Becoming debt free should be an active goal for everyone, rather than a passive acknowledgment that one day it will happen.
We have a growing culture of consumer debt in the west, with more and more young people seeing debt as the norm.
Especially if they have grown up seeing their parents entrapped by debt.
Debt is real and with lifetime consequences if we aren’t working towards a life that doesn’t depend on it.
The interesting thing about debt is that it can have both positive and negative consequences on our lives.
I personally would not have seen a massive increase in my net worth had I not used debt as an instrument to make investments.
Debt used rightly for such outcomes could be very rewarding if one really understands what they’re doing.
However, excessive personal debt can make life very frustrating especially if one is just about able to service them.
Recent research shows that the average person in the UK now owes £8,000 excluding mortgage debt, and 6 million Britons believe they will never be debt free.
This implies that what we have on our hands is a generational problem with children already or potentially born into homes with unsustainable amounts of debt.
Alot of the tips below arise out of my personal journey with debt.
I was lucky enough not to have taken on student debt because I chose to commute from home and had a part-time job whilst at university.
This isn’t possible for many today, with the average UK adult currently subject to at least 3 different sources of debt they have to service.
Below are 10 tried and tested tips to help you become debt free. These methods aren’t mutually exclusive and can be combined together to great effect.
1. Overpaying monthly
This has by far been one of the best ways I have tackled debt on my journey to becoming debt free.
Compounding interest gives debt growing and greater powers, and the only way to halt this growth is to overpay.
This applies to all kinds of debt from mortgage to credit card or even student loans, although the larger the debt, duration and accompanying interest rate, the greater the effect of compounding.
Overpaying by as little as £100 a month can have material effects and even wipe significant periods of time off the debt duration.
The key thing to check is that there are no penalties for overpaying, especially on mortgages.
Our approach re overpaying was driven by the need to see actual years wiped off our debt.
We first started by overpaying by £100 a month. Then, each month, we tightened our belts till we worked all the way to £500 a month.
[yellowbar]This had amazing results because combined with remortgaging to a lower rate and fixing our mortgage rate for the next 5 years, we wiped 9 years off our mortgage term![/yellowbar]
That’s 9 years of our lives in the future recovered as a result of decisions we made in the present, saving us over £25,000 in interest.
2. Budgeting aggressively
A budget is a nice to have for many, and shouldn’t be so for you if you really want to be debt free.
Our weekly shopping budget remains at £50 and has been for a while for a family of 4.
Alot of people can’t believe how we get by but the truth is, you can buy alot with £50 every week if you knew where to shop whilst still buying quality.
It does help though that we don’t buy any red meat at home.
However, the point I am trying to make is simple. Create defined boundaries with a budget and stick to them religiously.
Then plow the money you have left over towards paying down your debt balances. The inability to stick to budgets is one of the top reasons why people struggle to get rid of their debts.
Related: 15 Tips To Help You Stick To A Budget
3. Slash Non-Essential Spend
This might sound obvious but I know of people who’d rather keep up paying for a gym they barely visit rather than actually pay down debt instead.
It’s almost as though many such people leave their common senses at home when they leave home daily.
There is always fat to be found in your spending and the more of it you deem non-essential and therefore stop paying for, the closer to debt free you’ll become.
Another major culprit is the expensive TV packages pretty much everyone we know pays for. The most we ever paid for a TV package was £10 a month, and even with that, I thought I was paying too much.
Cutting and keeping your expenses permanently low has another brilliant side effect if you’re working towards Financial Independence.
This is because every permanent drop in your spending has a powerful double effect:
- It increases the amount of money you have left over to save (and invest) each month.
- It permanently decreases the amount you will need every month for the rest of your life.
Related:
7 Non-Essentials Holding Your Future Hostage
How Much Money You Should Have Saved By Age
4. Use The Envelope System
This simple system is another take on budgeting and supports my thinking that we must make money real as it gets more digital
It involves simply using different envelopes for different purposes and taking out cash for each envelope, therefore forcing you to only spend what you have apportioned.
Where you have underspent, you simply save your excess or pay down your debt with it. What this stops you doing is overspending, and essentially forces you to stick to your budget.
