Household Debt - Know Your Competition

Paying off household debt: how sweet does that sound?

If you have outstanding debt, creditors are a major competitor for your dollars. Remember, winning is keeping as much of what you make and not paying it out to others.

Often, the first reaction we have if our budget has more money going out than coming in is to blame our debt payments. Then the tendency is to start blaming the lender for allowing us to have the credit in the first place. Before you click away because you're sure it's the lender's fault, face the fact: the problem usually begins when we spend more than we had or we spent money we thought we'd have but did not receive.

This is not a defense of lenders who charge very high interest rates or have extended you credit that may have been too enticing for you not to use, which is now making paying off debt very difficult. It is just a matter of facing a fact.

This is why it's so important to use a budget and to plan your expenditures using money that you actually have, and not relying on credit cards or credit lines to fund your lifestyle.

That said, there are many situations that make staying out debt almost impossible such as unexpected medical expenses or large non-budgeted auto repairs. Whatever the reasons behind your household debt burden, your focus should now be on paying off that household debt.

Do you actually have too much household debt? If you think, you can compare your payments to what the professionals think here.

Is it possible for you to pay off your household debt from your current income if you start a Spartan budget and begin to pinch every penny? Or, are you at the point that you are behind and the creditors are threatening?

This is why your Debt Repayment Schedule becomes an integral part of making a budget.

Knowing how much you actually owe and creating a schedule for paying off household debt is the second tool you need to complete your household budget.

To complete your schedule you will need four pieces of information from your billing statements:

  1. Account name
  2. Minimum monthly payment you are required to make
  3. Amount you owe
  4. Interest rate you are being charged

(If you missed it, here is an example ).

Rules in making a debt schedule:

1. When creating your budget your mortgage payment should be in the housing area of your budget.

2. You may or may not want to include your car payment. (You need to decide if want it under your plan for paying your debt or as a repayment in the fixed expense portion of your budget under transportation. If you want to  include it as another debt which you want to pay off as quickly as possible, put it your debt repayment schedule.)

Once you have your schedule, you have your debt outflow (expense) number and a starting point to determine how you will pay off your debt.

The total of your monthly payments is the amount you enter into the debt repayment section of your fixed expense budget.

For some of you the amount of debt you are carrying is not a problem. You can simply put together your debt repayment schedule to complete your budget.

If you are having trouble making your budget balance, see if your budget will work without adding a line for debt repayment.

Sometimes the numbers will not work with or without debt payments being added. If that's the case there is another issue.

Pay off debt: practice and exercise:

  1. Get out your monthly bills
  2. List the four pieces of information (above) into a debt repayment schedule for you to use.
  3. Total your payments and enter it your budget.
  4. Make your plan to get out of debt and begin living debt free.

Move on to Complete Making a Budget

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