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Today I have something a little different for you! A guest post. This post is talking about simple steps for paying off your debt and I think it will be really helpful! Hope you enjoy it – please do check out Francesca’s website and social media using the links at the bottom of this post.
In the UK, the average household debt is £13,000 – and that’s not including mortgages. Consumer debt is becoming more common and it is even accepted as the norm, with suggestions given to people to just put a car on finance, or new clothes on the credit card.
With that in mind, there are some steps that can be taken to help with paying off your debt, so that you can use your money for things that actually make you happy, instead of spending all of your hard earned cash on interest. Debt is not a good thing – and should definitely not be accepted as the norm.
Write Down All Of Your Debts
This is one that a lot of people struggle to do, because it can be scary to see the total amount in black and white, but don’t worry – paying off your debt is a positive step to take in life, and worth it.
Collate all of the companies, debt amounts and interest rates, and write them all down. If you can’t find all of the paperwork, have a look through your bank statements to see the money that you have been paying to the debt companies.
Track Your Spending
This step is not one to be dismissed. It has been shown that when people estimate how much they spend on certain categories, it is usually wildly underestimated due to not realising the extent of the damage caused by little amounts here and there – food is a good example, especially if you are always popping into the shops.
Look back at your bank statements and write everything down into categories – for example use ‘Food’ and write down everything related to that – your monthly food shop, top up shops, meals out and small amounts that you’ve popped down the shop for.
Create a Budget
Whilst a budget gets a bad rep, it is one of the best things that you can do for your finances – and is not limiting, as though is widely thought. A budget shows you where your money should go, and stops you from spending money on silly things that have no effect on your happiness or goals.
The simplified way to create a budget is firstly to write down all of your income. This could be your wage after tax, benefits, child support etc – things that you are guaranteed to be paid.
The next step is to write down all of your expenses. This is where tracking your spending will come in, because you can see how much you need to allocate to each category. Your expenses could look like this:
- Council tax
- Water bill
- Insurance (life, house etc)
- TV Licence
One of the best budgets that you can do is the Zero-Sum Budget, which is where you allocate all of your income a job. After allocating your income to the various categories for bills, any left over money needs to be allocated also. This area is the one in which a lot of people leave out, and spend all of the left over money. The leftover money needs to go towards your financial goals – in this case, your debt.
Reduce Your Expenses
Once you’ve got your budget set up and your spending has been tracked, you may find that there are some areas that surprise you. Are you spending way too much on your food shopping or water bill for example?
- Rent/Mortgage – See if you can change your mortgage provider or deal. MSE have great advise for re-mortgaging – make sure you do your research before jumping straight in though. Could you sell your house and move to a smaller one, or in a less desirable area?
With rent, could you negotiate with your landlord, or move somewhere with cheaper rent? Yes, it may mean living in a smaller place for a while, but if you are committed to paying off your debt, this could be a huge chunk of money saved to throw at it.
- Council tax – if you are a single person, you can claim discount on your council tax. Additionally, there are thousands of houses which are in the wrong council tax band due to the rush job that was done collating all of housing information. Again, MSE have some great information on how to do this over on their site.
- Water bill – I managed to halve our water bill, even with the addition of another person living with us (lodger). We have a water meter, and were really careful about our water usage. We timed our showers, and if we had a bath we would keep the water to flush the toilet with.
- Electric/Gas – There are many people who are paying way too much for their energy – and this can easily be rectified by shopping around for a cheaper deal. A lot of places offer cashback too so look into that if you are going to switch.
- Groceries – This is a very variable expense from household to household, because it is down to personal preferences. The best ways that you can save money on your food bill can simply be by organising it. If you meal plan and check what you have in your cupboards before you go to the shops, you won’t buy any more than you need (which would get thrown away) and you also won’t be stuck thinking what to have for tea each night!
When I swapped from Sainsbury’s to Lidl I saw a massive difference in my bill. I was buying the cheapest basic products in Sainburys but Lidl is so cheap and the quality is excellent – especially the meat. Could you give swapping supermarkets a go?
- TV/Internet/Phone – Again, a very variable expense due to personal preference. If you can cut it out completely this can save a lot of money and also give you more time for other activities, but there are many ways in which you can reduce your bill, especially if you shop around.
- Insurance (life, house etc) – These are a necessary expense and should not be cut in order to save money. You can get very cheap insurance, and if you use comparison sites you can get them as low as possible (just make sure you read all of the T&C’s).
Increase Your Incoming Money
Now that you have reduced your expenses as low as possible, it’s now time to concentrate on increasing your income. You can of course, increase your income whenever you want, but if you have not reduced your expenses and worked on a plan it an be tempting to spend it.
Katy shares some great ways to earn extra money on this blog (and me, on mine! 😉 ) which can give a great boost to your income, or even replace the income that you are currently earning. Some ways that you can earn extra money include:
- At your current job, could you ask for a pay rise? Do your research, and don’t be afraid to ask. This is a really simple way of increasing your income, because you’ll essentially be getting paid more for doing the same work.
- In your current role, could you change companies? It’s easy to get used to being in the same environment, and we can be reluctant to look around at other companies, but if you can find similar jobs that are paid better, it may be worth jumping ship.
- Blogging. Katy and I both love, and make money, from blogging. You can make money from: affiliate marketing, sponsored posts, advertisements and selling of a product or service. It is completely do-able to earn thousands per month, and many bloggers are full time.
- Freelance Writing. This is generally linked to blogging. You can still be a freelance writer even if you are not a blogger, although it does help! There are various sites that you can apply for writing jobs on.
- Completing surveys. Katy is a survey queen! She shares the best surveys to sign up for, and makes an amazing amount of money with it.
- Mystery Shopping. I love mystery shopping, because I get so much free food! I’ve also had free clothes for my daughter. It is a fun way of earning a little bit extra on the side.
There are lots of other ways that you can earn extra on the side. There are always jobs going doing delivery (e.g. delivering Domino’s pizza in the evenings), babysitting, working in a supermarket in the evenings or on weekends, and lots more. It is easier paying off your debt when you have a whole income stream to throw at it.
Paying off your debt will take a lot of hard work, but the end result will be so worth it. I recently paid off my debt and was overwhelmed with the feeling of freedom and happiness it provided. Hopefully these steps can help you to get started paying off your debt.