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How to Get Out of Debt

Getting out of debt can be tough.

It can affect your mood, your relationships, your quality of life and sometimes feel as though the situation is only getting worse.

I’m going to give you some actionable tips to help clear your debt. But first I’m going to ask you to do something a little out of the box:

Treat this process as a your own personal challenge, something you are passionate about achieving and make real conscious efforts to enjoy the journey.

Easier said than done I know – debt is serious. But listen…

If you associate negativity with clearing your debt then you will always look for ways to avoid the process – which will only make things worse.

I started Budget Breakaway as the creative outlet to document my journey of getting out of debt – my way to keep laser-focused on clearing my debt every day.

Take a look at my old side-hustle round ups. The time where I made the most impact against clearing my debt was when I became inspired and creative in my approach to get out of the red. And honestly, I had a great time doing it!

Your situation will of course differ. But the principles are the same. If you can find a way to enjoy this process you will increase your chances of getting free from the chains of debt.

This guide is broken down as follows:

Create a Strategy

1. Work Out How Much You Owe

Break down every due debt that you owe: utility bills, late credit card bills, overdue mortgage payments, loans and even money borrowed from family members.

List the amount owed, to whom and most importantly the interest rate being charged by each debt. Ensure this information is as up-to-date as possible.

Now add this all together to get a total figure for the debt you owe.

2. Prioritise Your Debts

Next, order your debts from the highest interest rate to the lowest.

This is the order which you should pay each of your debts off.

This technique is known as the avalanche method of debt reduction  – providing you have the motivation, it is the most efficient as you will end up paying less interest to your banks and lenders.

3. Review Your Bank Accounts

Some current accounts reward their customers whilst others do not. Review what your current account is doing for you. Here are some accounts which may be worth switching to:

  • The Halifax Reward  account offers new customers a £100 switching bonus along with a £5 per month reward when you use direct debits.
  • The Santander 123 account offers cashback on household bills and up to 3% interest on the balance in your account.

4. Check Your Eligibility for Benefits

There are a huge range of benefits available to different types of people and families – use the Money Saving Expert benefits checker to find out if you are eligible:

5. Use Your Savings to Repay Your Debt

It can be disheartening to let your savings go but it often makes good financial sense to put your savings towards your debt repayments.

This is because the interest you are charged on your debt is often much higher than the interest you earn through savings.

6. Stop Borrowing

Borrowing money whilst you are in debt is a sure way for you to get pulled further into trouble.

Remember, using a credit card is another form of borrowing money. If you are using a credit card be sure to pay it off in full before you incur any charges.

7. Set Your Initial Budget

Take a look at your bank statements from the last three months and note down your average incoming and outgoings.

We’ll look at ways to improve these later but first, you should be able to pinpoint a single monthly figure that you could comfortably pay against your debt each month – we’ll refer to this as your minimum monthly repayment.

You can use this figure to calculate how long it would take to pay off a given debt using this debt repayment calculator.

8. Consider Getting Help

If you have over £5000 in unsecured debt, there may be options available to you to freeze the interest on your debt. Companies like Trust Deed Scotland can assist here and also offer debt consolidation services.

Boost Your IncomeNow you have a strategy in place it’s time to ramp up your income to allow you to pay even more debt off at a faster pace. Here are some quick and easily accessible routes to generating more income:

1. Sell Things that You Do Not Need

One of the quickest ways to generate cash is to sell your possessions. There are a huge number of outlets where you can sell your items:

  • Boot Sales are great for selling clothes, furniture and kitchenware
  • Ebay and Amazon are good outlets for selling technology goods and books
  • Consider specialist sites such as Autotrader for selling cars or Money Magpie for selling phones, CDs etc

2. Ask for Overtime or More Hours from Your Employer

This will differ depending on where you work but in many organisations there is often opportunities for additional paid work. Even if there isn’t opportunities in your team/department, your employer may be aware of other areas of the business where you can help out.

3. Ask for a Raise

Getting a raise is a great way to boost your income, however, you should treat this tip very carefully. When asking for a raise here’s what to consider:

  • Timing is everything: be sure to schedule time with your employer or wait until your annual review – don’t take your boss by surprise!
  • You need to have earned it: If your performance at work has consistently been down then asking for a raise may not be the best route for you at this time

3. Change Jobs

If your role/financial progression at work is becoming stagnant and you feel you could achieve more elsewhere then perhaps it’s time to consider another job.

Take a look at some recruitment sites for similar roles in your area to see if this could be a wise move.

