How to get out of debt, step 4:
Detail multiple credit card debt, loans and all other debts.
Previous: 3. Detail monthly expense amounts.
4. Detail and list all of your debts.
Ingredients: your ledger, your software program, credit card and bank statements, mortgage statements, any other relevant material.
This is the third part of the equation, it's the shadow that hangs over your finances and the reason you came to this web site. Paying off debts is an expense. Even if everything in the previous step balanced out nicely, throwing debts into the equation upsets the cart. In this phase, we are still gathering information. Knowledge is power, so we will look at all of the debts you have, prioritize them, find ways to minimize their impact and eliminate them one by one. This is also an accounting step.
There are different categories of debt, so what we will do first is list those categories. They can include credit card charges (most common), bank loans, mortgages, personal loans, overdue bills for anything from utilities to tuition to taxes, monthly financing on purchases, rent that is past due, and so forth. A big source of the problem is having many a plastic card. Credit debt to many institutions is unwieldy, can lead to expensive mistakes and is a temptation to spend way beyond our means. Put them all down, we will create our own master categories soon. Now, next to each debt, put in the amount. When that is done, you can add it up and see what your total debt is. You may want to do that sitting down, but, yes, you have permission to feel good about it. Why?
Remember. Knowledge is power. Once you know what the challenge is, your brain automatically begins to plan how to meet the challenge. A fundamental of planning, which this site is ultimately all about, is the use of questions. When we ask ourselves our questions, our minds work hard to find satisfying answers. Once we know how much we earn, spend, and owe, we can ask ourselves the question of how we will once again balance our budgets. When that question has been asked, we automatically begin to answer it. That is the key to getting out of debt. Asking the questions in a detailed, specific manner.
Next: 5. Triage all your debts to develop a plan to pay off debt in sequence.