Oh no! You're stuck in that adulthood quicksand we call debt. Not to worry, we've all been there, so there is nothing to be ashamed of. And more importantly, it's possible to successfully escape debt. You just have to apply some important personal finance lessons and take things step by step. As long as you take things in order and work diligently towards paying your debt off, you won't have to worry about a single thing!
Step 1 - Start Calculating Income vs. Outgoing Expenses
The very first step is to figure out exactly how much money you've got coming in, from all sources, as well as how much is going out. Especially if you work on a freelance basis or otherwise receive payment in several instalments or from several sources, it can be difficult to track your income and your spending.
So, sit down and crunch the numbers. This may take a while, because you may need to be conscious of tracking your spending for several weeks and keep track of every penny you spend. At the end of the month, you can draw a line and see how much, if anything, you've got left.
One thing that is almost guaranteed to happen is that you are going to be shocked at the amount you are spending, and on what. But it serves as a good wake-up call, so that horrible feeling in the pit of your stomach is going to prove to be a great incentive to cut back on costs.
If you find it hard to track spending, let the latest technology take care of that detail for you! There are apps that help with tracking in real time, so you can see exactly how much you spend, where, and on what. Forbes has some good suggestions for expense tracking apps.
Step 2 - Stick To A Budget - At Least For The Time Being
You knew this was coming, so let's just get it out of the way now: budgeting. Yes, it's a total pain, especially once you've gotten accustomed to living the good life - albeit somewhat irresponsibly - but it's absolutely necessary if you want to pay off debt.
Let me guess - you don't even know where to start! Luckily, there are numerous (free!) resources available for this kind of thing, so you can rely on the good people at Citizens Advice to help out with the basics of budgeting.
What this does is it helps you cut spending to just the everyday necessities, in order to prioritise paying off debt. Think of it as an exercise in minimalism for a greater goal; the more you cut back and save, the more you can pay off, so the sooner you get rid of debt. Right now, it can feel like none of your money is truly yours, because you owe so much. Why not take back ownership of your finances?
Step 3 - Get Rid Of Your Credit Cards
Listen, credit cards are very convenient, but they're also ruining your finances. It's extremely easy - TOO easy, in fact - to rack up credit card debt, so you have to remove the temptation. Get rid of your credit cards, or at least most of them. Keep one for emergencies. This will ensure that you won't be acquiring more debt as you are actively working to pay off previous debts. Makes sense, right? If you fail to pay, your credit also suffers. Equifax can explain why.
Step 4 - Downsize Or Reduce
We've already somewhat covered this under budgeting, but it's worth mentioning that if you're used to certain finer things in life - that are inevitably expensive - then perhaps it's time to reduce, switch, or downsize. And we're not only talking about things like groceries, but also larger expenses, like holidays, vehicles, or even houses.
This is the time to be realistic and ruthless - why have you acquired debt? Is your income enough for your lifestyle? Is your home too big for what you need and can afford to maintain? Is your car a gas guzzler and is that eating into your monthly budget? Is that yearly trip to Disney really necessary, and wouldn't staying in the UK be just as nice? Time to face the music.
Step 5 - Pay Your Debt Instalment First
Finally, let's chat a bit about the order in which you make your payments. If you know that your problem is frivolous and impulse spending and you just never seem to make it to the end of the month with any paycheck left, then switch things around and pay your debt instalment FIRST. Actually, if you know you can afford it, pay more than your instalment.
This forces you to prioritise paying off debt and then live off of what you have left. Not saying to allow yourself to remain destitute, but if you've got just enough to make it through the month without any of the "luxuries" you've been treating yourself to, you'll be just fine.
As you can see, debt can be paid off in just 5 easy steps!