Are you drowning in debt and feeling like there’s never going to be an end to the nightmare? In this article, money coach and financial counsellor, RAEWYN BLOMFIELD outlines the steps you need to take to eliminate your debt problems permanently.
Ever clawed your way out of debt, paid the damned credit cards, then six months later, woken up to an even BIGGER debt? How did it happen?
Well, here’s how to get out of debt permanently.
It won’t win any popularity contests, it’s not flashy, or a fun activity, but for sheer peace of mind, you can’t beat it.
The normal reaction when you finally acknowledge your debt level is out of control is first, to swear you will never buy another cappuccino again (aka going into deprivation mode), and second, to feverishly throw as much money as you can lay your hands on, to sort out the problem – quickly!
No, and no!.
You didn’t get into debt overnight, and you aren’t going to get out of it overnight, either! It’s gonna be a long haul, so you have to pace yourself. The trap people put themselves in, is to try to do too much at once.
Instead you need to take it step by step.
- create a plan to get out of debt
- scrutinise the plan – and the big news
- stabilise the debt, then
- grow an emergency fund
- BEFORE trying to pay the debt off.
Create a plan
Call it a savings plan, call it a budget – the name doesn’t matter, but you need to write yourself instructions on how you are going to do this.
a) for each debt, you have to know:
- the interest rate,
- the amount originally borrowed (or your credit card balance),
- how much you have paid off, and
- how long the debt will run for.
Put it on a spreadsheet for ease of tracking
b) write a budget – your income and your expenses.
Scrutinise the plan
- what can you TAKE OUT? Where can you make savings?
- what should you PUT IN? Eh, I hear you say. This is long haul; if you want to keep going, include little treats to keep yourself on the straight and narrow. Nothing too fancy, a cappuccino here, an outing there (even an outing requires extra petrol or bus/train fare).
Stabilise the debt
Work to stop the debt getting bigger. This means continue to carry the debt, but don’t make it bigger. Stop using any form of credit to bridge the gap between what you feel needs to be spent, and what your income is.
Grow an emergency fund
Once you have an emergency fund, you never have to reach for the credit card again, you use your emergency fund instead.
It sounds totally counter- productive, you pay far more in credit card interest than you would get in savings interest, right? But you can count on an emergency cropping up – you don’t know when, you don’t know how much, but it will happen.
If you can’t afford to overcome the emergency with saved cash, it’s right back to the credit card and right back to the debt cycle merry go round again.
THEN tackle paying the debt off
Only when your debt is stabilised, and you have an emergency fund, can you then reassess your debt and work out ways of paying it down.
Money coach and financial counsellor, Raewyn Blomfield, is the principal of Money Health Money Wealth. Raewyn helps people to manage their money and take control of their spending and debt so they can achieve their financial dreams. If you would like to find out more about her services you can contact Raewyn by calling her on 0468 317 259 or simply send her an email.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.