If you are struggling and burdened with debt, always asking yourself “How do I pay off this debt?” you’re not alone because most adults have a story to tell about their relationship with debt.
I want you to know that it is possible to get out of debt, many others have done it including myself and you can do it too
Pause and imagine what your life would look like if you didn’t have any debt payments
Paying off debt feels good because freedom feels good, it frees up your income for other things you want to achieve
You need to be intentional to be debt-free, it is actually counter-culture and I know you can relate
Good debt is used to buy things that go up in value and have a low-interest rate, for example, a mortgage to buy a home.
Bad debt is used to buy things that go down in value and have a high interest rate e.g. credit card debts to buy clothes, loans to buy a brand new car, etc.
The strategies outlined in this post will help you pay off debt, especially bad debt irrespective of your income level.
Before we continue, If you have a partner please get them to read this post and get on the journey together.
It’s important you get your partner on this journey but do so in a loving, firm and non- judgemental way because if you will come out of debt, it has to be done together.
Debts can be so overwhelming that we think it’s easier to bury our head in the sand.
The very first step is to face what you owe and not hide from it. If the banks know your numbers, you should know too.
Work out what you owe, to whom, the interest rates and minimum payments for each debt.
This information needs to be organised in a list, you can use a spreadsheet, Pen and paper or apps but know these numbers
A budget is simply a plan for your money. It helps you prioritize, cut back expenses and live within your means
If this is your first time creating a budget please read how to create a budget and reasons why a budget fails
You are meant to control your money and not wonder where it went. A budget will help you do just that.
Ask yourself questions like
This is important because you have habits that led to the current situation and it’s important to know the triggers and thoughts that led to those habits so you are better prepared next time.
The truth is the brain is a prediction machine and over the years we have trained it to respond in certain ways when somethings happen
What we are doing here is to call out these triggers and those habits that led us to debt in the first place. Awareness is the first step to recovery.
An emergency fund is an amount of money set aside for unexpected expenses, thereby minimising the impact of these events, this is important in your journey to debt freedom.
Saving up a starter emergency fund of £1,000 or one month’s worth of expenses whichever is higher
It is important this is in place before you overpay your debts because provides a cushion in case of an emergency and prevent you from getting deeper into debt
After you have payed all your bad debt, then you can fully fund your emergency account with 3 – 6 months worth of expenses
There are two popular methods of paying off debt.
Debt snowball. With this strategy, you pay off debt starting with the smallest to largest
Debt Avalanche. With this strategy, you pay off debt starting with the highest interest debt to the lowest interest.
Both strategies have their pros and cons but I prefer the debt snowball because of the mental push of seeing progress and establishing new habits
But irrespective of the strategy you pick you need to do two things
Top tip: Close the account or cut the card when the debt is settled
Paying down debt for most people will take a while and that means its rewards are in the future
While we delay gratification, tracking your progress and setting small rewards with every small win and milestone motivates you.
Tracking makes your progress obvious, giving you a powerful signal that you are moving forward and also helps keep your eyes on the ball.
Why are you pursuing debt freedom?
Whilst keeping a mental note of your why is important, I want to also encourage you to write it down in a clear and concise form.
Having a clear picture of your desired life after you have paid your debts drives you to keep taking action.
Complete this statement and write it down
I want to be debt-free by _____________ so that I can __________________
Another way to get yourself out of credit card debt is to transfer the debt to an interest-free credit card for a period.
This means payments on the card clears your principal without paying interest thereby saving you money
Be sure to use comparison sites to make sure you are eligible
It’s also important to pick a card with low transfer fee and long tenure and if you have multiple cards transfer the balance from the card with the highest interest rate
Don’t withdraw cash or spend on the card, don’t miss any payment and also read the fine print to know other terms and conditions so you don’t lose the 0% interest.
It’s better to set up a standing order or direct debit
Getting alternative sources of income can accelerate your goals towards debt freedom only if you apply the extra income to pay off debt.
Think of ways to earn more, a side hustle, more shifts at work, a second job, anything to earn more will be worthwhile in the end
Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others
Consider this carefully. It’s not a solution to the debt problem but can make it easier to tackle sometimes
Again make sure you close all previous accounts and cut all cards because you don’t want to merge and rake up more debt with the old company
If you are in a dire situation where you can’t make minimum payments or can’t literally keep your head above water, you are not alone.
There are experts that can help with a free personalised solution.
Organizations like Citizen’s advice, Step change, National debtline, Christians Against Poverty.
These organizations offer free advice and independent support to help you deal with debts
You need a new culture and community where your desired result is the norm.
It will make it easier to achieve your new goals and building better financial habits
This community sets the expectation of what is normal
Search facebook for Financial independence (FI) groups in your area
Getting out of debt is possible and worth the effort, it might take some time but its worth the work.
Once your debts are paid off, don’t stop there, rather build on that momentum and continue transferring the same sum to other goals like funding your emergency account, setting up a sinking fund and investing for the future
