Debt – The Ghost of Christmas Past

Debt – The Ghost of Christmas Past

Debt can be a dark cloud, and struggling with money and debt:

  • keeps us away from our financial objectives
  • can affect relationships , health and wellbeing and financial future.
  • keeps us tied to the grindstone.

Some Causes of Debt

  • One day you’re paying bills without problems,  then bam! You lose a job or get a pay cut and suddenly its a problem..
  • You have fallen for the allure of easy credit (debt) and bought that £200 dress in the sale
  • The boiler breaks
  • It’s Christmas and you couldn’t resist pester power from the kids
  • That new BMW hd your name on it

I could go one, but you get the picture.

One thing I would say about debt (short term debt –  on store cards, credit cards, car loans, pay day loans is AVOID, AVOID, AVOID. Let’s face it however, debt can happen to anybody but we need some Grown Up strategies to free ourselves.

So here is a list actionable Grown Up strategies to beat debt

  1. make the decision to beat it – grow up and realise you need to sort it.
  2. make debt your first financial priority
  3. visualise the day you are debt free – how will it feel!
  4. Make sure you have all minimum payments covered –  set standing orders up with the bank
  5. stop making it worse – throw away the credit cards and the store cards.
  6. Know your enemy  – list of all your debts, accept your mortgage,with the amounts that you owe, know the name of the creditor and the interest rate
  7. Choose a debt busting strategy – the ‘Worst First’ or ‘Debt Snowball’
  8. Spend less – cut out wastage
  9. Use savings (but keep your emergency fund in place), if the interest on your savings is much less than you are paying to your creditors
  10. GET FREE HELP – see resources at bottom of post

What not to do

  • Go to credit repair companies, or debt consolidation companies, loan sharks, payday lenders. At best you may end up paying much more money for a longer time, at worst you could have the a big guy with knuckle dusters at your front door.
  • Consider bankruptcy as an easy option-  it’s not.

Remember: Always seek free advice first (See resources)

‘Snowball’ versus ‘Worst first’

I got a couple of popular and useful with of bringing down debt systemically. Debt reduction is not easy and you may need to be not for the long term.

It is well worth the effort.

Snowball Method

The snowball method is really good if you are lacking in motivation or discipline or want to see results fast..

  1. make a list all your debts by loan amount going from smallest to largest, starting with number 1.
  2. make sure you are paying the new amount each month for all debts
  3. target Debt 1 first with  any surplus money you have each month
  4. when the Debt1  is paid off give yourself a huge pat on the back
  5. target all any surplus money (which should now include debt repayment for Debt 1)
  6. to pay off Debt 2
  7. once you pay off Debt 2 target all your resources to Debt 3 and
  8. Repeat until you are debt free.

The reason this is called the snowball effect is that you are gradually increasing the amount of money you have available to target each debt.. The debt reduction gains momentum, is rewarding and even exciting, and you can enjoy your successes.

As an added bonus, as you  paying off one debt at the time you will find yourself less overwhelmed by the number of creditors you might have.

Worst First

  1. make a list all your debts by interest rate highest to lowest, starting with number 1.
  2. make sure you are paying the new amount each month for all debts
  3. target Debt 1 first with  any surplus money you have each month
  4. when the Debt 1  is paid off give yourself a huge pat on the back
  5. target all any surplus money (which should now include debt repayment for Debt 1)
  6. to pay off Debt 2
  7. once you pay off Debt 2 target all your resources to Debt 3 and
  8. repeat until you are debt free.

This method gives you the biggest bang for the buck in terms of saving on interest payments, but may not give you the quickest wins (it depends on your interest rates on your different sized loans

Resources

Even Grown Ups need help, and usually in this case the free help is best. If you are struggling with debt or worried about debt, get support.

In the UK,a great starting point would be StepChange Debt Charity, but there is also National Debtline and Citizen’s Advice Bureau.

In USA  the government debt advice website

Wherever you are just Google ‘free debt counselling services in ……….’

Leave a Reply

Close Menu