3 Ways to make your life debt free
Too much month left at the end of your money? If you find yourself racking up credit card bills or dipping into your overdraft, it’s time to take a fresh you at your spending, and ways to do it differently. Our three top tips will set you on the right road.
Living a debt-free life is the aspirational ‘sunny upland’ to which many people aspire, but it’s not easily attainable for everyone.
There’s a mortgage, for a start, which (until it became so hard to climb onto the housing ladder) was the first experience of large debt for many; taking so long to pay off that it became the norm, sucking out a large proportion of the monthly income year in and year out.
But it’s when further credit is added to that burden in the form of car loans and credit cards, for example, that things can start to get out of hand.
So here are three areas to consider when trying to climb out of debt by bringing monthly outgoings to a more manageable level.
They are lessons in money management that will help to varying degrees, depending on just how much debt you’re in. However, they have one thing in common – they all need you to think differently about how you spend, and to become a better expense manager.
Tip 1: Cut off your credit
Racking up credit card debt is eye-wateringly expensive. If you do nothing about it, the financial hole you’re in will just get bigger and bigger. Look at the APR figure. APR stands for annual percentage rate, and it’s the amount of interest a credit card holder will be charged on all or part of the balance if the full amount isn’t paid on or before the due date. A figure of 18.9% is not unusual at the time of writing. Don’t think that by paying off the minimum amount the card issuer asks for that you’re keeping on top of the debt, because you’re not. That rate will be charged on whatever balance you haven’t paid off by the due date.
Credit card battle plan:
1. Stop spending on credit cards. We’ve seen people use them in coffee shops, which is financial folly, because there’s every danger that you’ll go on to spend the rest of your available funds, and still have the coffee to pay for later.
2. Become a credit card nomad. Shop around for a different card – one that offers an interest-free transfer option. The periods you can stay interest-free vary wildly, so do your homework, but by picking the right one you’re taken the first step to stop that particular debt increasing. Having made the switch, don’t use the card. Pay off the debt by the time the interest-free period is over, or be ready to switch again, to another interest-free provider. Also, never miss a payment. Make sure part of what you owe is paid in plenty of time ahead of the deadline.
3. Consider switching to a different mortgage lender. It could save you thousands over the term of the loan.
Tip 2: Shop differently
Do you really need the market-leading brand? If you’re trying to get out of debt, the answer is undoubtedly ‘no’. It’s in the little things that big gains can be made over time. The ease of buying things with a credit card robs you of reality, and before you know where you are, you’ve spent more than you meant to.
Expense management battle plan:
1. Out shopping, work out your budget before you leave home, and then arm yourself with the cash you’re going to need, and pay with that instead of plastic. The result will be an instant visual guide to how much money you have left to spend, and can’t go beyond.
2. Never assume that high price plus fancy packaging equals quality goods. Sometimes it does, but it’s by no means a given. So often the equation is more likely to be ‘high price plus fancy packaging equals expert marketing’. Cast around for a cheaper alternative, and you’ll not only save more money than you thought possible, but you might be pleasantly surprised at the quality.
3. Change your supermarket. Low-cost supermarket chains are opening stores up and down the UK. Ever wondered how they can afford to do it? Because customers like the prices. If you’ve never been into one, perhaps now is the time to start.
4. Arm yourself with an effective expense manager app like Solo Expenses. The only expense management app designed for use by sole traders, it is versatile enough to work for individuals too. It’s free to download in its most basic form, though by paying a tiny monthly fee it’s possible to unlock extra features. This friendly little money management app allows you to record whatever you’re spending at the time you’re spending it, by tapping the keypad, taking a picture of the receipt or even making a voice recording. It’s then there, in your pocket or bag, as an instant reference to what you’ve spent during the week or month.
5. Step away from the takeaway. Takeaway food is more expensive than home cooking – you’re paying not only for the food, but the restaurant’s rent, rates, and staff expenses, and why would you want to be in debt to do that? Learn some fool-proof home recipes and surprise yourself and your friends with your new-found skills.
6. Don’t opt for shop-bought sandwiches. Lunches packed at home cost a fraction of the shop-bought alternative. Get up five minutes earlier and make your own, or make them in the evening and leave them in the fridge overnight – that’s what happens ot the ones bought in the shop!
7. Channel any (or all) the money saved can be channelled directly to pay of other existing debt, leaving you better off financially and a step closer to conquering debt.
8. Remember, window shopping is free!
Tip 3: Get help
It may be that your own personal debt pit is too large to climb out of on your own, and you need help. The government has brought together a few suggestions, which are outlined here on its website. If you think you are in too deep, it’s always better to get help sooner rather than later.