When planning how you’re going to address your debt, the first step is to assess how much income you’re bringing in on a monthly basis. This will give you an estimate of whether or not you can afford to make monthly payments towards your debt(s) or not.
Here’s how you can calculate your surplus (or disposable) income for each month:
- Step 1: Calculate your total income.
Start by adding up all the sources of income you get every month. Ensure that you cover everything such as wages, benefits, pensions, etc. If you have some forms of income that you’re paid for on a weekly or 4-weekly basis, you’re going to need to convert those figures into calendar monthly figures.
In order to do this, you’ll need to multiply the weekly figure by 52 and then divide it by 12.
- Step 2: Calculate your essential monthly costs.
Once you’ve calculated how much you earn, you’re going to calculate how much you spend every month.
Start by noting down all of your essential bills. These could include mortgage payments, rent, council tax bills, utility bills such as gas, electricity, etc.
These bills should be highest on your priority list since they have the most dire consequences if you pay them late or miss a payment.
It’s important to note that any debt payments you’re making that are NOT going to be a part of the debt solution you’re opting for should also be included in these essential costs.
For example, you can’t include child maintenance fees into a DMP, you still have to pay them separately. Thus, these child maintenance fees would be considered to be a part of your essential costs.
Older bank statements and receipts can help give you an idea of what you spend your money on every month and how much.
If you’re unsure of what you’re spending your money on every month, try to sit down and make a list of everything you buy on a monthly basis.
- Step 3: Deduct the expenditure from the income.
Once you’ve calculated how much you earn and how much you spend every month, you need to subtract the latter from the former.
The resulting value will tell you where you stand in terms of your ability to pay off your debts.
If you have money left over, then you can use this surplus for your monthly payments to your creditors.
On the other hand, if you’re spending more money than you’re earning, then you may need to stick to a stricter budget.
For more information on making a plan to address your debt, you can click here.