Before you can start making specific goals and plans for getting out of debt you need to know where your money is going and how much you’re in debt. To do this you need to gather several pieces of important information. Gather your latest pay stubs, banks statements, credit card statements, and other bills. Also gather together all those recipts you’ve been keeping since you started tracking your spending. From these bills and statements you will get a good idea where our money is going and how much you are in debt.
First, you need to know where your money is going. The image to right is a spending plan I made up to determine where my monthly income goes. I set this form up using Excel so I didn’t need to worry about doing the math myself. Using this form as a base it’s easy to see how much you spend on housing, groceries, credit card bills, or auto fuel.
Start by determining what your income is. Write all your sources of income and add them up. Use the monthly average of any income sources that change from month to month or are received only every 2 or 3 months. Then using your bills and statements divide your monthly expenditures into various categories. Its a good idea to break each category into several sub-categories to help you better determine where your money is going. Now write down the total amount for each sub-category. For items like auto insurance that you pay every 6 months, use the total payment amount divided by the number of month covered. Add up the total for each category, then add up all the categories to get your total expenses. The last step is to subtract your total expenses from your total income. This will give you an idea of how much extra cash or short fall you have at the end of the month.
If you have extra cash at the end of the month you’ve got a good start at finding cash to pay down you debt. If your expenses are greater than your income then some extra work will be needed to reduce your expenses.
Now that you have a better idea where your money is going every month you need to find out just how much you’re in debt. For every credit card you make payments on, every loan, charge account, or personal debt write down who you owe, when the payment is due each month, the minimum payment amount, and the total remaining balance making a separate column for each item. Add up all the values in the minimum payment column. This lets you know what the minimum amount is you need to payout each month to stay current on your debt. Then add up all the values in the total remaining balance column. This amount is your current total debt. The due date column is there as a reminder of when each payment is due. At this point it does not matter what order your debts are listed in since we’re just wanting to determine your total debt. I’ll discuss different ways to order your debts when paying them off in an upcoming article.
You’re at a good point for determining how to get ride of your debt now that you know where your money going each month, your minimum monthly debt payments, and your total debt.
[...] your minimum monthly payments to stay current on you debt and your total remain debt. See my post Get Out of Debt: Know Where You Stand for more info on determining where you money goes each month and your total [...]
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