Debt occurs for many reasons - redundancy, illness, loss of overtime, separation or divorce - and sometimes these causes are beyond our control. However there are times when debt is the result of an inability to manage our money effectively.
Managing money starts with a knowledge of our income and outgoings. There are a number of sources of income - from a job, through benefits, lodger or employed children contributions, pensions etc. Furthermore, our income can come at different time intervals - e.g. weekly, monthly, 4-weekly. Given that most of our financial commitments are based on monthly payments (mortgage/rent, council tax, utility bills etc) - it may be worth calculating our total income over a full calendar month.
These may vary according to our own sense of what is important - but generally speaking - rent or mortgage and council tax are top of the list. But then no one can survive for long without some food on the table and if travel costs are necessary to get to work to earn money then these are essential outgoings too (public transport or all costs associated with our car). Utility bills are important - as are any tax debts or court fines. Added together these expenses form our priority outgoings.
Next come the highly desirable but not necessarily essential expenses. Clothing, socialising, presents, holidays etc may form part of this list. The difference between our income and priority outgoings will determine how much we can afford to spend on the so-called non-priority items. Budgeting to allow for sensible spending on the non-priority outgoings allows us to remain control of our finances and avoid the dangers of debt.
Into this mix come any repayments that we need to make on debts. Unsecured debt repayments are not the same priority type as those listed above. However an inability to keep up with debt repayments (and making inroads into actually repaying the capital owed rather than just servicing the interest), can lead to the debts themselves spinning out of control. If it's impossible to meet all demands then the overall position needs reviewing as the likelihood is that we are simply living beyond our means and we need to consider drastic action - downsizing where we live or the car we drive.
For some people this comes as second nature, but for others our finances are a nightmare. What is vital is that we gain some understanding of what is happening to income and outgoings. We may be constantly surprised that by mid month we have no money left, but it's important that we understand why. A good friend or someone with financial expertise may be necessary to help us understand how our finances work, and where possible changes can be made.