Demolish debt and take back your life!

Does debt stress you out?

It stresses me out at the moment because of the high inflation rates and interest rates going up!

Debt is not always bad, and I think that if we take a moment to look at the kind of debt we have, It’s a really good way to make sure that the debt that you have is actually working for you and not against you.

For example having a home loan is debt that is working for you, because it is providing a roof over you head and building an asset that you might not be able to afford without some debt.

So good debt is the debt that helps you get somewhere you wanted to go faster than you might have otherwise – lets face it, you would be saving a long time to pay a home outright.

The kind of debt that doesn’t work in our best interest is stuff. Like credit card debt, zip pay after pay. I notice even some of the banks have jumped onto the buy now pay later schemes.

Those debts that are the sign of living beyond what you are earning…lets call that pointless debt!

Credit card debt doesn’t appear to be in any way affected by interest rate variation. Since the dawn of time, credit card debt appears to have been at 19% to 20%. Some of the interest free facilities like you get with furniture purchases are up to 27%. The buy now pay laters are interest free but get to make money if you miss a payment or fall into arrears…think about it!

Those things can be a great thing to get you something you can’t quite afford at the moment or to get you into something that’s on sale or similar. If you pay them off in the available time then it’s a winner – but if you hang on to the debt the interest is charged right back to the first day you used the facility, and that is really expensive.

So if you want to kick the debt habit how can you do it?

Assess your debt

So start by working out what those unsecured debts are.

Some of the providers of cards in particular are quite happy to stop the card and put you on a payment plan to pay it off over a specific amount of time rather than leave it as credit you can access whenever you would like.

Write a list of your debts, the balance and what the minimum monthly payment is and what the interest rate is, add in anything else you have run up so that we can clear all those lingering debts together. Add up the minimum monthly payment, and then work out where you have some disposable income that could help you pay off debt (yes this might mean bringing lunch to work).

If for instance your minimum payments add up to $270 and you can afford to put $500. That is an extra $230.

So with that extra $230 pick a card, any card, pick the card with the highest rate, or pick the card you’re going to pay off quickest.

Picking the card with the highest rate is called the avalanche method, and that is just a method of going highest rate, highest rate, highest rate until you have actually paid off that card. The next method is the snowball method, which is paying off the smallest debt first and then moving to the next smallest.

You just keep adding the amount you can afford to your minimum payments on the debt, targeting one debt at a time, until you’ve paid them all off.

Why you choose the snowball method even though you might save more money on the avalanche method?

It’s because you get a greater sense of completion from paying off the debts. It makes you feel better. It also keeps it more top of mind.

Now another little trick that I used when I was paying off a massive card debt, was to lower the limit every time I paid it down by $1000. That way I locked myself out of using it and running up those big overwhelming credit card debts again.

I still have a credit card, and I have used the interest free period loans – but its how to use them so that they benefit you.

No interest if paid off in time, but HUGE interest if paid off over time.

The other thing is to leave things in a cart overnight, plan your big expenses, shop around….but I will leave those tips for another day.


Contact Phoebe

Phoebe is available for interviews, guest appearances, article commentary, and talks on a range of topics relating to property, mortgage broking, and personal finance (particularly for women!).