In case you missed my excitable celebration tweet on Thursday…
Today I am officially DEBT FREE!! Now it's time to make money work for me! #PersonalFinance
— Budget BreakAway (@BudgetBreakaway) December 19, 2013
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.
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.
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.