Step 3 - Work Out Your Budget:

You now need to calculate your total monthly income, total monthly expenses and subtract one from the other to see how much spare income you have left. You can download the Club50 Debt Manager to help with this.

Income

This should take account of all possible income and should include salary, benefits, tax credits, maintenance and other contributions such as rent from lodgers. At this stage it is also worthwhile considering how you can generate further income. Can you work overtime? Can you take in a lodger? Are you in a position where you can claim benefits or tax credits? One place to check this out is www.turn2us.org.uk , which can offer advice regarding various benefits you may be eligible for as well as make you aware of other charities that make grants to individuals.

Expenses

Having listed all your income, you now do the same for all of your general living expenses. This will include general household expenses, mortgage/rent, council tax, telephone, TV licence, TV rental, water rates, gas/electric, travel costs, clothes, insurance, medical/dental costs plus a contingency amount to cover for the unexpected.

Spare Income

Next you need to deduct your monthly expenses from your monthly income to arrive at the spare monthly income you have left.

Check that you have been realistic about both income and expenses. There is a tendency to over estimate your income and under estimate your expenses, which will give a false picture of your spare income.

Your aim

At the end of this step you will have an accurate picture of what you earn, what you spend and how much you have left to pay off your debts.

Step 4 Deal with Your Priority Debts:

When you know how much spare income you have it is time to sort out your debts, starting with your Priority Debts.

If you do not have any spare income: If this is the case and you have no way of generating further income or reducing your expenses you have limited options. So, first, review your income and expenses again and be very tough on yourself particularly your expenses. Make sure all your expenses are essential and that you have the best deal on those that you must keep. There are various comparison sites on the internet that compare prices on everything from travel insurance to mobile phones, use them – shop around.

Another good site is www.moneysavingexpert.com, which is full of good ideas on how to reduce your bills and save money.

If the situation is still the same you only really have two options:

Ask your creditors to write off your debt
Apply for bankruptcy

This is an extremely serious situation and any decision should not be taken lightly or on your own, you really should seek professional advice from a debt counsellor.

If you have spare income – the first thing you should do is decide how much to offer them.

Please Note: Club50! is NOT a debt management specialist and the information we have provided is for general guidance and we strongly recommend that if you have a debt problem you contact a debt management specialist.