Home » How to Create a Long Term Debt Management Plan

How to Create a Long Term Debt Management Plan

Paying off debt can seem like a losing battle, but it doesn’t have to be. Student loans, credit cards, car loans, medical bills, old debts and home mortgages can all be paid off within a reasonable timeframe. The trick is knowing how to do it and figuring out what works best for you. There may be a little bit of trial and error involved, but the key factors to remember are to keep track of your income, manage your expenses, cut back where you can and put your surplus cash towards your outstanding debts.


The first thing you have to do to create an effective debt management plan is to figure out how much income you or you and your spouse bring in per month. The reason for this is simple. If you don’t earn more money than you need, you will never get out of debt and may even end up falling further behind.

The easiest way to calculate your income is to figure out your average take-home check and multiple it by the number of times you get paid every month. This is more accurate than taking your salary and dividing it by 12. If you get paid biweekly, two months out of the year, you get paid three times which skews your average monthly income and doesn’t include the taxes that are taken out of your check each pay period which can drastically alter the amount of income you think you have available to pay off your debts.

For example, if you make $25,000 a year that averages to $2,083 per month, but that’s not your take-home pay, and it doesn’t give you your average monthly income if you get paid biweekly. If your overall tax rate is 23 percent, you are actually taking home $19,250 a year. That translates to $370.19 per week or $1,480 per month with biweekly pay periods. That’s quite a bit less than $2,083 per month.


Once you’ve figured out your average monthly income, start calculating your bills including groceries, work lunches, out to eat expenses and gas for the car. Also include any habits that you regularly spend money on such as smoking, drinking, shopping and miscellaneous expenses. Add all those expenses together then multiply them by 10 percent to give yourself a monthly buffer in case you spend unintentionally overspend. Your final total represents all your monthly expenses.

Once you have your income and monthly expenses, subtract your expenses from your income. This will tell you how much money you have leftover every month to pay down your debt.

Cutting Back

If you’re in the red, or you don’t have a lot of extra income, think about ways you can cut back. Would it be cheaper to take your lunches when you go to work? Can you stop eating out altogether? Do you really use your gym membership? Can you cut back on your gas expenses and household energy expenses? Do you really need full coverage car insurance? Once you figure out what you can live without, cut those expenses and put the extra income towards paying off your debt.

Paying Down Debt

Once you know how much money you can put towards your debts, figure out how you want to pay them off. Do you want to start with the smallest balance first? Do you want to start with the largest balances first? Do you want to pay down the bills with the highest interest rates first? No matter which way you decide to start paying down your debts, stick with it. As you pay off more and more accounts, you’ll have more and more money left over to pay down your remaining accounts.

Peter Christopher

Back to top