If you are in debt and you have a fairly accurate idea of how much that debt amounts to, you are in a better place than you think you are.  You may not believe it now, however, as long as your debt is stressing you out, you aren't doing as bad as you may believe.  It is the people who are ignorant of their woes who will wake up one day and need to file for bankruptcy.  However, there is a very strong chance you need to change the way you think about your debt - and your budget.

The Old Way of Thinking

While most people are busy being swallowed alive by debt, they try to budget out of desperation.  However, many people do this all wrong and commit themselves to a lifelong cycle of debt.  Here is how it usually works:

On a super charged evening around the 29th of the month, you sit down and make a list of all the money coming in and then all the places that money needs to go over the month, everything from gas,  to cable tv services, to credit card debt repayments, to groceries gets added up.  Then it gets re-added because unfortunately it doesn't come in at or under the amount of income.  Then the tweaking begins, usually accompanied by finger nail chewing or hair pulling.  Okay, you think, I can cut down on the grocery spend, after all there isn't anywhere else.  And besides, that show about extreme couponing is compelling.  And if I need to, You think, there will be a bit on that credit card because their minimum payment is so high.  But you won't spend all of it, you promise.  Then you bandage your fingers and crawl into bed.  But what happens?  You will have maxed that credit card again by the middle of the month.  But it isn't like you didn't try.

If this is your thought pattern, then you need to change it and you need to do it now, in the middle of the night while you are searching for an answer on how to control your budget.  The good news is that if you are deep in debt, and you not only know it but you are responsible enough to know that you are, then you are half way there.

How Your New Thinking Should WorkIn a Cycle of Credit Card Debt?Credit: cohdra @ morgueFile

This is what the evening of the 29th should  look like:

You sit down with your calculator and count up all the money coming in and put that total at the top of your page.  Next make a list of everything you need to use that money for, except unsecured debt, which includes credit cards including store cards and personal loans, whether they are through the bank or a generously provided by a concerned family member.  This does not include your car or your home, even though you might  looking at these items as debt.  Now tweak this budget until it is tight, but not so rigid that you aren't able to eat.  Remember, this is tight, not rigid.  There must be some fat on this budget or you will blow it once again.  Then take the amount that is left over and divide that between your unsecured debt repayments.  What you have towards payment on these bills is probably less than the minimum amount, but it is a payment all the same.  And then you go to bed relaxed so you can wake up early in the morning because you have a to call these creditors.

If you haven't taken the first step yet , then just reading this last paragraph has probably made you pull out a few locks of hair.  If you don't pay the minimum on your credit card, you can't to use it.  Pause and read that again.  Isn't that the point?  Didn't you provide for all your needs in your budget already?  So what do you need that credit card for?  Effectively, you have just broken the cycle of debt.  (You may want to read that again as well - only this time it should make you feel better.)

Taking It to the Next LevelChange Your Thinking to Get Out of DebtCredit: cohdra @ morgueFile

Changing the way you look at your budget is only the first step however.  Not only do you need to stick with it, calling your creditors every month with the explanation that you will be paying only a certain amount, which isn't what their terms are.  Now you need to start earning more, not only because you need to get to paying more than the smallest amount on high-interest, unsecured debt, but because you eventually want to have a life outside the one you have now.  Although you may not think so now, very few people are unable to increase their earning potential.  This can happen at your existing job or you may be able to take on casual work tutoring a neighbor's son on his English lessons or by offering a transport run after cross-country practice to parents who don't have the same flexibility as you do.

In this second step, a penny saved is not a penny earned, it is the other way around.  Do not spend your evenings clipping coupons and baking bread from scratch, rather spend them searching and researching income opportunities and ideas.  If you have followed this logic from the beginning, than you may have already gotten the hang of this "new" mindset.  It's not just about fitting everything into your existing budget, it is also about expanding that budget to fit what you want into it.  Don't believe it?  Try it out for just a month and see what happens.  You may just find your life spinning uncontrollably in the direction you need it to go.  Now wouldn't that be nice?

If you are looking for other tips on how to repair your budget , you may be interest in these articles:

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