Debt isn’t a bad thing; it can help many of us to be able to buy and do the things that we really want to do in life and it can help us when we need it. Buying a house or a car wouldn’t be possible for the majority of us if it wasn’t for taking on a debt but as long as that debt is manageable and we’re sensible with our finances then it isn’t a bad thing. The trouble comes with debt when we take out more than we can comfortably afford to pay back or we misuse then lending facilities that are available to us.
I know so many people who are afraid to take out a credit card or to have an overdraft for fear of being in debt due to the horror stories they’ve heard from others who haven’t managed their money wisely but really debit isn’t anything to be scared of, it is just something to be treated sensibly with care and attention.
Before I started my blog and for the first few years of WhatLauraLoves, I also worked for a couple of different banks for a variety of clients. What I observed was that if you earn 20 grand a year, you spend 20 grand a year and if you earn two hundred thousand, that’s what you’ll spend. Often people think that if they earned loads of money then their life would be so much different when really, it wouldn’t, you’d just pay out more for your car each month and have a holiday on a bigger scale a couple of times a year.
Regardless of how much we earn and how much we pay out, it is important that we have a handle on our finances so that we can work hard, play hard and achieve our financial goals in life. Sure debt can help us to get that mortgage to buy a home or a car but it needs to be manageable as we need to be able to pay it back each month. It is pointless taking on a debit to buy something that we really want if we cannot enjoy it because we’re worrying about making the repayments and if you are worrying about them to any great extent, it begs the question of whether you can really afford to take on the payment in the first place.
It is important to remember that regardless of how well planned a purchase is or how well we manage our accounts, every one of us is susceptible to falling into debt that we’re struggling to repay or for our accounts and spending to run away with us only to find ourselves one day thinking, what a mess!
In todays post, I’m going to share my tips on how to manage your accounts and how to get out of debt.
GET TO KNOW YOUR ACCOUNTS
Make a list of every single amount of money that goes out of your account be it standing orders and direct debits for things like the rent for your home and your mobile phone contract, annual payments and essentials that you are guaranteed to spend on such as fuel and food. Then write down all of the money that comes into your account whether thats income from your job, a pension or a benefits payment. Don’t include extra money that isn’t guaranteed such as PayPal payments from selling on eBay as this isn’t something that’s guaranteed or consistent.
MAKE THE CULL
Take a look at those payments and cancel the ones that you don’t need such as subscriptions to services that you very rarely use. If you find yourself going overdrawn often and getting bank charges yet are paying out for charity donations, consider ending the direct debit to those and instead donating in chunks as and when you have the funds or pop your change into a charity box when you pass one. The amount you donate will soon mount up without being at a detriment to your own accounts or credit file. It may seem like an awful thing to do but if you’re getting into debt and accumulating bank charges then you need to prioritise your own accounts and dependents first and that isn’t anything to feel guilty about.
TOTAL YOUR DEBTS
Make a note of the total amount outstanding on all of your lending be it in the form of short term borrowing such as your overdraft, credit card, store card or bank loan and your long term borrowing such as a secured loan and mortgage. Don’t just record the amount you owe in total but the interest rate and the monthly repayment.
CONSOLIDATE & SHUFFLE
When you’re paying off debt, it will often work out cheaper in the long run to pay off the debts with the highest interest rate first. However sometimes we’re not always in a position to think about the overall amount repaid at the end of the term and sometimes it is the amount we pay out each month that is the focus. You might be paying out £600 a month to several different debts and struggling to make the repayments alongside the cost of day to day living but consolidation could mean that you could reduce your monthly repayment to £400, freeing up £200 a month to help with your daily living costs but in the long run, you could end up paying back much more money. In reality, that might not matter to you if you’re really needing to get a handle on your finances now. Consolidation and shuffling are options that can help you to move money around to help you to repay debt either by reducing the monthly repayment or the interest, if it is available to you.
