When you enroll in a debt management program, you will be working with a debt counselor who will assist you in creating a debt management plan or DMP. This contains the restructured payment method that will lower your monthly contributions. This will still be for approval of your creditor of course, but you don’t have to worry about it because your counselor will help you gain one. They will even try to negotiate for a lower interest rate.
But where does the budgeting fit in?
Your budgeting will be outside your DMP. The thing about debt management is you have to follow your plan strictly. Deviating from the approved plan will erase all the agreements with the creditor and you will find yourself back to your higher monthly payments and interest rate.
This is where your budget comes in handy. It simply helps you pay attention to where your money is going and make sure that it goes to where you want it to. That will keep you from falling short of your budget and thus having to sacrifice the important expenses like your debt payments.
It will help support your DMP to make sure that you will have enough money on your budget to supply the monthly contributions. This way, you get to protect your agreement with the creditor.
Your budget will contain your income and a detailed list of your expenses. It is very important that you use your net income as your reference. Also, you should put in all your expenses. This will help ensure that you will not fall short once your budget takes effect.
In listing your expenses, put on top your priorities. These usually include the fixed payments that you have to finance continuously. These are your mortgage/rent, utility bills and the payments for your debt management plan. Next to that are your variable expenses. This refers to the expenses that can change every month like your food, grocery, clothing, transportation and entertainment costs. When you have to adjust your expenses to make room for emergency expenses, you know what variable expenses you have to cut back on. Try not to touch your fixed payments because you may be in danger of paying penalties. Given your limited resources, you want to avoid this as much as possible.
One way to help finance any emergency situation and thus keep your fixed payments safe is to grow your reserve fund or savings. This will keep you from touching your usual budget when the even comes for an immediate financial need. Make sure you allot a percentage of your income to be sent to your savings account. It helps to treat it like a bill so you can be sure it is funded so it is best to include it in the fixed payment portion of your budget.
If you implement your budget correctly, you can be assured of a well controlled finances. It will help you keep your side of the debt management plan.