Try one of these strategies to get that debt monkey off your back.
Debt doesn’t always have to be a dirty word.
A loan, for example, could help purchase a vehicle for a new business. A mortgage, a home, that over time could potentially provide you with equity.
But when the D-word starts to overshadow your bank and credit card balances, it’s time to make a strategy to pay it down. And one of the best ways to get motivated about paying down debt is to see it go down week by week.
One of the best ways to get started on paying down your debt faster is to choose a strategy. When you don’t have a strategy, then it is hard to dedicate yourself to the cause.
Much like preparing for a marathon, you aren’t going to get to the finish line very fast if you just go out for the occasional run. It’s the same in the case of paying off debt, by just making the minimum monthly debt repayment.
For example, if you carry a credit card balance of £15,000, with an APR of 20.9%, and make a minimum monthly payment of the greater of 3% of the balance or £50. This £15,000 debt will take 16 years and 6 months and cost £15,350 in interest, according to Money Saving Expert’s minimum credit card payment calculator.
What could you have done instead with the money spent on interest payments?
Choosing a “Delete the Debt Strategy”
If you are paying the minimum payment, you are just making the lender richer. Try if you really can, scrimping somewhere else in your budget to add another £20 to £30 each month to start. If you can do more do it.
Get that debt monkey off your back.
If you are the type of person who needs to see some immediate results to stay committed, then pay off the smallest loan first to get an immediate sense of satisfaction. This is considered the snowball strategy.
If you have more than one credit card, pay the one with the smallest balance first, then the next and so on.
However, if you have taken on and debt with extremely high interest, such as a payday loan. Or could jeopardise a relationship if the loan is not paid back off sooner than later (i.e., borrowing from a friend or loved one) then that should be your priority payment. That method is the avalanche strategy. This means crushing down on the most expensive debt in terms of the highest interest rate.
If you can find an attractive balance transfer deal with a lower interest rate, then that is an immediate cost saving. Do not use the new card for purchases, though or you will end up with more debt and back to square one. Leave this card out of your wallet and in a safe place, like a home safe or locked office cabinet to avoid using it.
How to stay motivated to pay off debt
Some of us are visual learners, which means we might need to see proof that extra debt payments and saving are doing anything to chip at our debt.
“One of the hardest things about a financial goal which can feel far off in the future is the motivation to keep going when things get tough, or when you have other priorities and distractions,” says Ellie, a self-made millennial money coach and Blogger for This Girl Talks Money.
“For some people, the knowledge that they are closer to the finish line with their goal can be enough, but others (myself included) need visual signs to keep the momentum when there are big challenges ahead. Try creating a debt repayment chart to show your progress and remind yourself how far you’ve come,” suggests Ellie.
Debt tracking charts can be found here.
Using a repayment calculator to see how much faster you could pay off debt and save on interest is also a motivator. Visualise the amount of interest you are saving and not throwing back into the pockets of your lender.
Declutter and sell your way out of debt
Decluttering and selling your stuff can not only create a more organised home but provide an opportunity to come up with some extra cash to pay down debt faster.
Ask friends, family and neighbours if you could help declutter their homes, lofts and garages. Instead of paying you a fee to take away their unwanted items, you could agree that you will have the right to the proceeds of anything you sell at a garage sale or online through sites such as Gumtree or specialist second hand or vintage item sites. With any special items, you could offer to keep just an agreed percentage of the sale proceeds rather than 100%.
If you are handy you may be able to upcycle something and sell it to make a nice profit. If you start to do decluttering as an active e-trader, then save all receipts of things bought and sold as you may have to include these on your personal tax return.
Pitch new services to existing or new clients
If you believe that one of your clients could do with a tune up in a certain department, then suggest how you could help them with it. If you land some more work, divert the extra that you earn towards your debt repayment strategy.