Debt Management Basics
If you grew up thinking that debt was bad, you probably also quickly realized that it is very much a necessary evil if you want to provide your family with the basics like a home and car. A healthy amount of debt will also give you a positive credit rating in the eyes of potential lenders, which can lead to better rates on financing for those really large purchases. However, debt has indeed become bad in today's culture because of the way it is used and misused by many people who end up in trouble because they accumulate too much of it.

The truth is that there is good debt and there is bad debt, and there is such a thing as debt management to keep those balances in check. Debt management is not only about tracking your loan balances, however; responsible debt management will encompass your entire attitude toward money and your spending practices.

The "B" Word
The first step in responsible debt management is to only purchase what you can afford, whether you are paying with plastic or old-fashioned cash. The best way to ensure that you can afford the purchases that you make is with a budget that will track your expenses on a daily, weekly and monthly basis. If you are cringing like I just said a bad "B" word, it is time to get savvy about the positive effects that a budget can have on your financial situation. It's also not difficult to set up a budget; simply record all of your expenses for a month to see where your money is going, and then adjust your spending practices accordingly.

Once you see the benefits of sticking with a budget in the form of greater financial freedom, you will become a believer in the "B" word as well.

How Much is Too Much?
There is good debt, which is used for things that will go up in value like a home or a college education that will increase your earning potential. Then there is bad debt that is used for disposable items like food, clothing and vacations. Good debt is the type of debt that will improve your credit score and is considered okay by most financial experts.

But even good debt can become too much if you are having trouble making your monthly payments. On the other hand, bad debt should be avoided as much as possible since there isn't much value that is received from accumulating it. To determine whether you have too much bad debt, you can follow this simple formula. Take the total amount you spend on bad debt every month, divide that number by your monthly income, and then multiply by 100 to come up with a percentage. If that percentage is over 10%, you have too much bad debt.

Responsible debt management will keep you on the narrow path to financial freedom by preventing your monthly payments from becoming to big to manage. Spending may be fun, but financial peace is much better. Spend wisely and borrow sparingly.