3 years into adulting, and I am still trying to get a grip with debt. According to the google definition, I am in chronic debt. I have been paying off a monetary debt, for over 18 months and paid a lot in interest for it. I didn’t think it would be that easy to fall into that, since I actively manage my money (I should do a post on how I actively manage it). Also, I am lucky to earn a decent salary for situation, so I feel like I shouldn’t be in debt. Yet somehow, I have gotten here. So, I am outlining the ways I am actively implementing to try and get out of this loop of constant debt.
Just a note, I am not a financial adviser (geez if I was, then this post would show my true colours). This is purely what I am doing to tackle my debt, consult a professional if you need assistance. I’m just make sure you don’t feel alone about tackling debt.
No 1: Debt takes time
Much like how it takes time to build credit, it also takes time to pay off debt. I am an avid follower of financial gurus like MoneySaving Expert and HerFirst100k, and they all tackle the topic of debt with eagerness. Heck! I fell for the eagerness to achieve what I wanted to achieve financially: To have a 0 balance on my credit card, so my usual monthly expenses can be paid off with my set direct debit.
I am now on my 2nd attempt to try and cut down my debt, and I have realised having the enthusiasm for it, doesn’t necessarily guarantee success. They say pay your high interest debt off first (like credit cards and loans), before focusing on other financial savvy things. But what if, you don’t want to do it that way? You want to build something whilst paying that off. That’s possible still, it’s not recommended by the people who are classed as experts, but still possible.
So, I have taken that option. Something doesn’t sit right with me to only focus on one thing. Life is so unpredictable that, surely its good to have some emergency money, rather than none. This method means it takes more time though, because not all your money will go towards the debt. So, it takes time, even on a small balance.
No 2: Plan how to tackle it
Then try to implement the plan and throw it in the trash.
I’m kidding.
So, I am on plan number 2 now, but let me show you plan number 1.
Attempt 1: Crush the Debt!
My credit card had about £2000 on it. I got a backpay lumpsum at Christmas from work and sent £1200 towards my LISA, and about £600 to my credit card. In my head, I wanted to reach my LISA goal, and I didn’t have much time left. So, I prioritised that, whilst putting some money to the credit card. Then I booked my birthday holiday for £300 before the new year came. Starting 2024 strong with £1700 of debt, seems achievable to pay-off. I decided I would pay off £600 each month and have about £100 expenses on the card, so total £500 would be overpaid. This meant, it would take me about 5 months to get the debt manageable.
January through to March I stuck to this. On top of that I was putting aside about £300 per month to reach my LISA limit of £4000. At the end of the tax year, I achieved the LISA goal and earned the 25% bonus from the government. In April I decided, I wanted to move house, so credit card goals went on pause, and I went back to my £180 direct debits. Since April, I have not been able to repeat attempt 1 actions. I also have put £0 in my LISA for the current tax year (at this moment). There is still have a few months to maxi it out, but evidently this plan has flopped.
I will admit, after the house move, I lost a relative, I had a birthday (where I got stranded in Italy for an extra day), and we visited family in Zimbabwe. So, yeah, now the build up to Christmas and the need to warm up my house, my money needs to stretch elsewhere. I did attempt to go back to attempt 1, and tried to reduce the debt between Sept and Oct. By the end of October, I had about £900 of debt remaining, and I started the 2 months with £2800.
I can see myself entering the £1k mark very soon with Christmas prep, so I decided to change the approach.
Attempt 2: Take advantage of Debt offers
Since August, my bank was sending me letters to open a new credit card. I was like ‘no, we are not doing that’. But in November, I read the letter. It wasn’t just a new credit card, they were saying I can open it, and move my current balance to that credit card, where they won’t charge me interest for 21 months. DO YOU KNOW HOW LONG THAT IS!? That is nearly 2 years, with no interest. I am averaging at £30 interest every month. That doesn’t seem a lot, but it’s increased in 12 months where I was paying £7 interest prior to that. I have paid more into this credit card, than I had debt on it, and yet the debt ain’t going anywhere.
Not only that, I received a letter in October with them saying, ‘We will increase your credit limit at the end of November’. Bingo. Increasing my limit, means my used amount looks smaller, so I look better on my credit score (as they don’t want you to spend more than 30% of your limit). But this also means the amount of interest they charge is higher. Now, what happens when they increase my limit, and I apply for a 0% interest balance transfer credit card? – I don’t know. This post is coming out before I actually start plan 2, but I hope my thought process makes sense.
So, attempt 2 in addressing this debt, is to take advantage of these offers which technically increase the debt. The 21 months gives me a breather. No interest means it’s just my usual expenses on that balance, so I can take my time paying it back. What’s the catch? I need to pay that balance off within 21 months, or else they will charge a disgusting amount of interest. I think I can do that. This also means I spend the remaining months of this financial year to achieve my LISA goal, which will be Nov-Feb. I intend to have spare cash in March, as I have the family car insurance bill that month. All whilst there will be 0 % interest on my credit card debt, which will slowly dwindle.
Once we start the new tax year, subject to everyone in my life staying alive and well, I can repeat attempt 1, on a smaller balance. This should mean I could/should wipe out that remaining debt in two payments maximum. Leaving me with 6 months of financial control of my disposable income (after subtracting the LISA months).
TL;DR
- The plan seems full proof
- I am in chronic debt – According to the google definition of it (18 months+ of paying off a financial debt)
- I give myself grace to take my time to pay the debt off – Debt isn’t easy, so best to take my time and manage it as I go
- It’s ok to change game plans – We all navigate adulthood, especially finances differently, and it’s ok to change direction when one way isn’t working for you
- I haven’t acted out the plan yet so we shall see – might do some monthly updates 😉
- This is not my only debt – I have other forms of debt, but this one is the big one that I want to address right now
