Step 2 of Debt Elimination

The Whole Picture

What do you do after you know where all your money is going?

You followed the Step One of Budgeting Article and you know where all your money is going now. You listed all of your monthly expenses broken down. Great job! You’re now probably asking what’s next.

Next, you should take this one step further and list all of your total debts. Go down the list of your monthly expenses and find the expenses that are a debt. Find car loans, credit cards, student loans, mortgages, etc… Maybe there’s something you didn’t list like a student loan because it is deferred right now. Make sure you don’t forget about those items. Any money that you owe any person or company should be the focus.

While you are looking into this, also find out what the interest rate is on each one of these expenses. If you have a credit card that has a $5,000 balance, also add that you have a 22% interest rate. Do the same for all the rest.

Here’s a form if you’d like to enter it here:

Ok so you’ve got your total. Depending on your mortgage amount and student loans, this may seem a bit overwhelming. That’s ok! It’s pretty awesome you have it all in one place and a final tally. Check out all of those interest rates, study them, and compare.

Analyze Housing

Take a look at where the bulk of your money is going.

Check your housing first. Pull out your budget and look at the amount you spend in housing each month. This is most likely your biggest expense, but not always. Your housing should be no more than 30% of your take home pay. Enter your take home pay below and calculate to see where you’re at.

Is your home/rent expense greater than the Maximum Housing Cost calculator above? If it is, that needs to be an area of concern. We’re going to analyze more in the next step – but housing is such a huge one – make sure you’ve got a handle on that one now.

What You Should Now Know

• You have your past budget clearly spelled out. You know where every dollar has been going.
• You know how much you are bringing in each month after taxes and any current retirement contribution.
• You know how much (or little) you have left each month after your total monthly income comes in and all expenses are paid out.
• You know the full balance on all outstanding debt.
• You know the interest rate on each outstanding debt.
• You’ve looked into your housing cost and made sure that it does not eat up more than 30% of your take home pay.