Becoming Debtfree: Top 10 Debt-Free Tips and EBook
Debt Management and Money Saving Advice
I know that in these days of the Credit Crunch, a lot of people are struggling with debt. We’re maxed out and desperately need some money saving advice. Many people are finding their monthly payments are no longer affordable: we can’t all be a money expert, after all. I know a lot of my readers will be considering bankruptcy (Chapter 7 or Chapter 13 in the USA), an IVA (Individual Voluntary Arrangement) in the UK, or the other measures that are possible in some European countries, or maybe a debt consolidation loan.
There is another way. Even with very large debts and very few assets, bankruptcy and its statutory alternatives can often be avoided. It is nearly always possible to eliminate or write off your debts without having to pay the full amount!
Here are my Top 10 Debt Busting Tips. You can apply these even if you think you have no chance of paying off your debts in full, and over time you may indeed manage to get rid of your debts altogether. The tips are in no particular order, so consider them all equally. They are all tried and tested, by me. I’ve used GB£ as my currency of choice, but the figures work exactly the same for US$ and any other currency.
- It’s awfully boring to say so, but you probably have to start with a budget. You need to work out how much you have coming in, how much you have going out, and whether you have a surplus or a deficit. It is OK to have a deficit: you can still bust those debts. You can download my free budget spreadsheet here in Excel format or in Open Office Format if you like. Open Office is free office software you can get from OpenOffice.org. There’s also a PDF version of the spreadsheet here. There are full instructions on how to fill it out in the book (see later).
- Negotiate with your creditors and make sure they stop charging you interest. If interest continues, you may never manage to pay back an out-of-control debt. Make them truly tiny offers that you can afford. For example; suppose you have a credit card with a £15,000 debt on it, at 14% APR, with minimum payment of £375 a month. Your budget shows you that you’re struggling with a deficit of £100 a month (you’re spending £100 a month more than you have coming in, even without making your credit card minimum payment). You write to them, all of them, and tell them you can’t afford it, and offer them £1 a month. They’ll probably refuse and you repeat your letters until they accept. You don’t make any payments, or pay just the £1 offered, until they accept. Say this in your letters – they’ll reply with threats, but you can’t pay what you don’t have. Shrug.
- Get rid of your assets. This is a tough one, but if you have valuable assets like a car, motor-cycle, and especially any equity in a house or apartment, you can count on your creditors looking greedily at them and seizing them from you within a few months of your letting them know you’re in trouble. Sell them and pay off the debts, or transfer ownership to a spouse or a trusted friend, but get rid of them. A beat-up old vehicle essential for your job is usually something you can keep, but what can be taken from you varies from one jurisdiction to another so check your local laws. Ideally, you will sell off your assets and perhaps use the money to pay down some debts long before you start letting them know you’re struggling. If you do this afterwards they may try to stop you so that they can take them (and they’ll add thousands in fees to your debt too, just for fun). Note: if the value of your valuable assets exceeds the amount of debt you owe, then in theory you can pay off your debts. Note also: it is probably illegal to hide substantial sums of money from creditors in most countries. The law presumes it belongs to them if you owe them on paper, even though the interest rates they charge are extortionate and, basically, made up on the spot to suit themselves.
- Cut your spending. Another boring one! Well, maybe finance is a bit boring generally. 😉 Anyway, face the fact that you don’t need another iPod, bag, pair of shoes, bangle, dress, suit, computer game, DVD, restaurant meal, take-away, cinema trip, holiday, painting, bottle of wine or whatever. Hard luck. You’re down-at-heels, so face it. Feel proud of yourself every time you manage to stop yourself buying some junk you don’t need. I know this can be a very hard to do: it’s probably the one I stuggled with the most. We are conditioned by all the adverts we see to feel that we deserve the luxury lifestyle they depict, but you won’t get that lifestyle by pretending you have it already. If you are overspending, you are on the fast-track to skid row. Seriously.
