August 21, 2019 How to get out of debt, pronto
Being in debt ain’t fun.
Particularly if it’s credit card debt and the compound nature of interest (in reverse!) means you can see no end in sight in terms of paying it down.
I met someone recently who has racked up close to $30K between two credit cards over the past 18 months.
She also has close to $3K on Afterpay. Both cards, I’m guessing, would be attracting some pretty serious interest.
Let’s assume she’s paying an average interest rate of 18 percent across both cards.
Now, if she were to simply make the minimum repayments each month, it’d take her around 60 years to pay both cards off, hitting a total of close to $113K in the process. Crazy, right?
It’s an extreme example, sure. But you get what I mean. Carrying too much ‘bad’ debt can become a real downward spiral, financially speaking.
And one that takes a lot of discipline and tough, lifestyle-compromising decisions to get out of.
If you’re carrying bad debt – and hopefully not anywhere near as extreme as the above example – there are five things you can do right now to start to get on top of it all.
I’ll walk you through them…
Change your spending habits
This is a tough one. We’re creatures of habit when it comes to money and day-to-day spending. In other words, you’ll struggle to get yourself out of debt if you can’t change the psychology around your spending.
Now, I’m not suggesting you hole yourself up at home like a hermit, but reigning in your spending is critical.
You don’t have to cut back on everything – it can be as simple as taking your lunch to work instead of buying it every day.
Whatever it is, changing your spending habits is likely going to be your biggest challenge to getting out of debt.
Set a practical, achievable budget
You’ll struggle to change your spending habits if you don’t have a workable budget. It has to be realistic.
You’ll need to address all your non-negotiable financial needs such as mortgage payments (or rent), groceries, insurance payments, schools fees and whatnot, while reducing spending on entertainment and dining out, for example.
The key is to have surplus cash left each week or month to make extra payments on, say, your credit card or whatever debt you have.
Start paying cash for everything
This is actually one of the simplest things you can do. The reason why is it starts making you conscious of how much you’re spending every week.
There’s something about handing over physical cash, rather than constantly tapping away with contactless payments, which, left unchecked, can quickly blow your weekly budget out of the water.
Get a balance transfer credit card
If you have a sizeable credit card debt, you might want to consider applying for a balance transfer credit card with another bank.
You can typically get 0% interest over a set period – 12 months, for example – which, by sticking to a disciplined budget, can be a fantastic way to make some serious dents in your credit card debt.
Pay more than the minimum amount
Again, if the bulk of your runaway spending has been on your credit card, use the fat you’re saving (thanks to your budget and newfound discipline!) to make extra payments each month.
Let’s say you owe $5K and the monthly payment is, say, $114. If you simply make those minimum payments, it’ll take you five years to pay it off, meaning you’ll pay an extra $2,292 in interest along the way.
Getting back on track when you’re carrying debt can be tricky. I know. It requires discipline, which, for some, can make it hard to turn things around.
If you are struggling to work out a budget or develop a strategy to get yourself out of debt, give me a shout.
Am always happy to lend an ear and try to point you in the right direction.
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