Keeping track of your spending

In order to evaluate your debt problems, you must start monitoring exactly where your money is going. Your monthly bills, daily spending habits, and other monthly expenses must be accounted for. Follow this list and build the first step in assessing your debt to income ratio.

1. Gather all bill payments to your creditors including vehicle loans, credit cards, insurance etc.
2. Add your household expenses, including your rent or mortgage payments and all home utilities you pay.
3. Don’t leave out any bill or payments, no matter how insignificant.

Take these payments and make a spreadsheet listing the items and how much you currently pay. For items like cell phone bills or utilities which vary, take an average payment for the last six months and use that amount. Take this final added amount and set it aside, you will use it later.

Making an expenses budget

Aside from these monthly bills, you must make an expenses budget. Make another spreadsheet and label it “expenses”. This will serve as your budget. In this spreadsheet list, on average, how much you spend on the following items each month:

1. Food. Include both your grocery bills and estimated amount spent on eating out.
2. Gasoline or other transportation, such as commuter trains or buses to and from work.
3. Entertainment. Include trips to the movies, plays, or other expenses you incur each month when you go out.
4. Medical. Give an estimate of how much you spend monthly by averaging the last 6 months of your medical bills. If you have medical insurance, use that monthly payment amount.
5. Household items, such as toiletries, cleaning supplies, pet care, etc.

Take the sums from the spreadsheet above and add them for your average total monthly expenses. Now take the two spreadsheets, expenses and bill payments, and combine them for your estimated monthly expenses. This is your combined monthly debt.

Adjusted Monthly Income

This will be simple if you only work one job, and therefore have a single income source. In other cases where applicable, include income from rental properties, stocks, or child support and alimony payments. Add all the amounts up, after taxes, and use this as your adjusted total monthly income.

Debt to Income Ratio

Your debt to income ratio is the amount you spend, which you now know, versus how much you make. This ratio is key to staying ahead of your bills and stopping the accumulation of debt. The debt to income ratio acts on the simple principal that if you spend more than you make each month, you are increasing your personal debt.

How to lower expenses to reduce spending amount

If you find you are over on your spending, try these adjustments to find areas where you can cut out spending.

1. Eliminate unnecessary expenditures; examples are eating out less often or cutting out items from entertainment.
2. Evaluate options to reduce fuel consumption such as mass transit or carpooling.
3. Try generic option when making purchases for items such as toiletries or food.
4. Pay your credit cards off each month and eliminate interest payments.

Options to lower your debt

If you find yourself unable to eliminate anymore from your spending budget, and increasing your income is not an option, try the following:

1. Contact your credit card companies and negotiate lower interest rates.
2. Look into debt consolidation loans to eliminate multiple debts with one single loan.
3. Explore options regarding debt negotiation with the help of a credit counselor or on your own.
4. Contact a credit counselor for more assistance.