Take a Deep Breath and come up with a plan
Its time to rip off the plaster. You may be panicking about your debt but it’s time to face up to it, work out how much there is and come up with plan on how you are going to repay it.
Believe me I have been there, I have been on the long journey of paying down that debt. April 2019 I paid off £16k of debt. I hid from that debt for a long time, before finally realising that I couldn’t go on. I had to come up with a plan to pay off the debt.
The act of writing regular diary update posts here on my website really helped, documenting my path to paying off the debts. It was a long two years, with ups and downs.
Here are the steps you need to take to rationalise your debt and how to come up with a plan to pay it back. The feeling when you are debt free is totally worth it. Freedom is biggest word I can use to express how it felt, I felt free from the weight that was constantly on my shoulders.
Firstly, Face Up to your Debt. Write is all down
In order to progress you must face up to the problem and recognise that it needs to be fixed. The money is not yours and it never will be. In fact, you are mostly likely paying a lot for having this money with interest payments.
Pull out the details of everything you owe. Get your latest statements for your balance and the interest rate. Look at the value of interest payments as well. Write all of this down for impact and realisation that it needs to be repaid.
Get rid of the cards
The best thing you can do now is to cut up those cards so they can no longer be used. A lesson that I can share as I did not do this and reused my cards part way through my debt repayment journey and ended up going backwards. This broke me, I had repaid 5k of my debt and then put £2k straight back onto my cards.
Planning Time
This is the important step that is going to help you get through this debt repayment journey.
Firstly, look at your debts, what is the balance, what is the monthly minimum payment and what is the interest rate. If interest free, for how long?
For example, back in April 2017 I had worked out this.
- I had £7,500 on a Barclaycard; interest free for another 3 months
- £1,000 on a Halifax card. Interest rate of 18%
- £1,500 on Barclays Business card. Interest rate of 19%
- £5,500 on a Virgin Credit Card. Interest free for a further 18 months.
- Total of £15,500 but let’s say £16k to round it up.
Your minimum payments will most likely not be high enough and would mean that you will take years and years to pay off the debt, I remember my minimum payments were £200 per month, meaning that my debt would take 78 months to repay or 6.5 years.
If you cannot make the minimum repayments, then you have a more serious debt issue. Please, please go straight to the Citizens Advice, CAP or Step Change. Three amazing and FREE places for debt advice.
Debt Restructuring
If you have debt with a high interest rate investigate doing a balance transfer. You can do this if your credit rating that allows you, most credit card companies will let you check your eligibility without doing a full credit check on you. Money saving Expert has a brilliant tool that will let you know which cards you are likely to be accepted for without you having to do a full credit check.
Doing this will immediately mean that you save on the interest charges meaning that debt freedom will come quicker.
Clear the highest interest cards first
My views differ here from the debt repayment snowball method (which would advise to pay the smallest £balance first). I absolutely recommend clearing the card with high interest charges first!
My method is best explained using the card balances I had.
I started off by clearing the Barclays Business and Halifax cards within a couple of months. They both had 18/19% annual interest being added to the balances. It was important to me to not be wasting money on interest charges.
This then left me with two large balances on 0% cards. I decided to clear the card with the smallest balance first. The aim here being a mindset challenge to clear the balance and have the mental satisfaction of a card being completely cleared.
I set a monthly payment at what I knew I could afford, £200 per month was being paid off the Virgin card and the MBNA card was set at min payment, starting at £80, and this reduced as my balance reduced.
Every month this minimum would be paid along with anything else I could afford. Some months this was the basic £290ish per month, but other months I was able to pay more towards the debt. Even if it was an extra £50 its worth paying it towards the debt and getting closer to being debt free.
Do everything you can to save money and make extra money. My website is packed full of ideas to save on household bills, groceries as well as making money. Here are a few useful articles to help you save on your bills.
My ultimate money saving tips for the new year
Just keep going, until the debt is gone
It might take you two years, or it might take you five years but keep going. Keep making those monthly payments until the debt is gone and you are free. Expects ups and downs. Expect to feel like the journey may never end, but you will get some glimmers of hope and the light at the end of the tunnel does get brighter. And then suddenly you reach the day when you are debt free.
I slipped, a couple of times. The summer holidays always gets me, higher living expenses and lower income. You may well slip, but don’t beat yourself up too much. Every day, week, month is new month and you can re-set positive intentions to get that debt to £0!!!
Celebration
And then you celebrate! You shout as loudly as you can that you are debt free and bask in the glow of no more monthly payments. Enjoy that feeling of freedom, it is amazing!
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