4. Freelance or get a Second Job

A great way to put some more cash towards your debt repayments is to get a second job or to do some freelancing in your part-time. Depending on your area of expertise, Elance can be a great place to sell your services in writing, design, data entry, programming and more.

Cut Your Costs

You’ve boosted your income, now it’s time to cut down on the costs. Here are some tips on making savings on your regular expenses. Remember, any savings you make should go straight towards your debt repayments.

1. Cut Down Your Mobile Bill

Cutting down your mobile phone bill can be a quick and easy win depending on your contract and network. Here’s how I saved £372 on my mobile contract.

2. Take A Break from Credit Card Debt

If you’re consistently being hit with credit card charges then it may be worth moving your existing credit card debt onto a 0% interest balance transfer card. This will allow you to pay down these debts without needing to worry about interest charges for a few months. Ensure you check to see if there are any fees to do this!

3. Cut Back on Commuting Costs

There are a number of ways to cut down your commuting costs. If you work close to home and drive in, consider walking or biking to work. If you work further afield, consider driving more economically or even car sharing with a colleague.

4. Cut Down Your Utility Bills

Switching energy providers can save you hundreds of pounds each year. To see if you can save money on your gas, water or electric bills try out the ‘Cheap Energy Club’ on Money Saving Expert.

Also ensure your utility bills are paid on time by switching each of these to Direct Debit – some companies also offer discounts to customers who do this!

A Final Tip…

One of the biggest causes of debt is willpower; controlling your spending can be tough especially as you have to avoid spending each and every day to ensure you have some leftover at the end of the month.

With this in mind you should make the biggest payments towards your debt at the start of the month (just after payday) – this way you won’t have to rely on willpower to ensure you pay your debts.

Just be sure to leave enough in your account for food, bills and any unexpected costs such as car maintenance.

I hope you’ve found this guide to clearing your debt helpful. If you have any further tips or advice, please let me know in the comments!

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In case you missed my excitable celebration tweet on Thursday…

That’s right! As of Thursday 19th December I became free of debt! With the overtime that I had worked last month, my latest paycheck was enough to put enough distance between me and my overdraft and now I will never need to use it again!

The Debt-Free Feeling

The first thing I did after opening my eyes on Thursday morning was to check my balance; sure enough I had hit my target and cleared the last of my debt! Whilst eating my breakfast I couldn’t help but wonder if I actually felt any different, with online banking my success was just a change in pixels on a screen so it took me a moment to leap for joy. I think just for this day I would have preferred my wages to be delivered to my door in £5 notes so I could throw it all in the air and scream – “THIS IS ALL MINE!”. It wasn’t until I started the commute to work that the feeling began to sink in, I started to think about all of my post-debt plans and what it actually meant for me to be debt free. I’ve been doing my research into asset allocation for months and now I can finally start to put theory into practice! The debt-free feeling is a good one, I’m so glad that I now own all of my own money.

The Benefits

Apart from a huge weight of your shoulders, a feeling of accomplishment and a big drop in stress levels, there are some real  financial benefits to being debt free.

debt repayments1. No More Repayments

The biggest benefit to me is that I no longer need to make massive repayments month on month. I was contributing over 1/3 of my income to avalanche my debt and now I’m finished! I now have free reign over what I wish to do with this extra 40% income – I can now allocate this proportion to a new savings account.

2. Interest Works for You Now

The good news is, that once you’ve cleared your debt you can make the interest work for you. Even in an easy access savings account you can earn up to 1.5% on your money rather than losing more than double that on debt interest. Once you’ve cleared your debt you can enter the exciting realm of compounding interest on your savings.

I was in a very lucky situation in that there was no interested on my debt. This was because I had borrowed money from my family and dived head first into my interest-free overdraft. However, I understand that many others out there aren’t so lucky and have to pay large interest rates on their debt.


3. You Can Begin to Invest
A simple principle in wealth creation is that you should allocate your money to something that will make you more money. You can invest in stock or shares, you can begin spread betting, you can get involved in real estate, start your own business or invest in someone else’s! Some of these don’t even require a large lump sum but when you are desperate to get out of debt there’s only one place your money goes – repayments.

My Immediate Plans

My first goal upon getting out of debt was to switch my current account to one that provided some financial benefit and had no overdraft. This goal is now in the works and I have sent my application to Halifax where I will receive £100 for the switch and £5 per month there on.The account has no interest on your balance but as I will be transferring my money into a savings account I decided that the £160 bonus for switching was worth much more than the interest rates offered on other current accounts. Keep an eye out for my New Years Eve post looking over my latest goals and maybe setting some new ones!

How have your repayments/savings been doing lately? Are your savings going strong at the most expensive time of the year?

