- A budget is based on historical data plus anticipated future expenses. Ideally you will set up a monthly budget for the next 12 months. Record expected income and all expenses. Record credit card debt as minimum payment amounts. Don't forget to budget for annual expenses, such as insurance. Remember to budget for emergencies and entertainment. The more complete and honest you can be about your spending habits, the more successful you will be in following the budget and getting control of your debt. What you have left over is the amount of income you have to use to get out of debt.
- The ultimate goal of debt management is to get out of debt. During the budgeting process, you should have identified those credit card debts that need eliminating. List them from the highest balance to the lowest. Continue to pay minimum balances due on time on all but the card with the highest debt. From your budget, you will have identified how much extra income you have left over after paying all your bills. Apply this extra income to paying down the card with the highest debt. When this credit card is paid off, move on to the credit card with the next highest balance.
- Sometimes the budget will determine you have a shortfall, meaning you must pay out more than you earn every month in order to stay on top of your debt. Eventually this will lead to bankruptcy if you do not find a way to remedy the situation. Look at your spending habits. See if there are places you can cut back, such as taking your lunch to work rather than buying it or thrift store shopping instead of shopping at the mall. Put off vacation plans until your financial situation turns around. Get a second job or work overtime at your existing job. Contact credit card companies and negotiate better interest rates. While cell phone and cable companies do not offer better interest rates, they may offer a better monthly rate if you sign a two-year contract or combine services.
- Living within a budget is vital to eliminating debt, and more importantly, not going back into debt. Avoid credit purchases whenever possible. Cut up all but one credit card and learn to set spending boundaries. Making a shopping list and sticking to it is a great first step to controlling impulse spending. Another method is to shop with cash only. Leave the checkbook and credit cards at home. Take only what you can afford to spend to the store with you. When it is gone, so is your shopping fun.
- Your life is not set in stone and neither is your budget. As credit cards get paid off and income increases, the budget needs revising. Revisit the budget every month or so and adjust it for those little changes in life that come with a price tag. Not only does this process help you live within your means, it helps reduce stress and teaches you new life habits.
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