This is a post from Richard at Frugality Magazine. Enjoy!
Just before Christmas last year I reached the point of having paid off all my consumer debt – a situation that seemed insurmountable just a few short years before.
When I finally accepted by debt problem – something that took far longer than it should have done – and decided I needed to shift the weight of growing interest and spending every available penny on repayments I examined every available option.
What about debt consolidation? Or an IVA? Or even bankruptcy? I just couldn’t see a way that I was going to pay off the mountain of money that I owed while keeping up with even my most basic of living expenses.
But you know what? After some serious consideration I opted to avoid all these potential “short cuts”. I just decided to knuckle down, become more frugal, cut my living expenses and pile the extra cash into my debt. In other words I did it the plain old boring way.
The *reason* was simple – my debt was painful but I wanted to fully meet all the agreements I’d made with my creditors (a moral argument) and I also sort of wanted the process to be uncomfortable as a lesson on *why* I shouldn’t ever get into debt again.
Rather like the reformed smoker I wanted to show it was possible and let the “pinch” be a constant reminder of my past foolhardiness with money.
It’s not a decision I’ve regretted. In fact, I feel in some way it’s been a positive process. It’s certainly taught me a thing or two about the evils of debt and even about life in general.
But what specifically were the biggest lessons I learned on this often painful yet ultimately-successful quest?
Paying Off Debt Is Easier Than You Think
When faced with a giant mountain of debt it’s all too easy to become demotivated. To plan out your budget and work out just how many years you’re going to have to scrape by can be a truly sobering experience.
But if you use get serious about paying down your debt, it’s amazing how quickly you can get those balances moving in the right direction.
What’s more, if you opt for a process like the “snowball method” you’ll start to quickly wipe out one debt after another. And with each new balance cleared, you have even more money to pile into the next debt. The pace grows as the “money snowball” knocks over one debt after another.
In fact, once I really got going, I actually started to enjoy opening my credit card bills and loan statements to see just how much debt I’d managed to wipe off this month. Watching those numbers going down almost became addictive over time!
Extra Cash Is All Around You
One factor that many people trying to get out of debt struggle with is where to find the extra cash to really start making inroads in their debt. However I found additional sources of cash all around me when I started looking.
I listed my unwanted books on Amazon. I sold unwanted items on Ebay. I did some freelance writing on Elance. I took overtime at work. When I moved from one job to another, I’d worked so hard the old job owed me several weeks in holiday pay that I hadn’t taken.
Sometimes all it takes is a few hundred dollars to really get the snowball started and once you’re in motion it’s a lot easier to keep going than it is to get started in the first place.
Your “Essential” Purchases Are Often An Illusion
Another key lesson I learned while paying off my debt is that many of the things I bought that I considered “essential” to my life really weren’t. When I was in “cutting mode” removing *any* unnecessary purchases there were some painful decisions. Magazine subscriptions. DVD rentals. Meals out. My beloved trainer collection.
Yet all too soon I found I was surviving just fine without them. Infact even now I’ve paid off my debt and actually have the money to start spending again if I want I’ve chosen not to.
Why? Simply because I’ve realized that I really don’t need 90% of these things to really make me happy. In a way, while uncomfortable at the time, being forced to prioritize and examine my spending has had a positive long-term effect on my financial management. Living reasonably frugally now is now my “default” mode and I feel no sense of loss from the things I have consciously chosen not to purchase.
The Key To Success Is Focus
For too many years I planned to pay off my debts but never really got serious about it, meeting only my minimum payments each month. Somehow there was always a reason why I couldn’t get started this month but, as I promised myself, I’d start *next* month.
If you’re serious about paying off your debt you need to make it a major priority. You need to focus on it, expend energy on it and really do everything in your power to make it happen.
I truly believe that it’s this focus that is a major factor in your success rate when paying off debt.
Budgeting Doesn’t Have To be Difficult
Bearing in mind that I’m a personal finance blogger, I have a deep, dark secret to admit to; I hate budgeting. I don’t mind spending less than I earn but what I do hate is all the recording, all the tracking, all the penny-pinching.
But there are alternatives, as I found to my advantage. Instead of spending time creating a budget to cover every eventuality I decided to focus my “budgeting” on cost-cutting. In essence I spent time each month combing over my bank statements looking for either “unnecessary” purchases or things I could downgrade and spend less on.
By doing this every month I kept on cutting my expenses, giving more money to repay my debts, without having to track every single purchase I made.
Then at the end of each month when I got paid I simply rolled forward the previous months savings into even bigger debt repayments and re-examined my spending to find even more cuts for the next month.
This process of constant improvement meant I was paying more and more towards my debt each month without feeling too claustrophobic about the whole process.
Hundreds Of People Just Like You Have Already Succeeded
You may think you’re special. You may think your situation is unique. You may believe you’ll never reach the end of your debt repayment journey. But the fact is that hundreds – even thousands – of people who are now debt free have stood exactly where you are now.
So go and learn more about them – their stories are everywhere. Use them for inspiration to get you started, to bolster your motivation along the way and to provide tips and advice on what worked for them. Use their successes to create your own.
Kim’s Comments: I think knowing that others had been in my situation and rose above to conquer debt was a big help when we were starting our journey toward debt freedom. Finding like minded people is key.