I want to start this blog post by pointing out that I am in no way a financial advisor of any kind, I am simply sharing how I have got myself out of debt (twice…) in the hope that I can help you get out of the unbelievably sh*t rut of being in debt. I also want to point out that you shouldn’t beat yourself up about getting into debt; majority of people have been there and even more are still there, so it’s okay. As long as you can remain optimistic and change those naughty spending habits, there’s no reason to give debt a second thought.
Managing my finances has never been something I took very seriously... I was the queen of making a budget every few months, sticking to that budget for all of a week and then just wondering where all my money was going. It has only been recently that I've really got my money under control and there was no way I was going to keep these little hacks to myself, especially when it came to getting myself out of debt.
First of all, work out where your debt is coming from; is it loans, a credit card or worse, a combination of both plus more? For me, mine has always been my credit card. Uhhhh, credit cards hey.
Once you’ve worked out where your debt is coming from, work on the smallest amounts first. For example, say you owe $168 in parking fines, $1350 on your credit card and $3200 on your personal loan; work on the parking fines first, then credit card and then start on the loan. Working on the smaller amounts first will be easier to pay off, won’t seem so daunting and will allow you to focus 100% on the big guy at the end once the little guys are out of the way.
Second step for me was to stop paying the insane amount of interest I was paying by getting a 0% p.a balance transfer. Basically, all a balance transfer is, is when you get a credit card from a different banking group to pay your current credit card off (stay with me, I know it sounds dodgy), but there is zero, zilch, nada interest for a defined period of time (usually anywhere between 12 – 24 months). What this meant for me was that I had 18 months to keep paying off my credit card, without getting hit with monthly interest. Once I had my balance transfer approved, I calculated how much I would need to pay to pay it off in 14 months, just so that in case something happened and I needed some extra money, I wouldn’t be cutting it fine to potentially go over the 18 months.
With balance transfers, the potential for them to go bad is 100% down to you. The way the banks make their money off balance transfers is basically these four ways:
How did I avoid these? Well, the first one I couldn’t avoid but the fee was less than one month of interest so I was happy to pay it and for the second point, I found a bank that didn’t have a yearly fee. To steer clear of the third point, I put the actual card in a shoebox under my bed and have not once got it out. And that last point, like I said earlier, I worked out how much to pay fortnightly to pay it off a few months ahead of time to be extra safe.
Once you’ve got your balance transfer done, your repayments down pat and you’re feeling good that your credit card is now zero’d, either cut that little sucker up or put it in the shoebox of regret under your bed and DO NOT USE IT. Credit cards are the devil and trust me, it is SO easy to go straight back to using it because that beautiful balance transfer gets you feeling like you paid all that debt off. I’m saying this because this is exactly what I did and I’m now in the process of my second balance transfer...
Now I know credit cards are good for those big lump sum expenses like car insurance, rates, the dentist and so on, but now that we don’t use credit cards (do we people), our safety blanket of money will be our actual money that we accumulate over time. We will put a non-negotiable amount away every pay to a savings account that will be our emergency account. For example:
Say I get paid $2000 per fortnight
I am going to make 20% of that pay go to my emergency account, every fortnight
In one year, that equals $10,400
That’s definitely more than I spend on my credit card for ‘emergencies’ and this money will make you money from interest instead of costing you money from interest
So, for you personally, work out a percentage that you can afford (after other life expenses) and make it non-negotiable. If you get paid the same amount every week/fortnight, set up a direct debit the day after you get paid. If your income varies (like mine), that’s okay because the percentage I have chosen will always be the same. If you have debt coming from a few places, see if you can consolidate it into one amount to chip away at, and then see about balance transferring that one amount.
Here’s a link to where you can easily compare balance transfers to see which one is right for you:
I have also set up a savings account similar to my emergency account with 10% of my pay each fortnight going in. I find my money much easier to keep track of this way and now that I’m not paying stupid amounts of interest on my credit card, my money seems to be going a lot further.
If you want to go one step further and manage your money like a boss, I highly recommend reading The Barefoot Investor. My emergency account and savings account came from reading this book and the author (Scott Pape) goes into specifics of managing your money while still keeping it super simple.
I've really found these simple tips of breaking things down, consolidating and getting rid of those dreaded interest repayments to be unbelievably helpful in getting out of debt. The trick is staying out, but hey, I'm sure that will come with time, wisdom and practice.
I hope this will help you get your head above water and get back on track with living your happiest, stress-free life, that will no longer be focused on money. After-all, money is no where near as important as your happiness.
Endless love and appreciation,