The first step in your journey to eliminate your debt is creating A Detailed Plan. This is one of the most difficult parts of the process because it can be painful to sit down and take a good look at your income, expenses, assets and liabilities. The task will seem daunting and the numbers are hard to face, but it is so important to be honest with yourself about the situation. There is even a fair amount of embarrassment that may accompany this part, but it's worth it. Trust me, at first it hurts, but compiling this information is so important and can be a strong motivator. So, grab a glass of wine, get your bills together and start adding. First total the total household income after taxes. Then, determine the total household expenses, such as mortgage/rent, cell phone, hydro, gas, electric, etc., any expense that must be paid in order to keep your household running. Now, the tough part, total ALL debts. This means your mortgage, student loans, credit cards, personal loans, payday loans, money you owe to friends or family...any money you owe to anyone. An example of what we have created so far should look like the following:
Household Income: $5,000.00
Household Expenses (including mortgage and car payment): $3,475.00
Monthly Minimum Payments to Credit Cards: $1,000.00
Monthly Minimum Payments to Student Loans: $300.00
Mortgage: $100,000.00
Car Loan: $10,000.00
Total Credit Card Debt: $40,000.00
Total Student Loan Debt: $25,000.00
By doing a quick calculation, you will see from the example that the total in every month is $5,000 and the total out is $4,775.00. There is very little money left over every month for what is called discretionary spending. Discretionary spending is the amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. Discretionary income includes money spent on luxury items, vacations and non-essential goods and services.
From here, you need to determine if there is a minor spending adjustment needed to create more income for retirement, savings, spending elsewhere, etc. or if you are looking at a situation that will require more immediate attention. For instance, it is not uncommon for our clients to see a scenario where their expenses are exceeding their income on a monthly basis. So, here's the plan:
1. EVALUATE the data you have put together or have a friend or family member who is not emotionally involved make an evaluation of your monthly income and expenses. Feedback about what you're doing right and wrong on a month to month basis is important.
2. ELIMINATE or reduce household expenses. Some expenses are fixed, like the mortgage or car payment, but some like cable and cell phones can be adjusted. For these, call your providers and switch to the very basic plan or eliminate them altogether.
3. LOWER your Hydro, Gas and Electric bills. You can do this by being mindful of your usage. For example, make sure your turn off all lights when leaving a room and unplug appliances that don't get used very often. Try limiting your showers to 5 minutes or less. Set your heating/air conditioning unit for only the times you are home. It's not only good for the wallet but good for the environment too!
4. DECIDE what is right for you. There are several options for eliminating your debt, make sure you educate yourself about your options.
5. TAKE ACTION. If your financial situation warrants it, seek outside assistance. Cambridge Life Solutions has helped many people get out of debt by helping them follow a savings strategy we have create and personalize for their specific success.
Bottom line...bite the bullet...create a plan...LIVE the CamLife.
