I was surprised to receive a letter through the post the other day that contained a credit card. Ready to go, with a £5k limit on. I hadn’t ordered a credit card, nor had i ever used this particular company before. However, the more i asked around friends and family, the more i found out that companies are giving out credit cards like sweets! It’s no wonder then that most people have debt of some kind to pay off. Whether on credit cards, a mortgage, a car on finance…etc. So, with borrowed money becoming ever more readily available, how are we ever expected to become debt free and save money?
Here are a few simple ways every day people can help themselves to become debt free…
Budget
The most obvious way to become debt free is to cut your spending and start to save money. To start living within your means. For example, if you get £1,000 pay a month, don’t then go thinking you have £1,000 to spend. Instead, work out all of your out goings – energy bills, mortgage, council tax, petrol, food shopping…etc and see what you’re left with.
Say after all of that you have £500 left to spare, that’s what you have to start paying off your debt. Get out of the mindset that this money is yours. While you have debt to pay, any ‘extra’ money you have ISN’T yours! Instead, start thinking along the lines of, until you’ve cleared your debt, you have no money for you. Trust me, thinking this way was a rocket up my behind to get rid of it so i could start having MY OWN money again.
Another thing to note when it comes to budgeting is to opt for the worst case scenario. For example, if your energy bill normally comes to £100 a month, budget slightly over that, especially if going in to the winter months. This way you’re covered if you do go over, and if you don’t, you have some spare money you can put towards your debt. Becoming debt free will take the pressure off your finances. Imagine all that financial freedom!
Make Lists
Making lists of all your outgoings each month will give you a much clearer view of what your spending, how much you need to budget, and what you have left over. Make it easy for you to know what’s going on with your finances.
Having the figures right there in front of you can be a real eye opener! For example, i bet you had no idea you were spending £200 a month on things from Amazon. Or, that the £2 coffee you have every day actually works out at almost £500 a year.
Your list could be a simple list on a piece of paper, or a spreadsheet on your computer. Which ever one works better for you. It doesn’t have to be anything fancy, and definitely don’t go out and buy yourself something fancy! Use what you have to make it work for you. You can even download free templates to help you budget better, using websites such as the money saving expert.
Do I Really Need That?
companies want you to spend money with them so they make handing over your hard earned money as easy for you as possible. If you have outstanding debt, this is the last thing you need! However, there are a couple of things you can do to help you spend less on pointless things you don’t really need.
- Ignore advertising – Say you see something that takes your interest while scrolling through Instagram. Instead of clicking on the link, keep on scrolling past. Or, if the temptation gets too much, put your phone down and step away from it.
- Leave it in your basket – if you do come across items you would like to buy. Instead of buying right there and then, put it in your basket and leave it there for at least a week. If you’re still thinking about wanting that item a week later, go for it (if its something you really need). However, you’ll most likely find it was an impulse buy and you don’t think about it again.
- Buy second-hand – say there is an item you really need to purchase, instead of buying brand new, see if you can find it second-hand instead. You’ll most likely find it on places such as eBay for a fraction of the price, and generally in just as good condition. The value of things bought brand new goes down as soon as you leave the store, so save yourself some money.
Secret Savings Account
Whether you have your own individual bank account, or a joint one with your partner, a great way to help you save more is to open up a new savings account. This way you can either set up a direct debit to take money out of your account and I to your savings each month. Or, you can manually move money across each month.
You then need to pretend this account doesn’t exist. Put money in, but ONLY take money out to pay off your debts. Don’t start thinking this money is yours to go on shopping trips or holidays with. Remind yourself this money ISN’T yours. At least until you’ve paid off your debts.
Whether you move £10 a month, or £100 a month in to this account. It all adds up and will help you pay off your debts faster. Any money that isn’t going on essentials can be put in here. You’ll actually find you don’t notice the missing money after a while and you begin to live within your means on this new budget. A savings account will help you save money without even knowing you are.
Do It Now!
