If there was ever a time to get serious about paying down your debt, that time would be now. With the economy in a tailspin, more and more people are finding it difficult (if not almost impossible) to pay their loan and credit card payments on time. This is making the banks and credit companies nervous and it is resulting in the tightening of their proverbial fists. They aren’t calling it a “credit crunch” for nothing.

This is not the time to pay only the minimal amount on your bills and it is definitely not the time to skip a payment. It is time to get serious and get rid of your debt before doing so becomes even harder. The credit card companies and banks look for reasons to raise your rates and charge you extra fees under normal circumstances. With so many people defaulting, they are itching to recoup their investment. Don’t give them any reason to target you.

The key to reducing your debt is to figure out exactly how much money you owe. Get all of your bills together. Don’t worry about insurance or utility bills yet, we’ll include them in a little bit. If you don’t have a recent bill handy, call the company and ask them for a remaining balance. Write it all down. Make sure that the amounts left on your mortgage and car loans are represented. Add it all together and this is your debt. Tack on an extra ten to fifteen to percent to account for the interest that will be added as you pay down the debt.

Yes. The final number will probably be depressing.

Now, go through your bills. Write down two numbers. The first number is the minimum payment. The second number is the amount of money you are charged for interest and finance charges. Combine the two numbers and add ten dollars. This is your new “minimum payment.”

Total your new minimum payments. Yes, this number will still be depressing.

To your minimum payment total add the following: if you live in an apartment, add your rent payment. Add your insurance payments (car, home, rental, etc). Add in how much money you spend on groceries each month and your utility payments. Figure in how much money you will need for things like getting your hair cut, clothing for work, and even some for leisure time activities –seeing the occasional movie, splurging on the occasional dinner out, things like this. Be realistic. If you know that you are not likely to skip your monthly hair appointment, write it down. Total all of these numbers together and this is the amount of money you must make every month.

Does your monthly income match your monthly “out go?”

Don’t feel bad and do not panic if you don’t earn enough to make your monthly minimum budget. There is plenty of advice here on Wealth Junkies to help you figure out how to add to your income and how to reduce your spending.