With another Christmas gone and a new year having just begun, more and more people are likely to find over the coming weeks a harsh reminder of Christmas and those nasty credit card bills. With numbers showing that spending over Christmas increased to just under $40 million dollars, it is likely that some Australians are in for a rude shock with their next credit card statement arrives. For this reason we here at Debt Negotiators have put together steps to pay down credit card debts. These steps are for all Australians whether you are in a relationship or not, whether you have children or not and whether you are paying off a home or not. You may or may not find these steps useful and you may already have these steps in place.

Step One: Calculate Debt Level

It is important that when you open your credit cards or personal loan statements that you do not panic. If you panic chances are you will stop making payments or begin struggling to meet your minimum monthly payments. The first thing you need to do is to calculate the total amount of debt you have. It is in your best interest to include all debts when calculating this. Whether it is secured or unsecured, as you must make payments on them all. It is important that you add in all debts even if they are in single names, as it will make your lives a lot easier.

Step two: Calculate your Household Income

It is important that you calculate all income that you are likely to receive each pay period, whether it is weekly, fortnightly or monthly. All income needs to be included to make these steps work. Once you have calculated the income you are likely to receive; you now need to turn this amount into a monthly figure. The reasoning for this is that in the majority of cases your debt payments are monthly. If you have worked your income out on a weekly basis time this amount by 4.3, if you receive income on a fortnightly basis divide this amount by 2 and then multiply by 4.3. Doing this will give you a stronger indication of the income you have to pay your bills.

Example of calculation for weekly income- $1200 per week X 4.3=$5160

Example if income is paid fortnightly- $2400/2= $1200X4.3=$5160

Step 3: Formulate a Budget

You now know the income you receive each month, the next step is to calculate how much of this income you spend. When calculating your spending, do not include your debt payments. Not including any of your debt payments will allow you to see exactly how much you have left over after expenses. Expenses that need to be included in here are food costs, utility bills, travel expenses, if you are renting your rent payments, other general expenses i.e. children costs, clothing expenses, incidentals. Make sure that when calculating your spend it is based on the time period that you spend for, ie grocery bill may be fortnightly. Then using the same rules applied to your income turn all of your expenses into monthly expenses, you now know what your monthly expenses are. Using your monthly household income calculate how much money you have left over after expenses.

For example- Household income=$5160 minus Monthly expenses=$4000 this will leave you with $1160

Step 4: Calculate all Debt Repayments

The next step is a vital step as it is the step that shows you how much your payments are. You know your debt level now you need to gather the regular minimum monthly payments together on the debt. You must include all debts as leaving a debt out will result in your financial situation being incorrect and more likely than not put you in trouble. Majority of your debts are likely to already be in monthly payments however if they are not it is important that you turn them into monthly payments as all the other steps have been on a monthly timeline. Once you have calculated each individual debts repayment you will need to add them together. This will give you a total monthly payment for your debts.

Step 5: Can you afford your payments?

You now have all the information that is required for you to know if you can afford your debts. You will need to subtract the debt repayments that you calculated in step 4 from the left over income calculated in step 3. i.e left over income=$1160-total monthly debt payments=$960 left over money that can go towards paying down debt $200

If when subtracting your debt repayments you end up with money left over, put this money onto your credit cards. You will not notice it straight away but your debt level will begin to drop, but you do need to be certain that you make these extra payments and do not reuse the debt you are paying off.

If you have a negative figure after completing step 5, you may need to speak with someone who has a background in finding financial solutions. Our consultants at debt negotiators have a career in the financial industry behind them, whether it is in lending or helping people get out of debt. They may be able to find a solution for you, call Debt Negotiators on 1300 351 008.