How Do I Dig Myself Out Of Personal Debt

I'm sure everyone can relate to the pressure of overwhelming debt

. Many scenarios cause the reason for this overload of being in the red, and not many know how to get out of it.

The Ideal Process

Ideally the lower the payment and reduced interest the more disposable income you have right? Then how come so many people end up with barely enough to make ends meet and cannot make their minimum payments for their current debt obligations? There are 2 key behaviours needed to dig yourself out of debt. One, is to make extra payments when you have the disposable cash (and not talk yourself into making a purchase you don't need because you have the extra funds), and secondly, is to change your behaviour, how you view your debt.

Changing your behaviour

In order to change your behaviour, you need to stop spending money that has not been earned yet. With this comes a well thought out budget where you review how much income you make and what your debt obligations are. Learning the difference between what you need and what you want. Setting goals, for example- you need a new computer. Instead of going out and purchasing it on credit over the weekend, figure out how long it would take to save for it.

Maybe it would only take a few pay cheques of reducing the amount of times getting fast food vs. planning a meal?

The other factor I've noticed is too many people have shared accounts and use that one account for everything, pay, rent, food, gas, entertainment how is it possible to know what your disposable income is if everything is coming out of one account? The key is to set up a second account where just your bills are coming out of. That means everything and anything that can cause a negative impact to your credit score. Once the money is in there- you don't touch it- ever- the purpose is to pay bills only!

The Ratio

Financial consultants would agree the debt to income ratio should not be over 40%. Try this simple calculation Divide the amount of money used to service your debts to the amount of income. After doing this many people are surprised to see the ration is much higher than the recommended percentage.

Next Steps

First I would recommend anyone willing to change their behaviour to plan their budget.Keep in mind not only your current debts but also a savings program where you can keep a surplus of funds if you need to buy that computer.You can find many free budget planners online, and this is a good place to start.The next step is to open another account (if you do not have one used just for bills) and start having your bills automatically set up to come out.

Lastly, put the credit cards away and learn to live within your means! It will be hard at first, but after a couple of months, you will be surprised and relieved to see the plan is working!

by: Gary Hibbert

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