5. Make Extra Money
This is by far one of my most recommended methods, simply because it is actually fun!
I actually enjoy the challenge of trying to make more money, especially if I can see a direct link between effort and reward (debt freedom).
I personally set extra money goals each month and drive these towards both investing and overpaying our only debt – the mortgage.
Depending on what personality you have, you may either love the idea of this or hate it. However, the reality is that alot of people who struggle with debt just don’t earn enough!
Ideas for making extra money could include:
- Getting a part-time job – Anyone can do this. The sacrifice will pay off.
- Making money online – Blogging is one of my favourites. Feel free to join my 7 Day Free Blog Course.
Related:
85 Ways To Make Extra Money (No reason why you can't execute 3 – 5 ideas from here in a year)
6. Sell An Asset
Everyone has things around the house that they can get rid of for some extra cash.
In addition, if you’ve been tracking your net worth, it might be more beneficial in the long term to sell a low performing asset in order to pay off your debt completely or a chunk of it.
Another alternative is to consider creating and selling digital assets. I go on about this all the time and that’s because it’s that awesome.
You already have within you some specialised knowledge that can be turned into a course, ebook etc and sold on platforms like teachable.
If your debt is such a nuisance to your life, take heart but also take action. If you’re determined enough, you might even surprise yourself.
Why not grab a notepad and pen and brainstorm what specialised knowledge you have an what you could write about?
7. Debt Avalanche
With this method, you make a list of all your debt and make minimum payments on all of them except for one.
For that one debt, you channel your remaining firepower towards pay extra for the debt with the highest rate of interest.
[redbar]The key benefit of this method is that it helps save time and also puts a halt to the compounding of your debt and saves you interest.[/redbar]
8. Debt Snowball
With this method, you make a list of all your debt and make minimum payments on all of them except for one.
For that one debt, you pay extra towards the smallest debt balance you have, with the hope of paying that off and working your way up.
The key benefit of this method is that it helps build your motivation towards your debt repayment.
You could easily go from having 5 different debt balances to 2 or 3, and feel like you’re making progress.
The choice of whether you prefer the debt avalanche or snowball is really down to your personality.
Geek alert: Being a spreadsheet buff, I personally prefer the debt avalanche and get a massive turn on from knowing I am paying less interest.
9. Remortgage
A mortgage is likely your largest amount of debt, and you probably took it out over 25 years.
In fact, given the house price inflation in major cities like London, we’re starting to see 40-year mortgages. **head shakes**
If that isn’t a life in prison sentence, I don’t know what is.
One of the best financial moves I ever made was remortgage down from my painful 4.99% mortgage to 2.98%, coupled with a £500 monthly overpayment.
Such a move could move you from a 25-year mortgage to one just over 15 years, especially if you can lock in a good deal.
Small changes in your mortgage rate such as 0.25 – 0.5% can have material impacts over the long term, so make the decision to review your mortgage rate asap and see what you can save.
10. Lifestyle Change
The beauty of our lifestyles is that it’s entirely under our control. It is a lever you can pull if you’re struggling with debt or aiming to be debt free.
Here are some examples of what we have done. We…
- stopped buying flashy German cars. Yesss… I love them too. But, let’s be real, you’re chasing status not freedom.
- live by the budget. Mary will tell you, I am militant! That’s because we chose financial Independence and executing beautifully.
- swapped crappy TV time for hustle time. The former is a waste in every sense.
- live minimally and don’t accumulate crap. Makes our home tidier anyhow.
You too will have things you can do right now that will free up cash and help you get closer to your quest for debt freedom.
Becoming debt free is a worthy goal and forms part of a wider goal of personal freedoms. Don’t get accustomed to debt as a way of life.
Begin taking steps today to break free and you’ll never regret making such a move.
If you want the “RoadMap To Financial Independence”, then subscribe below. I have put together a thoroughly practical course on Teachable that anyone anywhere in the world can use to achieve Financial Independence:
Related:
Plot Your Escape. Choose Financial Independence.
Are you working towards becoming debt free? If not, what's stopping you?
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
Thanks, it’s quite informative