Getting out of Debt - Spending VS Income

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 This is the first part of a ten to twenty part series…….

The first thing you have to do before thinking about paying off that debt is analyse your monthly income versus your monthly spending habits. In order to analyze that information, you’ll need to keep track of every expenditure with a small description in order to justify all your expenses. From there, you’ll have four common conclusions:

1) You spend well beyond your means - This is the worst case scenario. You either make too little money and really have to budget in order to save or you make good money but have some very bad shopping habits. If you happen to fall in this category, you’ll have to make some drastic changes in order to eliminate that debt.

2) You spend everything you make and have none left to pay off some debt - This is usually where the majority of people land. People know how much they make and will spend their money knowing they have it in the bank or will have it by the time the bill comes in. The only problem with a “spend what I make” mentality is that there is no money for emergencies or big item expenses and it lives you no money for debt payments.

3) You manage to save a little but not enough to really pay off that debt within a decent time frame -If you are in this category, you are very lucky because with proper budgeting techniques and a few lifestyle changes, you’ll be out of debt in no time.

4) You make substantially more than you spend - You most likely don’t need my help and I congratulate you on your income to spending ratio. :)

In part 2, I will discuss the importance of FICO scores and  credit histories.

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