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Today we feature a guest post by Andy Masaki, a blogger at Penny Less Dad and financial writer associated with OVLG.com. You can also find him fielding queries based on money management topics at various online communities and social media platforms.

Debt management is an art! All aim to excel at this art, but only a few can come out successful and debt free.

Debts are not always bad. If you can control your debts, you can use it to achieve financial goals faster.

Often, people consider debts to be a way to mishandle money. But the truth is, debts can be utilised to live a more efficient life.

The concept of debt was introduced so that no one has to halt any important life decisions and skip opportunities, despite lack of money.

For example, if a person comes up with a brilliant business idea, they may need to wait to gather the cash needed to set up a company.

Instead, this person can go into debt in order to jump start the company.

This way, debt can help us bring us closer to more opportunities.

But, only a few see the positive aspects of debt, as most people use debt to fuel unnecessary expenses, and end up getting trapped in a debt chains, with no hope of escaping the mess.

This post is a completely different take on debts, that you may have never quite been through before.

Let’s breakdown the various points of debt management one by one.

How can debts help you grow financially?

The first step to take for proper debt management is to understand how debt works.

Debts are categorised into two distinct sections, based on their characteristics.

You have good debts and bad debts. Bad debts are those that you should try to avoid as much as possible. On the other hand, good debts should be utilised to the fullest.

All consumer debts, or unsecured debts, are considered bad debts. These debts are made of credit cards, payday loans, unsecured personal loans, and other form of debts that do not result in an asset that builds value with time.

The other broad category is good debt.

Good debts always carry an asset along with them. This asset will be yours to claim, as soon as you clear the respective debt.

Example of good debts are home loans, student loans, and any other debt that is used to achieve positive returns in the future.

Debt management mainly centres on making debt work for you, instead of working to service the debt.

It’s not only secured debts that are good debts. Even your credit cards can be turned into a good debt, for example if you use credit cards to buy objects which you then use for career growth.

For example, let’s say you need a high end laptop or desktop to do your job. If you buy it with credit card, and use your laptop to earn more money than the debt+interest then that could be considered a good debt.

Even student loans are good debts, if you end up obtaining a good degree with a decent paying job.

Debt Management involves taking care of your existing debts:

Many of us have debts. And, managing those debts is what the personal finance art is all about.

Debt management demands that you manage your income based on the debt payments you have to do each month.

A good budget, a debt pay-off method, or a debt relief option are all options for managing your debts. Let’s explain all these three options in detail.

• What budget is best for managing your debts?

The point is to make a budget and stick to it, no matter what happens. And for that, a practical and realistic budget is what you need to make up.

Have you ever taken a look at how businesses and corporations manage the record of their cash inflow and outflow?! They keep a detailed record of every dollar that they earn and spend, and as a result they can measure their profits and losses.

And, you also need to keep a detailed record of your accounts.

Therefore, you should follow a Zero-Based Budget.

In a zero based budget, you got to be listing all the expenses you have for a month, in a proper order.

The highest priority expenses will come at the top, which will include the debt payments; as well as essential needs such as housing, food, taxes and transport.

Then you will list discretionary expenses.

After the listing is done, you will sum up your total expense amount, and subtract it from your total income.

The answer should be zero. If not, then use the extra amount for making add on payments on your debts.

What is the best debt payoff strategy to use?

Making extra payments is the best way to pay off debts, period!

But, how to go about with it?

Debt Avalanche is the most efficient debt pay-off strategy. If you have multiple debts, then you will hit the highest interest debt with extra payments.

After this debt gets paid, you focus on the next debt that carries the highest interest. You will then make extra payments on this debt.

This way you should be able to clear your debts faster!

For example, if you were making a $500 payment for the first debt, and the second debt demands a payment of $300, then once the first debt is paid off, you make a payment of $800 for the second debt.

What is the best debt relief option?

If, even after creating a budget and utilising debt payoff strategies, you can’t take control of your debts, then you need a debt relief option.

• For credit cards, you can try credit card debt consolidation.
• Or, for combined unsecured debts, you can try out debt settlement.
• Finally, for secured debts, you can look at loan refinancing or loan modification.

Your best option is to seek professional help, such as from consulting law firms, settlement companies, or the bank itself.

Staying consistent on debt payments is the only effective way to become debt-free.

Have a happy and debt free life ahead!