Its always a good idea to use a budget to keep track of your personal finances, but its vital when youre up to your neck in debt!

The basic idea is simple. A budget just compares the income you have each week or each month with the things that you have to purchase.

Right, first you need to work out your total monthly income. Include your income from all sources. This means wages, regular overtime, bonuses, any benefits you claim etc. The figures you use must be after tax, so count your take home pay instead of your gross pay. If your income varies, its advisable to work out how much income youll have at the start of each month.

Have you done that? Write the figure down.

In [month] my income will be..........

Now were rolling! This figure is all youll have to live on for the next month, and take a chunk out of your debts.

Vital Expenses

Right, vital expenses first. And when I say vital, I mean VITAL. So that includes keeping a roof over your head (rent, mortgage, property tax, electric, gas etc) and putting food on the table. In other words, things that will endanger your life if you dont have them!

A few months down the line, this will show you how much money youve spent on various items (such as food, rent, mortgage, household bills), and allow you to identify the areas where you can cut back.

Debt Repayments

The next item to deduct is the minimum payment that will be required on your debts for the month. This is the amount thats required to stop them sending you any nasty letters. This could include your mortgage payment, the minimum amount required on any credit or storecards, the regular monthly instalment of any personal loans, car loans or student loans and the amount your overdraft needs to keep your bank manager happy.

These two figures (vital living expenses plus minimum debt repayments) will show you how much you need to spend each month just to survive and keep your head above your sea of debt.

Now whats left? This will show you whether or not youve overspent each month.

If theres nothing left after these basic costs, then you position is much more difficult. All I can suggest you do is to look at how to increase your income, or get some professional advice on how to deal with your debts.

If you have anything left, this means that youll survive financially, for the next month at least. Put every single cent that you have left over towards reducing your debts. If you spend less than you earn every month, then you will eventually pull yourself out of debt.

The further you strip back your spending, the faster your debts will shrink and the less theyll ultimately cost you.

Heres a little tip to help you keep your spending low. Take a sheet of paper and pin it up in a prominent place in your home. The back of the main door is always a good place, because youll see it every time you go out. The idea is to start with a blank sheet each month, and to write down every amount that you spend over the course of the month. Keep a running total so that you can see at a glance how much youve spent every month.

At the start of the month, you could fill in the figures that you know in advance, such as your rent, minimum debt repayments, council tax, etc. Then the rest of your vital living expenses can be filled in as and when you spend the money.

Every time you spend something, add it to your running total for that month when you return home. Then every month try to spend less than the month before. Make it into a game. See how little you can spend each month. Restrict your spending to things that are absolutely necessary.

At the end of the month, the difference between your income for that month and the total amount that you have spent is the extra amount that you can put towards reducing your debts.

Its also a good idea to keep a running total of the amount that you owe pinned to your door. Update the total at the end of each month after youve paid your remaining monthly income towards the debt. This will give you a visible reminder of what youve achieved and when you still have to do.

Seeing your total debt getting smaller and smaller as the months pass should give you that extra burst of motivation to keep going.