Debt and the Stories We Tell Ourselves
In Week 1 of the Finding Your Balance program, we look at the stories we tell ourselves about money. These stories can hold us back, contribute to spenders guilt or, funnily enough, help us to save (‘It doesn’t grow on trees y’know!’) However if one of your stories is that you are ‘bad’ with money, it can contribute to a feeling of shame if you find yourself dealing with debt. Shame is a really difficult thing to overcome, as by definition we don’t want to talk about it. And so if you find yourself in debt, feeling ashamed and not sure what to do, asking for advice can seem like the biggest leap!
Paying off debt isn't a topic that I currently cover in my money work but so many people have asked me about it I thought I'd share with you what I do know, and what I've learned in my quest to find the path to money freedom.
I used to have debt, in fact I got so used to having debt that I sort of forgot it was there, it was just part of life. It was a manageable amount of debt and I could afford the repayments so why bother stretching myself to pay it off?
I'd like to tell you that I paid it off little by little using some clever techniques but actually I sold my flat in 2014 and with the proceeds I managed to become debt free. It meant that I had no deposit to then move onto a new home but I made my choice and went into rented accommodation.
Apply kindness
First of all let me say that debt is not bad, nor is it good, it just is. So if you are in anyway beating yourself up about having debt stop, right now, it won't help you in anyway it'll just make you feel crappy (and you are too wonderful to feel crappy).
Make a choice
Do you want to start paying off your debt? I mean seriously this is your choice to make. You can choose to live like I did making the minimum repayments, whatever you are doing now is working somehow. Or you can choose to do something about the debt and start paying it off. Just to say that this isn't a life long choice you can choose today and choose again next week but just choose.
What is your debt costing you?
There is a thing called compound interest, it can work for you (if you have savings) or it can work against you (if you have debts).
I can demonstrate in an example:
Let's say you owe £3,000 on your credit card and you are paying 17.9% (which seems to be a common rate at the moment). If you pay the minimum repayment (1% plus interest or £5 whichever is higher) it would take 27 years and 4 months to pay back and the interest paid over that time would add up to £4,000.
You might be okay with that, or maybe you currently don't feel you have any options, this is about awareness and awareness helps us to make decisions. I for one will not be judging anyone about their choices or their debts!
The key here is to expand your awareness, take a look at your debts and make sure you know what interest you are paying.
Paying it off
So if you've decided you want to pay it off how can you go about it? There are a couple of different tactics that people use to pay down debt (I'll do a really quick summary)
If its a credit card maybe transfer to a 0% card - watch out for transfer fees and make sure that you don't spend on this card and that you keep up the repayments.
Pay the most expensive first - set all you r repayments to the minimum then tackle the one with the highest interest rate first putting any extra repayments to this as it will save you the most in interest.
Another tactic is to pay the smallest one first so that you get the warm fuzzy feeling when you have paid one off that gives you the confidence boost to get through the others.
I should say that I am really talking to those with manageable debts, if you are struggling to pay your debts there are charities out there that can help you.
Finding the money to pay them off
Now this is where I can definitely help. Imagine your money as a pie, its your pie and you get to slice up the pie into lovely wedges and decide what goes where. Maybe a large chunk of your pie goes on day to day living expenses, the necessities, lets say 70% - it might be more or less just start where you are.
What will you do with the rest of the pie, the other 30%? You may want to put some in your pension, maybe you are saving for a holiday, maybe you are starting to set aside an 'oh sh*t' fund to bail you out when life throws you a curve ball - you know like 'oh sh*t the boiler broke' or 'oh sh*t I need 4 new tyres'.
Take a look and decide how much could you give to your paying off debt slice? What you don't want to do is say you'll give the whole 30%, be realistic. Lets say that you decide on find 5%, great, set up a direct debit or standing order to pay that 5% over, or if you have fluctuating income set a calendar reminder to do it as it will be a different amount each month.
Don't worry if its only 1% its the habit thats important! Set a calendar reminder to review in 3 months, can you now afford 6%, 7%, 10%?. Small incremental steps will get you where you want to be!
You got this.
Hi there I’m Gail Bainbridge - money coach and mentor. I am on a mission to transform our relationships with money. I teach people to find money that they didn’t know they had for the things that are important to them. If you enjoyed this blog sign up to my newsletter to be the first to read all my money musings.