Working in debt collections taught me many things about handling money and debt, but there was one thing that I noticed and it has stuck with me and made me view debt. So what is the one thing that changed the way I view debt?
Debt does no discriminate.
It is as simple as that. I have spoken to tens of thousands of people about their debt issues but it is not always the same person. There have been the young, the old, those that have well a paying job, those that are living pay day to pay day, those that are unable to work and having to survive on benefits, people of different races, different genders, different beliefs and the list goes on.
Because debt does not discriminate means that there is never a single answer that will meet needs of everybody. This made my job collecting debt interesting, I had to think of creative new ways to make the situation a win-win. Win the bank gets their money back, win the customer gets back on track with their finances and out of debt.
So, from a previous debt collector, how does someone sort out and say goodbye to their debt for good?
Step One - Work The Budget
The dreaded word, budget. Sends shivers down the spines of many, but a budget is not a bad thing. The very first protocol when you are wanting to get a grip of your debt is to go through a budget. Where is your money going now and where could it be best used?
The preferred budgeting method used by banks is the Zero Based Budget (ZBB). The aim of a ZBB is for you to utilise all of your income and to have a £0 amount at the end of the month, meaning that you do not spend more than you earn and you do not have any money left over that does not have a job. Here is a video on how to do a ZBB and to get the most out of your money.
The budget gives you freedom and permission to spend money without guilt, providing that it has been planned for.
As you work through your own budget you should look at ways to reduce your expenses. Stop all unnecessary spending. You want to give yourself as much money left over each month as possible.
"But I thought the point of a ZBB is to have £0 at the end of the month and not have a surplus?"
That is true, but we need a small surplus so that we can start to get rid of your debt. And if you cannot get a surplus out of your budget then hang in there I am going to cover that as well.
Step Two: Pay Down Debt Quick
Once you have found some extra money in your budget then you put that surplus towards your debt. There are really two schools of thought when it comes to paying down debt. You can either pay them off using the debt snowball or the debt avalanche.
The Debt Snowball is probably the most favoured method and has been hugely popularised by Dave Ramsey. The concept of the debt snowball is that you list your debts, smallest balance to largest balance. You then pay the minimum payments on each debt and then the extra money goes towards the smallest debt until it is paid off in full. Once the smallest debt has been settled you then take the extra money and the minimum payment from the previous smallest debt and apply that to the second debt in the list.
You then repeat this cycle until you have cleared off all of your debt. The idea behind the snowball method is that it gives you quick wins and motivates you more to clear off the debt quicker.
The Debt Avalanche method works the same way as the snowball but the difference is with the way you priorities debts. With the avalanche you list your debts highest APR to lowest APR, regardless of the outstanding balance of the debt.
The idea behind the avalanche is that you save more money in interest than with the snowball method. I do find this to be true, however, I find that the interest saved at times is so minimal that purely for the motivational aspect I prefer to suggest the snowball method.
And Done ... Right?
Now for a wide selection of people this is where they are debt free. No more debt, however, as debt does not discriminate, there are people out there that after working the budget and there is still help available for those people.
I have had the honour to work with some great organisation that help people get their debt situation under control.
Getting The Right Help
Though these can seem pretty daunting at times and it is hard to pick up the phone and talk to someone. There are alternatives available for those that want to do the leg work simple and through an app.
Freeze Debt is a mobile app designed to end the stigma that sits around debt. You simply fill in your income amount each month, the total amount of your debts and the value of your assets. Once this is done they give a rough amount as to what your debts could be reduced to and will walk you through that journey as well. You do all this at your own pace and in the comfort of your own home.
All three of these are great organisations and will walk through your journey with you, talking you through your options in regards to potential Debt Management Plans (DMP), Bankruptcies, Debt Relief Order (DRO) or Individual Voluntary Agreements (IVA). All offer free impartial advice, so just reaching out to them about how they can help you will cost you nothing and will bring peace of mind.
You Have Got This
No matter what point you are at getting your debt in order, an no matter what your story is, you have control over this. It is your decision and you willingness to take action that is going to change your financial life. There are people in this world who have a vast wealth but are still struggling to keep onto of debt and are one bad decision for having the rug pulled from beneath them.
Focus on your own journey and get the right help from the above sources and you will get there.
I have faith in you.