In my previous post, we went over the big things that affect your finances. If you haven’t read it yet, check it out and then come back- it’s best to have a good idea of your foundation before looking at the bits and pieces.
Done that? Good egg. Now, let’s take a look at how to pay off debt and make your disposable income stretch further. (This has become longer than I thought so I’m going to put the little hints, tips and tricks into Part 3)
Your Lifestyle Can’t Stay the Same
One of the biggest problems most people with money issues have is that they really struggle to cut out unnecessary expenses and, essentially, stop living as if they have more money than they actually do. I’m going to put this bluntly because it makes the biggest difference; you CANNOT live the life you want while also paying off debt. Doing so will either keep you struggling with minimum payments and poor credit scores or worse, getting further into a black hole of debt and lots of court appearances. No future credit. No financial security.
What’s your biggest non-essential expense? If it’s groceries (I don’t mean your basic bread and butter), head to the subheading ‘Food, Glorious Food‘. If it’s something like smoking, or takeaways I want you to cut out at least one item per week (so one pack of cigarettes, one pizza etc). Stick that money onto your smallest debt. Next month, cut out two per week and use that money to pay the debt again.
Look at it this way, that one pack of cigs costs roughly £7 or more, right? That’s £28 more than your current minimum payment (which you also have to pay.. don’t look at me like that, I’m helping you- and don’t tell me you can’t afford it, I just saw you about to buy that pack/kebab/dress etc). The next month you’d pay your minimum and £56 (because you cut out two things, so twice as much) and so on. Not only are you going to be healthier for cutting this out, this also works as a snowball effect for paying off debts. Speaking of which…
Introducing the ‘snowball effect’
What do I mean by this? You start paying off the smallest debt first, say a £500 hire purchase debt or credit card, before paying off the larger ones like overdrafts. Use the above tip of paying off the minimum on all debts– then pay off your extras to your smallest debt. It’ll be finished sooner and you’ll have less interest to pay on your debt in total. When you’ve paid off the smallest amount, add whatever you paid monthly on that, to your next smallest and so on. This also helps to keep you motivated as you see your borrowed money shrinking away and have one less debtor chasing you around- until there are none left. Bliss.
To reiterate: Pay more than the minimum to get a better credit score and pay off debts sooner.
Don’t miss payments
If you genuinely can’t afford a minimum payment, get in contact with the company to explain the situation. It’s better to have a query on your credit file than a missed payment. Plus you can avoid those nasty charges which would otherwise negate all the extra work you’ve put in, as discussed in ‘Your Lifestyle‘ (right?)
Break that card
Or rather, stop buying things with your credit cards and overdrafts. You’re trying to pay off your smallest debt first and then completely close, or forget, those accounts. Once that money is in there I want you to view it as having disappeared entirely- the same as if you’d already spent it (because you have). You need to remember that borrowed money isn’t your money, so you have to stop thinking about it as “I paid off x amount which means I have x amount to spend”. You don’t. Otherwise, you’ll end up in a save-spend cycle which will keep you in debt forever.
Budget and Plan
I have a book, I call it ‘My Book of Evil Plans‘. In there, I write what I need to buy in the coming month and what income I’ll be getting and make sure there’s always money aside. For example, with the coming winter months, I know it’s going to cost more to heat my home (I’ll be adding tips on how to lower bills in the next instalment), plus I have a shit load of December birthdays coming up and, of course, Christmas. This is all stuff I need to budget for in order to maintain my saving goals. You don’t need a book though (I just like hand-writing things… which is odd for a Blogger). You can use sites like the Money Advice Service, who have an online budget planner for you to fill out- you can even save your results and log back in at a later date if your income changes.
Don’t Borrow More Money
But you CAN borrow money. Let me clear this up for those now scratching their heads. One of the best ways to keep on top of ever-increasing interest rates is to change up your debts regularly. If you have credit cards, find a provider who offers a 0% interest rate and transfers your balance to them. It’ll give you a little extra cash each month (which, of course, will go on your debt anyway…right? Right). If you’re into a student overdraft (the most killer of all overdrafts as most banks don’t even seem to question why you need the money- they just extend it on a yearly basis) you can add extra cash to a savings account. Using the tax-free status to build up cash quicker and pay off your debt when your interest-free limit comes to an end.
Look at Your Credit Score
Even if you’re not looking to get more credit, it’s really important to take a look at what’s on your file. Everyone from employers to letting agents may want to check this information and needless to say it’ll reflect badly if your score is low. You might be surprised by what’s on there and you can chase up any wrong or fraudulent activity much faster and easier this way. Some of the easiest ways to up your score include getting yourself on the electoral register and, as aforementioned, getting in contact with people you owe money to.
Stop Deluding Yourself
Yes, this sounds harsh, but the “I’ll pay it back when I get a job/this pay” narrative, alongside “I’m living in the moment” excuse is half of the reason (if not more) you’re in this position. If you have debt, the only way to get out of it is consistency, determination and strong will-power. Pretty much like everything else in life. Pay it off now= reap the rewards sooner. Or procrastinate and make up excuses to remain in debt.
Don’t pin yourself down
If your job isn’t paying you enough you can always ask for more hours, a pay rise or even look for a job that you know you’re capable of, rather than one you needed at the time. You can look for jobs on the side if you’re worried about security. Thanks to the record amount of unemployed and excruciatingly low minimum wage, people are fighting tooth and nail for peanuts, so I do understand that it’s not as easy as it seems to state, here. However, nine times out of ten, you’re worth more than you’re made to feel. Just make sure you work hard to get there, and that others see you working hard (be more American and less British about it) as no one’s going to give you something they don’t feel you deserve.
Be Proactive, Not Reactive.
If this post is going to highlight one thing, it’s to be proactive. It might suck having to speak to that department on the phone but it sure as hell beats weekly reminders in the post and the inevitable thugs at your door (take it from someone whose home housed the previous tenants many, many debts- the thugs are horrible. And the court summons/appearance I had to make just to prove I wasn’t the Mr —- who lived here before me was an experience I’d rather forget).
Always make the first move, pay off a little more, sacrifice a little more, educate yourself further, push back against those who tell you that you can’t do it. You can. People have. You will.
Originally published at livelifemag.blogspot.com