by Yusra Ahmad

Created on: May 15, 2009

The first step

Before attempting the magnanimous task of trying to free yourself from debt you need to consider the underlying reasons that you are in debt to begin with. If you do not take the case to complete this simple exercise then you will either continue accumulating more debt or if you do by some miracle manage to free yourself from it it will only be a temporary solution because you do not understand the pitfalls that you repeatedly fall into.

Your debt

While there are many different types of debt, there are only two ways to end up in debt. The first of these is a debt undertaken in order to facilitate the purchase of a high value asset, such as a car or a house. This kind of debt is in a sense advantageous, as if the debtor falls into financial crisis, then the asset could be sold and the debt either cleared completely or greatly reduced. If the debt is cleared however and the asset retained then this could, in the case of a property, be a profitable venture. Nevertheless, a realistic approach must be undertaken when assessing whether this kind of debt is affordable or not otherwise the result will be devastating.

The second reason for debt and possibly a trap that most of us fall into is debt that is accumulated due to a deficit between income and expenditure. If this is the case, then you need to stop and think about your expenditure realistically. Even if you are taking out an extra 100 a month to cover bills then your situation needs to change. Be honest with yourself because that is the only way to resolve your situation. If it is a case of moving home, living less lavishly or even finding a second source of income then that is what needs to be done. You need to live within your means. Once you can successfully achieve this, then you can start working towards clearing your debts.

Assessing the extent of your debt

Start by writing down all of your expenses on a monthly basis; again be honest about how much you are spending, this is not a public record it is for your eyes only. This should include everything from transport, food, clothes, entertainment, bills, mortgage/rent and debt repayments. With the debt repayments, start by only including the minimum payments for every credit card or loan you have. Once you've done this compare your expenses with your monthly income. Can you now see where the problem areas are?

You now need to start trimming the fat, that's right; you need put yourself on a budget. While it may seem scary or inconvenient

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