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When reducing debt it is important to know where your money is going
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If you are just starting out with paying down your debt, it is very important to know where your money has been going. Every one of us probably spends more than we realize. If we aren't paying attention, it is very easy to spend more than we make, causing ourselves to borrow from this card, or get a loan for that. Soon it all adds up and there's not enough left to buy the necessities. If you want to get out of debt, you have to be pro-active. It's not easy, but there are simple things you can do to get yourself headed in the right direction. You first need to find out where your money is going, and then make a plan as to how best to start the process of reducing debt.
Getting a good snapshot
A good way to get a snapshot of your expenses, especially if you use an accounting program such as Quicken, is to print out an income/expense report for the last twelve months. From there you can highlight expenses that you know will be ongoing, and get a good idea of how you spend your money. If you do not use an accounting program, you can still make a report from your checkbook, it will just take a bit more work.
Making a budget spreadsheet
After getting an income/expense report printed and highlighted, it is time to make a budget spreadsheet to help you figure out how much you should have in your account at any given time during a month. First type in (or write down) all categories of expenses, like auto, groceries, bills, etc. Then look at the total in each category for the year. Divide that total by twelve and that will give you the average spent per month for your spreadsheet. You can decide whether that is a reasonable amount or if it should be more or less for the coming year. This will give you a good base for what to do next: deciding your game plan. Is there enough income? Do you have anything left over each month to put toward debt? If not, you will need to make some decisions regarding earning more income, or reducing expenses. These are the first steps in deciding how to go about lowering your debt.
Great resources
Some great resources for eliminating debt are Debt-Proof Living and Dave Ramsey. They require membership to use their debt calculators and other tools, but well worth the money spent since they offer a lot of support.
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