Okay, remember those numbers. Don’t know which numbers? Then go read, Getting Back on Track. The numbers of which I’m speaking represent your total monthly expenses / bills and your total monthly take home pay. Divide the monthly expense amount by the total income. That quotient (answer) will represent the percentage of your monthly income is committed to expenses each month and is called the debt to income. Example: $1500 monthly expenses divided by $2000 monthly income = 75% debt- to-income ratio. The debt to income should be in the area of 50%, however, many families live with that number closer to 75% and many times over 100%.

Review your expenses and make determinations if any of those monthly expenses can be reduced to allow for more monthly disposable income. Disposable income is money received that is not committed to paying a debt. We want to increase the disposable income, so that we can create a pool of “non-obligated” funds to be use to offset debts that weigh heavy on the monthly expenses because of high interest rates or maybe even drawn-out repayment plans. ..either way, the objective is to create some temporary financial breathing room. Once you have reduced your monthly payments to the lowest allowable level, you will be able to start aggressively paying debts you will later label as priority. Next we will talk about categorizing debts by priority and developing a strategy to eliminate more debt.