchases go out more etc. Or, you can employ a second debt management strategy which involved putting extra money towards paying down debt.

Let’s look at a second example. With different payments and balances due.


The total minimum payment amount for the total debt of $44,800 is $565 a month. The loans range from 24 months (the $500 credit card) to 300 months. If the terms of the loan are similar to the above consolidation 10 years at 9.490 interests, the payment comes out to be $580 This will not lower the monthly payments, but it will reduce one of the loans by 15 years while increasing others from five (5) to 10 years.  Decide if this is what you want to do.

If the rate is 6.490% the payments go down to $509 which is a lower payment and still reduces the term of the 25 year loan. Again, do you need the consolidation loan in this case? This is really up to you. You can use one of the debt management strategies to pay off your debt fairly quickly without going through the consolidation process.

Pay Debt – Highest Interest First (Avalanche)

It is not advisable to neglect any debt when paying highest interest debt first.  Some strategist might mention forgoing payments on all other debt and focusing on one debt at a time. However, not paying any debt secured or unsecured will damage your credit score. If you are having trouble making payment on any of your debt, then seek help through a credit counseling agency. If you are taking it upon yourself to begin paying extra toward your debt, then paying highest interest first normally saves you money.

Pay Debt – Lowest Balance First (Snowball)

As stated previously, regardless of the management strategy you use, never stop paying your debt. Rather than putting extra money towards the highest debt first, you can pay off your lowest balance debt first. This usually results in higher interest payments overall. However, because you are paying lower balances first – you tend to pay off debt seemingly faster. This method will spark an emotional reaction in people because the sense of accomplishment takes over. This method of debt payment was created by Dave Ramsey.

Pay Debt – Snowflaking

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The Snowball and Avalanche methods usually require you to put extra money towards your debt on a regular basis. If you are unable to contribute extra money on a regular basis, you can put the extra money towards your debt when you happen to get some.

For example, once a year you may get a tax refund or, if you get paid every two week then there are 2 months a year when you get a third paycheck. Another example is if you estimate a bill is going to amount to $200, but you end up only having to pay $120. You can read more about these budgeting methods and using the simple budget here.

Using Snowflaking is better than just paying minimum payment for your debt. But when you can use Snowflaking in addition to other debt management strategies, debt consolidation, Snowball or Avalanche, you begin to see the real power of paying down quickly.  For more information on Snowball, Avalanche and Snowflaking read about these management strategies here.