Debt is a major problem in today’s world. It’s easy to get so far into debt that it seems like your every move is blocked by an insurmountable wall. But with the right plan, the right mindset, and a little bit of work you’ll be able to break that wall into smaller chunks and before you know it you’ll be on the other side…debt free!
The first thing you should do is sit down and size up your situation so you can figure out exactly how much debt you’re in and where all of your money is going. This is a vital step that you can’t afford to skip.
People who skip this step are missing the point…no matter how good their intentions are they will just never break the cycle of debt. You see your debt is about more than just dollar signs and interest rates. Your debt is about you. Your desires, your temptations, your weaknesses. In order to truly understand your debt you must first understand yourself.
There’s an old episode of The Honeymooners where lovable loser Ralph Kramden vows to transform himself into a success. He understands that there are certain qualities all successful people have in common, so he sits down to size himself up and he makes a list of all his strengths and weaknesses.
You’re going to do the same thing except instead of strengths and weaknesses you’re going to list all of your income and expenses. Just grab two pieces of paper and get started. On the first piece list your monthly salary and any other income you receive from interest, divorce settlements, part-time jobs, and anything else that generates income.
On the second sheet write down all of your expenses. Include your mortgage, rent, car payments, insurance, student loans, credit cards, utilities, and any other payments you must make each month.
What we’re trying to do is figure out exactly where your money is going. You need to total up all of your income and all of your expenses. Then subtract your total expenses from your total income. Hopefully you’ll have a nice amount of money left over which we can then use to form a debt reduction plan to start paying down your debt.
If your expenses are higher than your income it means you’re actually spending more than you are bringing in. This is a dangerous situation and if you don’t resolve it quickly you’ll only dig yourself deeper and deeper into debt. You need to take a close look at your expenses to see where you can cut back, and it wouldn’t hurt to pad your income a little with a part-time job until you get out of the red.
So there’s your assignment for tonight. Draw up a nice list of your income and expenses and jot down some ideas for cutting down your expenses a bit. You may be shocked when you see where all of your money is going.
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