Update: July 2015

Hi all! I’m checking back in on this post as it’s been almost 2 years that I’ve been debt free! If you’re taking on the challenge to cut down your debt, take a look at my guide to getting out of debt here.

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This month I was set to be debt free! I had goals to close my current and savings account in order to open two new accounts with greater interest rates. Unfortunately, this weekend I ran in to some major car trouble; a clear sign that I need an emergency fund. This ever familiar issue that got me into debt in the first place has now come back to test me again!

The Issue

My car was long overdue some new brake pads and an exhaust repair. So long overdue in fact that upon taking it to the garage it was obvious that I would also need some new discs to go with the pads. After the inspection, I was drawn up a quote for £177 and with the need of a vehicle to commute to work, I accepted. This was unfortunately a big enough dent to set me back another month’s worth of debt repayments.

The Lesson

Here’s how it could have happened, this is where hindsight hurts. I could have checked out the problem upon the early signs, ordered the parts online for less than £30 and got the pads fitted myself before the damage got too bad. Doing my research early would have prepared me to carry out my own work on the vehicle, this would have prevented the damage from getting worse and costing me another month in debt. The lesson is; prioritise your time, no matter how busy you are it is always important to protect yourself from any threats to your budget or your safety before it’s too late.

Christmas Budget

On top of the garage fees, this month’s budget will also need to accommodate for Christmas presents; I am budgeting £100 as I have already bought half of my presents already. I’ll be looking to get ultra creative over the coming weeks in order to find or make presents for everyone!

Goal Update

With this unfortunate unfolding of events I will have to adjust the deadlines for my short term financial goals. These are now as follows:

Switch to a New Current Account

Previous deadline: 14th December 2013
New deadline: 2nd January 2014

Switch to a New Savings Account

Previous deadline: 1st January 2014
New deadline: 2nd January 2014

Save an Emergency Fund of 1950

Previous deadline: 28th April 2014
New deadline: 28th April 2014

Invest in a Stocks and Shares ISA

Previous deadline: 28th April 2014
New deadline: 28th May 2014

How is your budget looking for December? Have you found any ways to cut costs despite the festivity?

Update: July 2015

Hi all! I’m checking back in to this post as it’s been almost two years since I cleared this debt for good! It feels great to look back on my previous goals and how they helped me get out of the rut. If you’re interested in how I did it, here’s my guide on how to get out of debt.

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June 2013 – The house move, The job search, The holiday and The car crash…

You don’t need to be an accountant to guess that this was a real expensive month. Upon finishing university we decided June was the best chance we’d get of booking a holiday before being tied to the routine of work. In hindsight, we could have been wiser with our money but even the most accurate of forecasts wouldn’t have saved me from a roundabout collision!

So How Much Did June 2013 Actually Cost?

By then end of June I had piled up £3400 worth of debt. £1800 borrowed from family to cover my losses plus I’d maxed out my overdraft at £1600. On the bright side I don’t consider myself to be ‘in the red‘, just a dark shade of orange. I’m in a very lucky position in that all of my debt is interest free! This gives me a great deal of flexibility in how I wish to pay it all off.

The Strategy and an October Update

I am looking to pay my family debt back in full before tackling the overdraft. It’s not great to look at a negative balance in my account, but I’m certain my family will need the money more than the bank does! Seeing such a negative bank balance is also a great driving force in trying to pay my debt off as quickly as possible. At current I am paying one third of my paycheck to debt (I can’t wait to be putting that much into savings instead!).

Just over three months have passed since expensive June so here are my debt repayments and current progress towards owning my own money! One of these repayments was thanks to an insurance payout for the crash but the majority has been earned from standard work and small side hustles:

Debt to Family Repayment Month
£1,800.00 £400.00 July
£1,400.00 £300.00 July
£1,100.00 £300.00 July
£800.00 £200.00 Aug
£600.00 £400.00 Sept

Current Debt to Family: £200

Current Overdraft depth: £850

Total Debt as of today: £1050
If all goes well my family debt will be cleared by my next paycheck and the overdraft should be left in the dust by November. I am setting my expected date to be debt free as November 30th!

After paying off the debt I’d like to start some small scale investments in the stock market. I know I could have split my money investing some and paying back the debt with but I’d like to start my financial experiments only when I have a clean slate.

What do you think? Would you invest if you had a small amount of interest free debt to pay off?

Update: July 2015

Hi all! I’m checking back into thus post as it’s been almost two years since I cleared this debt for good! I now have multiple streams of income and Miss Breakaway and I are buying our first house! To find out more about how I got out of the rut, here’s my guide to getting out of debt.


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