4 Steps to turn around your debt

For many of us, January is the month to set goals, find renewed motivation, and make changes to areas of our lives where we feel they’re needed. However, as time passes and our motivation dwindles, these goals are often forgotten.

To increase your chances of accomplishing a goal of high importance, you need to have a strategy. This can and should include turning around your debt.

According to Brendan Dale, personal finance blogger at Take charge of your money blog, there are four steps to successfully dealing with your debt.

Step 1: Know how much debt you have

You can’t improve what you don’t measure, and this is especially true of debt.

Start by making a list of all the debt you have - a home loan, car finance, store cards, credit cards, personal loans, revolving loans, and/or anything you owe friends or family. Note how much you owe, what you pay each month, the interest rates and fees, and whether any payments are overdue.

This will help you get a clearer picture of your debt situation.

Step 2: Find your focus

You may have many debts, big and small, and though you need to honour all of them, try to single out a specific debt that you can pay some extra towards. You can, for example, focus on the smallest debt first and pay it off quickly, or choose the debt that attracts the highest interest rate.

Once you’ve paid one debt, you’ll have a little more money, and extra motivation, to pay towards the next, creating a “snowball effect” of paying off debt.

If, however, you have overdue debts you need to focus on getting those sorted before moving on to anything else.

Step 3: Plan for known expenses

More than likely you have some known expenses coming up, such as birthday celebrations, car maintenance, school fees, or holidays. Try to cover these without incurring additional debt.

One way is to plan upfront and set aside money for these events. Another option is to delay any expenses that are not essential over the next few months to add to your pool of funds.

Take some time to prioritise your spending, and work out how much money you need to save in order to cover these expenses.

Step 4: Curb the frivolous spending

Paying off debt and sticking to a financial plan is tough and will involve sacrifice. However, the end goal is certainly worth it.

You may need to say “no” to dinners out, movies, drinks, and other social events for a few months. You don’t need to become a hermit, but you do need to find the balance between what you can afford and what you can do without.

Set up a spending plan and allocate money for necessary and personal expenses and then do your best to stick to it.

We often underestimate the amount of stress caused by debt and the inability to make ends meet. This can affect our sleep, relationships, and mental wellbeing. As with anything, we can learn to better manage our money, and this can greatly enhance our quality of life.

Taking charge of your finances has nothing to do with how much money you have, but rather how and where you spend it.

Need help?

If you’re feeling overwhelmed by your debt situation it may be time to seek professional help. Consolidating your debt can be a valuable option, as you will pay reduced instalments, and sometimes lower interest rates.