Don’t let bills sit there unopened, or not dealt with. The faster you can get them paid, the better. Its easy to put it to one side, thinking you’ll do it at a later date. NO! Do it while its right there in front of you, whilst its on your mind. Or, if you need to wait until payday, put a reminder on your phone to pay ALL your bills on payday. Get them done and out of the way so you don’t have to waste time worrying about it all month.
Prioritise
If you have quite a lot of debt to clear, or if your debt is spread over a few different areas, make sure you prioritise your debt. There are a couple of ways to do this…
If you have a payment with a tight deadline, or a very high interest rate, these are the ones you should be looking to clear off first. Whether it’s a high interest rate on your credit card. Or you only have a few months left before your car payments are no longer interest free. These are the ones you should focus on first. By getting rid of debt with high interest rates, you’ll be saving yourself hundreds in the long run.
Mortgages
When it comes to mortgages, the best thing you can do for yourself is to pay it off as quickly as humanly possible! Even if you have a reasonably low interest rate, because mortgages generally run for so long (up to 35 years), the interest you’ll pay over those years is unbelievable.
Most banks will give you an amount you can pay off early each year without being charged extra. For example, when we had our mortgage, we could pay up to 10% early each year without a fee. So, the earlier you can start paying it off, the more you’ll be allowed to pay off early without those fees. Obviously the less you have left to pay off, the smaller that amount gets.
However, even when you reach your yearly limit, most banks will still allow you to keep paying it early, just with a fee attached. This fee is generally pretty low and will still mean you’re actually saving money. For example, say you want to pay off £2,000 early (which would be 4 months worth of payments) and your fee is £200. What you’ll save over those 4 months in interest will be way more than the £200 fee so its still worth doing.
You’ll normally be asked if you want to reduce the term of your mortgage, or reduce your monthly payments with this overpayment. You should ALWAYS opt for reducing the term and keep the monthly payment to as much as you can afford.
Look At Your Mortgage Rates
Another thing you should look at is your mortgage rate. When you are next able to change your mortgage rate. For example if you’re on a 2 year fixed rate, just before that 2 years runs out, look at your options and see if you can get a lower rate elsewhere. Its actually not as hard as you might think to switch mortgage lenders, and often well worth doing so.
Switch Your Credit Cards
New credit cards often come with a free balance transfer, and perhaps a year to 18 months interest free. If your current credit card company is now charging you interest for your remaining balance, look around to see if you can get a new credit card. A card that allows you to transfer your remaining balance and get another year or so interest free.
If you look around at other credit card companies, you’ll often find they come with added benefits to get you to choose them. This could be anything from a free gift card to cash back on purchases. Have a look around to see what would benefit you the most. Keep in mind you DO NOT want to be spending more money on these cards so cash back on purchases might not be what you need.
Look At Your Essentials
To be able to become debt free could be as simple as looking at your current bills and changing energy suppliers for a better rate. A rate that allows you to put more in to your savings each month.
For example, when was the last time you reviewed your Sky subscription, or your energy supplier? By calling up Sky to have a conversation about our subscription, we managed to save over £50 a month! Turned out we hadn’t upgraded our subscription for over 10 years so were paying way too much for the standard package. We were also advised to go on to a slightly different package which also saved us money.
You can also do this with things like your energy supplier, car insurance, mobile phone provider…etc as well. Do you change your car insurance provider at the end of each year or do you let it continue on? If you change it each year, using a website such as Confused.com, you can compare prices. You will almost never get a better deal staying where you are. For some reason companies would rather give new customers a better deal. So when you’re insurance is about to run out, DO NOT let it lapse, look elsewhere! It’s so easy to switch providers and your almost guaranteed to save a lot of money just by doing this each year. Another step closer to becoming debt free!
Stick At It
Most importantly, keep at it! It might seem like a never ending battle you’re never going to win. But keep plugging away and you will get there. Its not going to happen overnight so don’t beat yourself up about it if its taking a while. As long as you’re doing all you can to clear it, that’s what matters the most. Keep in mind how amazing you’ll feel when you do finally manage to clear it all. All that extra money will finally be yours to keep and spend on YOU!
Hopefully these tips will help you become debt free and save money at the same time. Becoming debt free doesn’t have to be an impossible mission, it just takes some careful planning.
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