Gathering the information necessary to compare your income with your spending can be quite eye opening for most people.

By doing this over the period of the last year you will get a better understanding of where your money has been going and why you have landed in a situation where the debt is overpowering you.

The income is easy to sort for those people on wages as that will be fixed for the year and it would be relatively easy to make a list of the fixed expenses such as your rent or mortgage your insurances and other such factors where you know the exact amount that you will be paying each month.

You can make estimates of how much you spend on your shopping for necessities and while you might make an attempt to calculate how much money you fritter away from one week to another almost everybody who does this exercise finds that they have underestimated considerably the amount of money that they have been spending.

If you are able to calculate how much money you had in the bank and how much debt you had at the beginning of the year and then add and subtract your income and your expenses as you have already calculated them you should come up with a balance of where you would expect to be now.

The next step obviously is to calculate exactly where you are now and the difference between that figure and the previous figure is the amount of money that you have frittered away without realizing that you’ve been spending it.

So where did all this money go – you might ask yourself.
Often it’s the little things that you don’t consider worthwhile recording such as the cup of coffee you have every day with the occasional take-away that you have once or twice a week. Maybe it’s the magazines that you buy each week or some other relatively small expense that adds up with all those other relatively small expenses to create a big deficit in your finances over the term of the year or so.

These are the areas where you can cut back or eliminate spending that will have a huge impact on your ability to reduce your debt and remain debt free once you have put yourself in that position.

Many little expenses add up to one big debt.

We all have reasons why we spend and aside from the necessities in life many of us love to spend for various different emotional reasons.

Just as some people ‘reward’ themselves or find comfort in chocolate there are many more who spend money in response to certain emotions.

Are there occasions in your life when something has happened where you immediately feel like you need to go out and celebrate by either buying something or having a meal at an expensive restaurant?

Many people buy material items in an attempt to make them feel better about themselves.

It is not uncommon for people with low self-esteem to spend money on items that they think will give others a higher opinion of them.
People buy expensive cars or yachts to boost their ego.

Some people buy when they are happy and some people buy when they are sad.

Many people these days buy with no thought about the future and the fact that they are going to have to pay off the debt that they have just incurred today for the next year or so. Impulse buying can be particularly dangerous as it is generally for items that you don’t need and the debt that comes with these types of purchases is something that you definitely don’t need and will possibly regret for a long time.

If you can define precisely why you buy then you will be in a lot more control over your financial future and you will understand that the short term benefits that you get from your buying sprees are certainly outweighed many times over by the stress and worry of the financial burden that they bring with them.

It might even be necessary to see a professional for consultation to help you change these bad habits that are getting you into financial strife on a regular basis.

More often than not they are just bad habits and we are unaware of what we do a lot of the time.

Improving your credit history is basically about doing the opposite to that which caused you to get a bad credit history in the first place.

You got a bad credit history by not making good the debt that you owed to other people either on late payments or failure to make the payments at all.

This bad credit history remains in your name for 7 1/2 years and any time you go to borrow money, rent accommodation or virtually anything else that involves the need to check your credit standing you are going to be at a disadvantage.

So what can you do to make up for your past errors?

Simply by doing the opposite to what you did in the past and borrowing small amounts of money but ensuring that you pay them back on time all the time to start to build up a good credit history will begin to compensate for your past efforts.

When many people get on top of their debt problems they are very reluctant to go back to borrowing again however in order to get your own house and a mortgage that will be necessary in order to buy it, you need to start rebuilding your credit history and unfortunately the only way that that can be done is by borrowing and proving that you have changed and can meet your responsibilities to the financers.

You don’t have to borrow a lot of money and in fact it is better to do smaller amounts at various different places so you get good credit reports from a wider range of people.

Credit cards are the easiest way to get started rebuilding your past and then buying the occasional item provided it is a necessity and at low cost on hire purchase where you make monthly payments over a set period of time and don’t miss any payments as the next step towards your goal of getting lending institutions the confidence to work with you further.

Not all debt is bad and while you might consider it to be so at the moment when all you can think about is the overwhelming amount of debt that you need to repay and the problems that it has caused, you will also need to understand that often it is worthwhile having debt.

For a start having debt on appreciating assets such as a mortgage on your home can be a good thing because the value of your house will be increasing at a rate that is far greater than the amount of money that you could save and quite possibly you would never be able to save the amount of money required to purchase a house in the first place.

For most people this will be the only type of debt that is worthwhile having simply because the advantages far outweigh the cost of the debt in the form of interest.

The debt that is incurred for purchasing items that can’t be regarded as assets, for example motor vehicles where they are depreciating and you are losing money the longer you own them, can’t be regarded as good debt.

Credit cards are one of the biggest causes of financial problems in the country but they too have their uses and in particular when you’re trying to rebuild your credit history by taking out smaller amounts of borrowings and paying them back on time all the time.

Getting small amounts of credit card debt and repaying it, can help you to move on to personal loans and then eventually you’ll have the opportunity to get a mortgage to purchase a house again even if your past create history has been bad.

So you can see that in the right circumstances there are various reasons why debt can help you have a more fruitful life.

Racking up restaurant bills and purchases of the latest fashion items on your credit card can never be regarded as good debt in anyone’s books.

You need to prioritize your debt repayment and ensure that the most important debts are taken care of first.

The importance of the debt is determined by the impact that it can have on your life both now and in the future so clearing past due
taxes would be one of the first debts that you would have to look at due to the penalties and compounding interest that you will have to
pay and the fact that the IRS has so many powers to seize assets and make life very difficult for you.

A mortgage is another debt that needs to take top priority as losing your house can impact on your ability to pay all your other debts
and also make it difficult for you to find accommodation elsewhere. If you don’t have your own home then you need to ensure that your
rent and utility bills are kept up-to-date so you have a roof over your head and are able to live in suitable conditions to be able to
work your way through your money problems.

Your budget will give you a clear indication of the total amount of debt that is owing to others and from there you can set your priority
list where you can start working with the people you owe money to and sort out payment plans with your creditors and your own steps to
clear your debt.

Medical bills and court-ordered child support debt are also high on the priority list as failure to pay these can result in drastic
action being taken that will once again make it difficult for you to work your way through your other debts.

Car loan repayments are a priority because car finance companies will quickly repossess your car if you fall behind with the payments and this can impact on so many other areas of your life such as your ability to get to your place of employment.

Don’t be forced into paying minor debts at the hands of debt collectors if you haven’t covered these priority debts first.