- 1). See where your money is going. Using your checkbook register, online banking and/or credit cards, go back one month and write down what you spent your money on. Make a column for clothing and purchases, meals out, groceries, entertainment, charity, gasoline, bills (write down what these are in a column next to these figures) and medical expenses. Put a column for cash and savings taken out, too. Use whatever columns you need to make sense of your spending. Add up each column and see how much money you've spent on each one.
- 2). Write down all of the household income you have coming in. Compare what's coming in and what's going out to show the level of financial stability you are right now. If you aren't doing too well, you can look at where the greatest drains on your finances are. Check out the places you are being wasteful that you can most easily cut down. If you can slash your eating out budget from $185.00 to $75.00, put $110.00 in another column. Do this with each item you can easily cut back on.
- 3). Is there enough to make a difference in your lifestyle? If not, you will need to be a little more brutal and think about things like cutting down on cell phone usage, turning the thermostat up and cutting down on your nonessential driving. If this doesn't help you need to think about ways to increase your income. Can someone take a second job, consign things they don't use or sell something as a sideline on the Internet? Can kids get jobs and help with their own expenses? Know that you will have to make changes if your debt burden is way too big for your income.
- 4). Look at all of your interest bearing expenses next. Write down each bill, the expected monthly payment, the balance and the interest rate in three columns. Here, you'll have to make a judgment call. If you have some really small bills that you could pay off quickly to free up money, that is usually smartest. If there is a bill with a huge interest rate, you may want to focus all of your attention there first. Decide where your freed up money would do the most good.
- 5). Cut up the credit cards with too-high interest rates and balances. Keep those with smaller amounts on them as this will help your debt to credit ratio look better in the long run. Cancel those cards you cut up so you won't be tempted to use them again. Don't get any new cards. Do everything in your power not to use credit cards unless you need one for work or you pay one such as gas each month in full.
- 6). Write down a plan. Look at the bills you have and put them in the order they need to be paid off, generally the lowest to the highest. Realize that scrimping now will free up your money and free your life from stress later on. In six months, most people who are diligent see a remarkable change in their finances, so determine to stick it out.
- 7). Pay your bills as your plan states. Each time you pay off anything immediately assign that money to the next bill on your list. Put any extra money from yard sales or a second job on there, too. If you use this system for six months, most everyone will see a substantial difference in their income to debt ratio and they'll be able to worry a little less and enjoy life a little more.
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