Calculate your monthly repayment ability

The key to life without debts is not accumulating monthly debts. And yes, we also mean bank overdraft. Zero debt is called a “balanced budget” and its meaning is that there is more income than expenses. How do you check it? Assume for a moment that you have no debts at all (it is possible). Now, calculate the total expenses on an average month, as well as the total income on an average month. If income is greater than expenses, this is a positive balance which you can use to settle your debts. In other words, monthly repayment ability is the money available each month for debt settlement.

However, if you find that expenses are greater than income, you will have to create monthly repayment ability before you start dealing with debts. If you don’t do so, you will never be able to get out of the debts circle: each month total debts will increase, you will have to take out more loans, and as a result it will become even harder to deal with debts later.

Do the math

How can we check what is the real repayment ability each month?

In order to correctly calculate the repayment ability, there is a need to accurately calculate all the ongoing income and expenses for at least the last six months. The way to collect the information is from bank and credit card statements, monthly paycheck stubs and statements from different service providers (electricity company, municipality bills, phone and other communication means, gas, etc.). In addition, with the help of other family members, try to recall any other non-documented income and expenses you had in the last month or two. The balance between total income and expenses will reflect your current monthly repayment ability.

What can be done if the balance between your monthly repayment ability and the actual needed monthly repayment ability to start to settle your debts is very large?

It’s simple: increase your repayment ability. As your repayment ability increases, your debts will be paid off quicker. That is why it is so important to reach maximum possible repayment ability as quickly as possible. That is why you must find out how to reduce expenses and increase income.

Review each and every section in the list of expenses and check how much these expenses are really needed. Similarly, check all the income and try to think how you can increase the income in each category.

How can you reduce expenses and increase income?

Becoming a smart consumer and shopper will help you reduce your expenses. There are also a lot of ideas and tips on how to increase income. It is important to note that creating monthly repayment ability, or even increasing it, requires the efforts of the whole family, but it is a very worthwhile and rewarding effort. It advances the family towards the common goal: life without debts. This new way of living will become a tangible influence on everyone.

Remember that the intensive efforts required of you in both increasing income and “tightening your belts”, are temporary, until you have settled all your debts. Also, you do not settle all loans at the same time. Some have only a few payments left while others have more. Once you settle the first loan, it will enable you to deal better with the rest of the loans as your monthly repayment ability will grow.

We have calculated repayment ability. Now what? We need to plan debt settlement.

Feel you cannot face it alone? We can help.

Overcoming debts in five steps:

1. Know your debts
2. Learn how to prioritize debts
3. Calculate your monthly repayment ability
4. Plan your debt settlement while cooperating with your creditors/lenders
5. Persistence! Even when it’s tough