Assessing Your Debt Problem
January 9, 2006
The first step to getting out of debt is to ascertain just what your position is. There's a bit of a procedure here but it's easy to follow -- you just have to look at a list and fill in the boxes. It's a pain having to spend half an hour digging out the latest bank statements and bills so you've got the information to hand. But it's worth it. I promise!
To do this you can use this online Statement of Affairs calculator. (This has been prepared by two of our users -- luckyjonah, who's a dab hand at writing software, and Kr0n0s, who is a debt counsellor.)
Now, don't panic! The simple aim is to sort out what income you have, what your essential outgoings are and what the debts are. To be honest, it's pretty useful to see the full extent of the problem in black and white. You won't like it -- you might even be a bit shocked at how reckless you've been. Nevertheless, be brave, fill in the form and print it off. But, before you do, let's look at each aspect of what we're trying to achieve:
What's your income?
What we're looking for here is every scrap of income after tax that you actually have coming into the household. We all have an income of some sort, whether it's your/your partner's salary, maintenance payments, benefits or tax credits. If you have a lodger, don't forget to include the income from that. This forms your Total Net Monthly Income. Tot it all up and see what you've got.
What do you spend?
Next come the essential outgoings needed to keep body and soul together. We're not talking about the 'debts' as that is a separate issue. What we mean is the monthly mortgage/rent, gas, electricity and water rates, the council tax, the TV licence, telephone, house and car insurance, pension, basic groceries, etc. If you're behind with any of these, don't include the debt aspect.
It's important to remember that there is a big difference between Needs and Wants. A 50p loaf of bread to make sandwiches for work is a Need. Buying a ready-made sandwich for £3 because you can't be bothered to make it yourself is a Want. Over a period of just one month the latter option could cost you £50 extra.
What we're drawing up here is a list of the Needs for general day-to-day living over a period of a month -- in other words, your Essential Monthly Outgoings. Add it all up and see what it comes to.
What have you got left?
Using the two figures from above, deduct your essential outgoings from your monthly income and you will be left with the sum of money the Net Disposable Income -- that you can spare to tackle the debts. Have you got enough coming in each month to cover those essential bills, with a bit to spare? If not, don't worry -- we'll think of something later. If you have, then let's press on.
This is where you have to take a deep breath and make a list of the actual debts. These include credit cards, store cards, bank overdraft, car loans, any other loans, and any arrears from your list of essential monthly outgoings. It's best in cases where an interest rate is charged - and there usually is -- to state the rate of interest. That way you can see at a glance which debts are costing you the most.