This is part of our Pay Debt Quickly series sponsored by PDQ Pay Debt Quickly kit.

Before making the decision to add more debt, you need to make sure that you:

* Allocate sufficient money for your essentials.
* Borrow only for items that you need and can afford.

* Borrow only if you’re spending less each month than you take home.

1. Start with your monthly take-home pay.

This is the amount you have left after taxes and other deductions have been made.

2. Subtract the amount you need for necessities and fixed expenses.

This includes savings, your mortgage or rent payment, utilities, food, transportation, child care, medical care, clothing, and recreation. Include payments made on a quarterly, semi-annual, or annual basis, such insurance and taxes.

3. Subtract monthly payments for existing loans and credit cards.

4. The balance is the amount you can safely apply to debt repayment.

Avoid thinking you can spend all this amount, since emergencies do occur, and you may not wish to use your regular savings account to cover small, unexpected expenses.

Monthly Take Home $ _______________
Fixed Expenses $ _______________
Loans/Credit Cards $ _______________
Amount Available For Additional Debt $ _______________
Moral of the Story: If you’re planning to buy a new house or car, pretend you have already done so and start “making the payment” but to yourself. Within a few months, you’ll know whether or not you can really afford it and you’ll have some money set aside for repairs, etc. when you actually do make the purchase. If you can’t make the pretend payment, you certainly won’t be able to make the real one consistently. Time to go back to the drawing board and figure out what else you’re willing to give up in order to have the new debt.

I welcome your comments, ideas and tips that have worked for you.

Warmly, Cindy