Being in debt can make you feel really isolated, but this question is one I’m asked frequently, by people who are worried and don’t know what to do or where to start. Ultimately, the debt isn’t going to go away — it’s something you’re just going to have to deal with. So, for now, here are some things you can do to get started.
Where Do I Start?
The first thing: don’t panic.
If you owe a lot and don’t know where to get started, panicking won’t help, because it activates the fight/flight response and stops you thinking clearly. At this stage, I’d like to invite you to join our Facebook group to get the moral support you need right now, which you can join here.
Now, sit down, take some deep breaths and make a list of everything that you owe, considering the following points:
- What do you owe? (e.g., credit card, bank loan, phone bill)
- Who do you owe it to?
- How much do you owe them?
- What’s the interest rate?
- What’s the minimum repayment?
Writing these things down will cement it in black and white for you to make a plan to get it paid off.
Look at Your Outgoings
Next, look at what you’ve spent. List out everything you’ve purchased in the last month. If you’re using your phone to look at your accounts, transfer everything onto either a spreadsheet or a notebook; whatever feels right for you.
Then, grab a highlighter and highlight everything that MUST be paid, no matter what (e.g., mortgage, rent, bills — everything that’s keeping the roof over your head, the lights on and food on the table). Tweak them if necessary (see if you can save money on your bills, for example). But you already know you can’t avoid paying those, so they have to stay.
Now you need to work out if you can afford to pay for both the essentials, AND the minimum repayments of your debts.
As a very minimum, ask yourself — can you afford your essentials and your debt repayments? If the answer is yes, and you have money spare, you can still have a little fun and enjoy your life. There may have to be some sacrifices, but you don’t have to feel so pressured.
On the other hand, if you find you are spending more than your income, simple strategies won’t work here. In this case, please seek professional help, either paid, or through a charity. Some organisations that can help you include Stepchange or National Debtline.
How Can I Pay off My Debts?
As mentioned above, if your outgoings exceed the money you’ve got coming in, I strongly recommend you seek professional help with your debts.
Otherwise, I’ve outlined 3 methods below for you to consider. Read through them, then decide which route you’ll take. Above all, you need to make a decision and act on it straightaway to ensure you see it through. Let’s look at the following 3 options: debt snowball, debt avalanche, and debt snowflake.
The Debt Snowball Method
With the debt snowball, you throw money at the debt that has the smallest balance, ignoring any interest. Let’s say you have 3 debts – 1 at £1000, 1 at £2000 and 1 at £3000. So, while you’re still paying the minimum payments, any extra money you have goes towards paying off the £1000 debt — the smallest balance — first. For more information, check out this free download on How to Get Out of Debt.
Once that debt is paid off, you turn your concentration to the next smallest debt (in this case, the £2000 debt). Each time you pay off a debt, you free up the money you were spending on the minimum repayment. You can then put this towards the next smallest debt, together with any extra money you can find to go towards it until it’s all paid off.
By the time you get to the £3000 debt, you now have the minimum payments from debt 1 and debt 2 to put towards debt 3, plus your additional debt repayment money. NB: This method isn’t right for you if you have payday loans, because these are extremely expensive and need to be paid off first.
With the debt snowball, you can see that as your debt repayments grow, so does the speed with which you pay off your debt.
The Debt Avalanche Method
Contrary to the debt snowball method, with the avalanche method you concentrate on the debt with the biggest interest rate first. So, if the £3000 loan has the biggest interest rate, you start here and concentrate on sending all of your spare money to that debt, while still paying the minimum on the remaining debts.
In theory, paying your debts off this way will save you money as you’ll be paying less interest for less time. So, if you have some high interest rate loans and want to use the debt avalanche method, focus on the debt with the highest rate first, through to the debt with the lowest interest rate.
The Debt Snowflake Method
With the snowflake method, you continue to pay tiny amounts off your debts. Let’s say you sold something and earned £5; this is your snowflake and should be one of many. Each time you free up some money, or find small amounts of spare cash, use it to pay off your debts.
Make sure you concentrate all of your effort on the debt you’re determined to pay off first. Focusing your energy on just one at a time (while still paying the minimum repayments) will get it paid off quicker than trying to pay them all off together.
For more information on the different ways of getting out of debt, check out this free download, How to Pay off Debt.
Celebrate Your Milestones
In the Female Money Doctor Facebook community, we frequently celebrate the debts we’ve paid off that month. To date, we’ve collectively paid off almost £1,000,000 worth of debt, and it’s so empowering. Just acknowledging those achievements can make a huge difference.
Remember when you were in school, and you’d get a gold star for doing so well? We don’t celebrate our successes as much as adults and it’s high time we did, so make sure you have yourself a little celebration to mark your achievements along the way.
You Need Accountability
It’s also very easy to trick ourselves, and not do the things we say we’re going to do. I’m just as guilty of this with things like exercise, weight loss and debt. So, I highly recommend getting an accountability buddy for those times you feel like things aren’t going so well.
Having an accountability buddy means you’ve got someone you can lean on in desperate times. For example, if you’re really tempted to buy something which could blow your budget and ruin your debt repayment strategy, you’ve got someone there to listen and support you. There are plenty of women in the FMD Facebook group, so come along and join us and tell us if you’re struggling.
You can also join the 2 week Healthy Money Planner Challenge starting 23rd August 2021. This will help you to get clear on your budget, be accountable to your goals and dreams, and get starting on your debt free journey! Click here for more information.
In life, we all slip up from time to time, no one is perfect. But when you slip up, don’t make it permanent. If your month didn’t go so well, consider why. Think about what happened, and could it happen again? What measures can you put in place to stop it from recurring? And next month, get back on the horse and try again.
Forgive yourself, and don’t let a slip up ruin your chances of becoming debt-free.
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