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Welcome back! If you followed the instructions in Part 1 of How To Get Out Of Debt, then you should have the Creditor's List somewhat filled out. Now, the moment of truth is here. You need to write down all your expenses. This even includes the lattes from Starbucks. I know this is painful and difficult to do, but it will allow you to assess how you spend your money and possibly where you can cut back and apply the "newfound" money to paying off your debt. You will probably find it easy to list all the big items such as housing, auto, insurance, baby-sitting, minimum credit card payments, loan payments, and basic food expenses. Also, list the money that is put into your retirement fund each month but not the money you put into savings. It is probably wiser to use the money that you would normally put into savings to pay down debt. The interest paid on savings accounts today is substantially lower than the interest rate on consumer credit. You will be doing yourself a favor by paying down your debt instead of putting the money into a low interest account. The more difficult areas to pin down are snacks (coffee, sodas, candy bars, etc.), regular gifts, office gifts, donations, auto repair, home maintenance, clothing, entertainment, and the list goes on and on. It is this second list of items that in most cases creates your debt problem because they are not accounted for in your budget so to purchase them they go onto credit cards. Before you know it, you have spent $300, $500, or more beyond what you earned in the month. Compound this over a year and "BINGO!" you have a "Debt" problem.
Take a look at your monthly expenses and decide what you can live without or where you can cut back. You must be honest and you also must be disciplined after you decide. If you are still going to go to Starbucks, then keep it on the list of expenses. Can you cut back by changing the type of gas you purchase - go from premium grade to regular grade? Can you make or bake a gift for a coworker instead of going in on the office pool? Can you make and bring lunch and snacks instead of going out to eat all the time? Some of you might find it a little embarrassing to go from being one of the lunch regulars to one of the eating in types. But let me ask you a question, "Which is more embarrassing, eating in or declaring bankruptcy?" You decide. At first, it will be like that new diet you started. It is painful and frustrating and you struggle without seeing any benefits, but after you see some results, you are able to now build upon the momentum.
Now total your expenses and subtract them from your monthly net pay. This is the amount of money you have to pay down your consumer debt (see box on Consumer Debt) above the minimum payment. We will call this money "Debt Payment Money" or "DPM".
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