First Step: Debt Management

I haven’t always been a saver. That may come as a bit of a surprise to those of you who have read other financial independence websites. 

Often, the writer has managed their debt, controlled their spending, and is living a life without any money related stress. Not here!

You may not be aware, but people who have grappled with debt in the past can become financially independent. In some cases, it may be why some people have become financially independent in the first place. 

A few years back I had a credit card. I had no idea how to effectively manage this, and it wasn’t earning any money or rewards for me. The credit card was sitting there, mine to use when my cash-flow was a bit low. Meals, birthday presents and clothes were bought on this borrowed money. Slowly, compound interest worked against me increasing my debt, and what was a minimal figure mounted up into a few thousand pounds. 

At this stage, I know some of you will have a credit card debt of tens of thousands. You might even have car loans that you don’t think are hurting you. You might even have bought a fridge on a finance agreement. My thoughts that any form of interest that isn’t earning you money is hurting you and must be avoided at all costs. 

Here are a few steps which worked for me in reducing and clearing my credit card debt:

  • Track your spending: this is my top tip for anyone who is trying to build their net-worth. How can you reduce your spending if you don’t know where all of your money is going? What may appear to be a small figure quickly adds up. Two daily coffees for £3 each adds up to £180 a month, or £2,160 a year. At 20% APR over three years, this would almost amount to £9,000. Scary! Once you’ve tracked your expenses, you can look at what areas have fat to cut. It might hurt, but so will your spiralling debt if left unchallenged.
  • Live within your means: I’m not a fan of extreme frugality. Enjoy life but always live within your means. Can’t afford a luxury holiday? Then don’t go!
  • Consolidate: I only had one credit card, but if I had several, I would have looked to combine them together to consolidate my debt. I think that debt is easier to tackle when it is all in one place.
  • Introductory offers: take advantage of 0% APR offers. Having your debt not compounding against you is a good thing. But it’s worth keeping an eye on what the APR is after the honeymoon period.
  • Let your credit card work for you: I have an American Express Platinum credit card that I automatically clear each month. Over the year, it earns me almost £200 in cash back. It’s like a mini employee. I do nothing but spend and get paid for it. Of course, this only works when you live within your means and clear the balance each month. Other cashback cards are out there, but this one works for me.
  • Read: The more information you take on, the more you will learn. Educate yourself about personal finance. JL Collins’ book is a great place to start.

I finally decided to tackle debt when I had the urge to become financially independent. I hadn’t read any blogs or websites, and wasn’t aware of the movement, or even the ‘financial independent’ term, but I wanted to retire early. I was sick of working to make other people rich. 

Debt should not be a barrier to becoming financially independent and retiring early. Actually, it can often serve as a wake up call to control your spending and tackle it.

Follow me on Twitter @swearingmoney

***The information contained herein does not constitute financial or other professional advice and is general in nature. This post contains affiliate links.

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