Consolidation and shuffling isn’t an option for everyone but if it is open to you then it could be something that you might like to consider. Consolidation is where you pay off a number of your outstanding debts using one bigger loan and you focus on paying that one payment each month rather than a number of smaller payments. This can really benefit you in a number of ways as it can make your debt seem more manageable and it can lower your monthly repayment to free up more money each month but the interest rate will determine whether or not it will save you money in the long run. There are even bad credit loans available for those who may not be able to borrow from their usual bank because of their credit file and while these will usually be at a higher interest rate than traditional borrowing, they can be helpful if your aim is to reduce your outgoings rather than to reduce the rate and therefore the money that you’re paying back overall at the end of the term. Bad credit loans can also be an option for those who are now debt free and wanting to make a purchase or do home improvements but are being held back by the negative footprints on their credit file from debt in previous years. Either way, writing everything out and not being afraid to look at the situation as a whole will put you on the right track because you’ll be facing up to what you owe.
The credit card shuffle is another option that could help you if you’re paying off debt with interest added onto it. It is where you take out a credit card with a 0% interest on balance transfers deal and then move the money from a credit card that you’re paying interest on to it. It is best practice to close down the account that you transferred the money from so that you’re not tempted to spend on it again and get yourself into a deeper hole. I would then suggest treating the new credit card balance as a bank loan- don’t spend on it, just pay chunks off each month and if you’re able to, divide the total amount owed by the interest free term to get the monthly repayment amount and pay that figure off each month so that by the time the interest free period runs out, you’re free of that debt entirely!
OPEN A SECOND CURRENT ACCOUNT
Having two current account really works for me. I have one for my bills and one for my spending. I have an overdraft on the bills account to the value equivalent to the total amount of my bills for back up, incase anything happens but I don’t go into it; it is there for emergencies only. Then I have a spends account. I get paid into my bills account each month and then transfer the remaining money into my spending account and savings. I will use my spending account for trips to the pictures, nights out, none essential purchases and leave the money in my bills account to take care of all of the essential payments. That way, I know that come what may, my bills are paid for every mont. if you’re someone who finds themselves short each month because you’ve overspent or not really known how much money you had at your disposal before you went shopping then this method could really work for you.
SET YOUR BUDGET
Once you know what your commitments are each month and what your income is, set yourself a budget. If you’re paying off a credit card then include the payment to that as part of your commitments and if possible, go for more than the minimum payment so that you can get your debt paid off quicker. Once you’ve taken into account your debt repayments and if possible, some money to put into savings for the things that you often end up going into debt to pay for, such as Christmas, then the rest of the money is yours to spend as you wish.
Set yourself a budget on what you will spend on nights out, takeaways and other unnecessary purchases. It is important to live and enjoy your life but often many of us will waste money that we don’t really have on really unnecessary things when really that money could be put towards helping us to become debt free.
CHANGE YOUR MONEY MINDSET
When you owe a lot of money out, it is easy to become negatively consumed by it and to feel as though it is a weight holding you back. I felt like this for a long time about a big loan that I repay each month but now instead of looking at it as a negative, I think more positively about it. Every month I say thank you to the repayment as it leaves my account and feel proud that I have worked hard to be able to earn the money to repay back the money that I owe.
If, for example, you have taken out a loan to pay for the purchase of a car, then feel grateful everyday for being able to be in a position to have been afforded a loan to purchase the vehicle. Visualise seeing the loan balance at zero and manifest more money into your life by focusing on what you want and trusting that you’ll get it.
GET A SIDE HUSTLE
It seems as though 2019 is the year of the side hustle. In recent years, people have started to become switched onto the idea that having an additional income is a real benefit and are setting up their own side hustles left right and centre. Not only does a second income give you more money to play with but it also gives you a little bit of back up should your main source of income run dry for any reason.
My advice is always to play to your strengths; perhaps you could turn your love of ironing or cleaning, which are jobs a lot of people hate, into a way to make some extra money or maybe the enjoyment of crafting could be taught to others as a way to get a little extra cash. Whether it is selling on an auction site, answering surveys online, setting up at a car boot sale or tutoring someone, if you can find a way to make some extra money (providing it is all above board!) then it’ll benefit you and enable you to either pay your debt off faster or to be able to buy or do the things that you want to do now without getting into any more debt.
Just like everything in life, it’s important to remember that debt isn’t here to stay forever. It’s transient and you WILL pay it off. You just need to remain focused and organised, positively attract money into your life and make it happen for yourself. When you do get it all paid off, the sense of reward is amazing!
I’d love to hear your tips on managing your money and paying off debts in the comments box below!