Debt Stories – Leon Mclean Make Save Invest Money
It’s Tuesday which means I have another debt story to share with you. The past few weeks have been super popular especially Catherine’s post from last week. She had some brilliant tips to offer to readers about the emotional side of debt as well as the practical. A really great read so do hop on over and read that too.
This week sees a story from millennial Leon Mclean, who blogs at Make Save Invest Money
How I got into debt
My relationship with debt started at the age of 18. I was young and naive about what credit cards were and believed that getting a credit card was a positive achievement in life! I would think to myself “If a bank is willing to give me a credit card I must be doing something right financially”. I was wrong.
Growing up, like most people I was not taught at school about the subject of personal finance. There were no lessons on how to do a monthly budget, how to pay bills, how debt works, how to save money or even how to invest money. Therefore, I had to learn my own lessons about money from the people around me. This involved me picking up bad habits like not paying my credit card balance off in full each month.
There were 2 crisis points in my life when I realised that financially I was not doing as well as I wanted.
When my girlfriend at the time (now wife) and I bought our house together. We wanted to buy some furniture for our living room. But we did not have the cash. We went to our local DFS store and picked the furniture we wanted. The total came to around £1,500 during one of their notorious half price sales. We wanted to use their 0% APR finance but we were both declined! I am not sure if this was due to our relatively low incomes or credit score at the time. The rejection hurt really bad and I wanted to make sure this would not happen again in future, by getting myself into a better financial position in future.
Roll-on a few more years later and we had saved up enough cash to pay for our destination wedding in Orlando Florida and a honeymoon in Hawaii without borrowing a penny. However, I still had a mountain of debt to pay off and I wanted to clear most of it before we got married.
I had £23,000 in total debt. The breakdown was a £18,000 student loan, which was still hanging around from my time as a student and £5,000 personal loan. Excluding our mortgage, that was the most debt I ever had in my life. I was not happy with having the student loan payments being automatically taken from my salary like some form of taxation. Or having to pay monthly payments on the personal loan.
I started reading books about getting out of debt and personal finance from authors such as; Robert Kiyosaki, Napoleon Hill and Thomas Stanley. I then stumbled across a “crazy” straight talking no-nonsense southerner from the USA on YouTube. He was talking about how to get out of debt. His name is Dave Ramsey and I owe a lot to his teachings.
Plan of Action
Finally, I had the “I’ve had it” moment. I got angry at the debt and came up with an action plan to defeat the debt in less than 12 months. The decision was made to get a part-time job. I became a pizza delivery driver working up to 20 hours per week on top of my full-time work and you can read about it here. I earned some extra money which meant I was able to put £2,000 per month towards my debt. Meaning I paid off £23,000 in 12 months of which my £18,000 student loan was paid off in 9 months.
If it sounds easy, I’m sorry. It really wasn’t easy. It was hard and there were a few times I just wanted to quit my part-time job (especially during the cold icy winter).
I have thought about the car I could have bought with cash or the holidays I could have taken for £23,000. Some would say enjoy the money instead “YOLO” (You Only Live Once). But neither of those purchases would have given me the financial freedom I have now. It was certainly worth it. The debt is cleared and I am happy. The only thing left is our mortgage.
At the end of the day, I can go back into debt if I want to. The banks are always falling over themselves to offer people money. But I won’t go back, I cut up my credit card. Therefore, I only use a debit card or cash.
I am by no means a millionaire (we will get there one day), although I love having cash in my wallet and my emergency fund in the bank to call upon if I need. I am no longer waiting for the next payday, it feels as though they come around a lot faster than they used to!
Tips for repaying debt
My top 5 tips for getting out of debt are as follows:
- Workout how much you owe
Add up the total of your debt from all your creditors. This can be a hard thing to do, facing your fears about how much debt you have. If you have any old bad debt that you have not paid for a while, speak to those creditors and see if they will settle for less.
- Make a budget
A budget is a plan of you telling your money what to do. You should make a budget each month before the month begins and before you get paid. Your budget should be specific to each month and be an itemised list of your total income and expected expenditure.
- Start an emergency fund
Before you start paying off your debt, you should save at least one month’s expenses. This amount should therefore be above £1,000. This will be your emergency fund and insure you against any unexpected expenses. Then you can use this money instead of debt in the event of an emergency. Any other “savings” above your emergency fund should be put towards your debt, otherwise it is as if you have borrowed the money to put into your savings.
- Debt Snowball
The debt snowball method is simple; list your debts by total from smallest to largest. Pay just the minimum payment on all of them and put any surplus income on the smallest debt first. When that debt is paid off, roll that money to the next debt and so on. A Harvard study has proved that the debt snowball method is the most effective when it comes to paying off debt. It is not the most mathematically efficient, but it just works.
Getting quick wins by paying off the smallest debts is more motivating than, paying the highest interest rate when it comes to getting out of debt. When most people pay the highest interest debt first they can get bored because this is often the largest debt and it can take a long time to be paid off in full. If interest is a worry, shift it to a low or 0% rate while you are paying it off.
I have discovered that making the biggest payments you can pays debt off the fastest (very insightful, I know!). But really, don’t just pay the minimum you can otherwise you will be in debt for a long time. Workout the shortest time it will take you to pay off your debt and go into maximum attack mode, throwing all of your after expenses income at it. Aim for last than 2 years or else look at what can be sold e.g. Your expensive financed car for a cheaper car paid with cash.
- Get a part-job, side hustle or sell something
One certain way of getting out of debt faster is by making extra income by getting a part-time job or selling some unwanted stuff. Any extra income you make can go straight towards your debt and help you to pay it off quicker.
Most of us are not taught how to manage money properly. I certainly wasn’t. But I learnt a lot through self-study. Hopefully my story above gives you a glimpse into what it was like for me dealing with debt. I also hope that it provides you with some motivation and inspiration to get out of debt, if that is what you want to do. Just remember, it is not easy, but it is worth it…
I look forward to reading your comments below.
This debt story is part of a series of posts by other bloggers, read them all here. Maria Nedeva of the Money Principle, Debt Daddy and Vicky Eves from I beat Debt, Jennifer from MaMaFurfur , Cat from Penny Wise, Life Rich. and Luci from the Frugal Fox.