Creating a Debt Management Budget

Getting out of debt requires a strategy and that strategy is mapped out in a budget. The budget is actually your blueprint - your step-by-step directions - for getting out of debt. Therefore, if you want to be debt free, you have got to start with a budget, but not just any budget will do.

You need a debt management budget. This budget will not only budget for your day to day expenses and your monthly expenses, it will also build in repayment of outstanding debts. Since getting out of debt is so very important, you will want to watch every single penny, so a debt management budget cannot be vague in any area.

For example, a typical budget will have money set aside for 'miscellaneous expenses'. These expenses might be for magazines that you buy from time to time, for snacks at the football game on Friday night, or for other small expenditures. Again, you are trying to cut back and watch every penny, so this will not do. Instead, you have got to make an exact budget that includes every dime that you plan to spend and then you have to stick to that budget. However, you still have to be realistic. For instance, budgeting just $20 a week for groceries is not realistic.

Before you actually map out your budget, first try to reduce your expenses as much as possible. For instance, cut out the football snacks and the magazine purchases altogether. Also reduce your living expenses where you can. Move to a less expensive house or apartment. Downsize to a less expensive vehicle. Look for a better long distance and Internet plan. Buy cheaper brands at the grocery store. Look for as many ways as possible to reduce your expenses.

Next, make a list of all of your outstanding debt. You need to know the exact amount you owe, and how much interest is accumulating for each debt, if any. You may need to call your creditors to get exact balances - and this is something that you should do. You may be able, in many cases, to reduce your debt simply by asking for a reduction in the amount owed or the interest rate paid.

Now, when making your budget, plan to pay off interest items first. These include credit cards, car loans and bank loans. Get those paid off as soon as you possibly can. You want to do this because the longer it takes to pay off the amount due, the more it will cost you. Note that the budget really will not work out for you if you are continually building debt by continuing to use the credit cards. Make sure you cut up all but one of those - and make sure that the one that you keep has the lowest interest, then put it away for emergency use only!

When you have extra money, such as bonuses from work, cash gifts, or income tax refunds make sure that you apply those monies to your debt, again paying off interest items first starting with those subject to the most expensive interest rate and working your way down. Keep working at it. You will be pleasantly surprised at how quickly your debt goes away when you really make an honest all out effort.