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Conquering Your Debt: Getting Started

Updated on February 2, 2013

Part 2 of the series "Conquering Your Debt"

Exercise #1: Creating A Financial Reality Check

The first step in my personal journey toward financial freedom was to sit down and give myself a financial reality check. If you have not already done so, then I would recommend doing the same thing. Compile all of your financial records-- bank statements, check book(s), credit card/loan statement, etc.-- then find a flat surface where you can organize it all. Next, you'll need some writing paper, a pencil, and a calculator.

I prefer simple methods to dealing with problems, so what I did was pull out a few blank sheets of paper. I labeled the first one "DEBT" in giant letters across the top. I then made a list of all my current debt. I placed the information in columns so I would have space to include important details like the interest rate on each loan/credit card and the average monthly and annual fees. This was by far the scariest part of the process. At the bottom of the page I totaled everything up: total loans, total credit cards, total mortgage, and finally my cumulative total debt.

(Feel free to pause here in order to practice deep breathing exercises to fight off a panic attack).

I then used a second sheet of paper to plan my course of action... the sad reality was that I was buried in debt. So, what was I going to do about it?


Creating a Plan of Action (Part One)

The point of the "financial reality check" exercise was to make yourself aware of exactly how bad your finances are. It was the equivalent of taking a “before” photograph before a makeover, which is an accurate description of what we’re trying to do here. The only difference is that instead of trying to makeover our homes or our bodies, we’re making over our financial situation.

So, now that we know exactly how far in the hole we are, what are we going to do about it?

Exercise #2: Plan of Action (part 1)

Once again, this exercise will require a few sheets of paper and access to all of your most recent financial documents and bills. Pull out two blank sheets of paper. Label the top of one of them "INCOME" and the other one “EXPENSES.” Now, just as the titles suggest, make a detailed list beneath each one.

On my income worksheet, I made two separate columns. The first was for guaranteed/reliable income. The second was for varying income (ie: e-bay sales).

To make myself feel a little bit better, I also created a list of possible sources of additional income (ie: holding a yard sale, pawning valuable objects, acquiring another job, etc.).

On the expenses worksheet, I essentially divided everything into categories. I listed all of the mandatory things first (ie: housing, electric bill, utilities, etc). I then listed the things that I really like to have, but I could eliminate in a pinch (ie: the telephone, gas-- I’d rather drive to work, but I could walk so save money, etc.). Finally, I made a list of the minimum monthly payments to all of my debts.

Since some of the bills varied from month to month (ie: the electricity bill is always higher in the winter), I totaled up the bills for the last 12 months to determine the average monthly cost.

(Okay, it’s time to take a few more deep breaths!)

Now, at this point, you should have 3 completed lists: Your Debt, Your Income, and Your Expenses.

The first thing that you need to determine is whether or not you’re living within your means. To do so, simply subtract your total monthly expenses from your total monthly income. If you’re spending more money than you earn, then you’ll need to make drastic changes to your spending habits-- before you try to do something about your debt.


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    • Reprieve26 profile image

      Reprieve26 2 years ago from Oregon Coast

      Thank you. I'm glad you found the article helpful. :)

    • Larry Rankin profile image

      Larry Rankin 2 years ago from Oklahoma

      A helpful resource to deal with financial strife.