How to Get Out of Debt by Budgeting

Help yourself escape from debt with effective budgeting.

While potential financial missteps of the past may have led you to amass a sizable amount of debt, being financially beholden to others is not something to which you must simply become accustomed. Instead of viewing debt as an unavoidable way of life, use budgeting to make the most of your money and escape from the debt monster. By doing so, you can likely improve your overall financial health and potentially reduce your stress.

Instructions

1. Add up your debts. Gather all of your bills and add up the total amount you owe to any creditor. If you are simply trying to pay off revolving debt, exclude your mortgage from this calculation.

2. Add up your income. Using pay stubs, calculate how much money you and your partner -- if you share your debt -- bring into your house each month.

3. Add up your expenses. Hang on to receipts and bills for things like electricity and heat for one month. At the end of the month, add up all of these expenses to see how much money you already have going out each month.

4. Subtract your expenses from your income. If your income or expenses vary, use an average of each to perform this calculation. To be on the safe side, make your average a slightly higher than realistic one.

5. Plan to dedicate the remaining funds to servicing your debts. Write down the amount remaining after you subtract your expenses from your income and plan to divide this between your creditors. Start with your highest interest debts and gradually pay them all down with this extra money.

6. Look for areas in which you can reduce your expenses. If the money you are spending each month isn't all going to necessities, it may be advantageous to cut some of your costs so you can allocate more money to debt repayment. For example, if you spend $200 on going out to eat each month, cut this amount in half by eating in more often and add the saved funds to the money you use to service your debt.

7. Seek additional employment if you don't have the surplus necessary to service your debts. If you simply can't make your math work and you don't have areas in your expenses that you can cut, you may need to pick up a second job or seek out a higher paying one to make your debt-free dreams a reality.

References

• Federal Trade Commission: Knee Deep in Debt
• Hamilton Debt Relief: How to Create a Budget to Pay Off your Debts