It feels like a life time ago, but back in June 2014, both Tony and I became debt free. We worked really hard to pay off our debts and I wanted to share some of the strategies we used, as well as hints and tips to help you tackle paying off your debt.
Get a clear picture of where you are
The first thing you need to do when you want to pay off debts is to get a clear picture of where you are right now.
Not only will you need to find out your balances, but also the interest that you are paying, as well as any offers that you are currently making use of. This might be credit cards, Payday Loans, furniture purchases and more.
Getting an overall picture of where you are will really help you to tackle your debts.
You can keep a spreadsheet, use an app or revert to old school pen and paper.
Here's what we did: I kept a debt notebook because I am on a computer all day, and there was something nice about writing out my totals every month and seeing them go down. Every month I would update the totals.
Find the worst offenders
By ‘worst offenders' I mean either the highest balance OR the highest interest debts.
When it comes to paying off debt, you need to stay motivated. There are three main ways to be motivated along your debt free journey:
- Motivated by paying less interest every month – so that there is less ‘dead money'.
- Motivated by clearing entire debts.
- Motivated by lowering your entire debt amount.
Figuring out what motivates you will help you to keep on track with your journey.
In a lot of cases it is worth paying down the debt with the highest interest, although some people choose to pay off smaller debts to keep motivated.
Here's what we did: In order to start off motivated, we paid off the smallest debt. After that sense of accomplishment we went on to pay them off in interest order, from highest to lowest.
Switch to 0% interest
If you have credit card debt and you are paying high interest then you might want to consider looking for a 0% interest balance transfer credit card.
These transfers have a small fee (usually between 1.9-3%) but then you won't pay any interest on the debt during the offer period.
0% interest offers means that you can focus on paying back the debt without money being paid out in interest.
Here's what we did: We applied for 0% credit cards and switched our debt over where we could.
Pay off more than the minimum
If you only pay the minimum payment every month then the debt could take years to pay off.
Sometimes your income just doesn't cover paying off more than the minimum of your debts, and this is where you can look at reducing your outgoings, increasing your income or both.
By paying off more than the minimum payment towards your debts every month you will pay them off faster and pay less interest. Do be aware that some debts come with penalties for paying them off early, but usually credit cards don't have these penalties.
Here's what we did: We cut down our outgoings and worked hard on side-hustles and overtime to earn more money to put towards paying off our debts.
Keep at it
The road to being debt free might look really long, but the time is passing anyway, so you might as well be working on your debt free journey.
Remember why you started, but don't forget to allow yourself a few treats along the way. They don't always need to have a high monetary cost and they don't have to hinder your debt repayments.
This is a collaborative post. This blog post is based on my experience of paying off our debt, but you should always do whatever works best for your own financial needs. This is not advice, and you should seek independent advice if required.