- Pay yourself first. What this means is, for every £100 ($, Euro, whatever) you earn, you save some of it – typically £15, but it could be anything from £5 to £25 depending on how hard it is in your situation. The idea is to build up a future for yourself, and not for greedy bankers. Don’t save if you are paying interest on your debts – get that stopped or pay down the debts first because you’ll lose more in interest to those thieves than you can possibly save. But once you’ve stopped the interest payments, saving is good; in fact, saving is essential if you are ever to have a decent future. When you are not paying interest, your creditors (the people you owe money too) will, after a couple of years or so, be keen to write off your debt at a discount. They know you’re never going to pay them really, and it is better for them to get something and save themselves the expense of chasing you all the time. So you can use your savings to pay off your debts in full and final settlement for anything from one tenth to a half of the original amount they were claiming. Some stingy ones will only offer a small discount. Keep them waiting. Pay the best offers first where you can.
- Save discreetly. If you owe the bank £50k and you start building up savings in a savings account at the same bank, guess what’ll happen? That’s right. They’ll take it, and use it to pay the debt down, pound for pound (that is, with no discount). And if they see you’re saving, they’ll re-apply interest. I suggest saving with friends, spouses, and using pre-payment cards (cash cards) to put modest amounts of cash on. Pre-payment cards are like cash and you can use them even when your credit rating is in the pits, because although they look like credit cards, in fact they give you no credit. Instead you have to load cash onto them first (usually at a post-office – don’t do it straight from your bank account or via any of your creditors’ institutions, because they’ll notice…). It is OK to have some savings in a bank account if you don’t owe that bank any money, depending on who owns that bank… It can be handy to get your wages paid straight into such a savings account, and then you manually transfer some but not all of it to your current account to pay the bills (use your employer’s name as the reference if you transfer online or automatically, so on your statements it looks like the money is coming directly from the employer and not from your savings account). Also, by getting your wages paid directly into a savings account then paying yourself out of that, the idea of saving is built-in to your money-handling ‘system’.
- Understand how long it takes to pay off your debt. Do you know how long it takes to pay off a lousy £1,000 credit card debt at 14% APR if you only make the minimum payments? Have a guess – I dare you! Ready? OK, look at the first and last numbers in this sequence: 14589. That’s how many years it takes. Astounding, isn’t it? If you can add just an extra £10 a month to that minimum payment, it cuts the time to about a quarter and saves you about 70% of the interest. So only pay minimum payments in an emergency; otherwise, always pay at least a little more.
- Avoid legal action by keeping up communication with your creditors. If you run, hide, or fail to respond to their letters, they will get scared and come after you. All you have to do is show them you can’t afford to pay, using the budget spreadsheet or a similar chart of your own or one they’ve provided for you, and they will be at least semi-OK about it. Unless they’re illegal loan sharks, in which case you might consider reporting them. Anonymously. 😉
- Pay priority bills first. Priority bills are from the government (taxes and similar), and from your landlord or home loan (if you haven’t offloaded your home as described in tip 3). Pretty-much whatever happens, you need to keep paying these people in full. You can sometimes negotiate reduced payment with statutory debts, but you risk losing your home if you don’t make the rent. Credit cards, store cards, car loans, hire purchase and so on are not priority bills. Negotiate with these as described. In the case of car loans and hire-purchase agreements you will probably lose the item, so give them back in the first place and try to cancel those agreements and see if you can save yourself anything.
- Don’t contemplate suicide. You’re worth more than the greedy bankers who have cheated you and millions of others. Sure, it’s stupid to get into unsustainable debt, but when you look into it, that’s an inevitable part of the way our financial system works. It isn’t entirely your fault. Entire countries run by ‘experts’ get into unsustainable debt. The hard commercial truth is that bankers want as many people as possible to get into long-term debt and many people are bound to overshoot, especially when they are young, inexperienced, or when their circumstances change. Do the bankers care? In a word, no. Do yourself a favour and solve the problem, and never deal with such crooks again from a position of weakness or ignorance. Don’t let them finish you off, because they really don’t care.
Well, I hope you’ve liked my Top 10 Debt-Busting Tips! I believe these tips will be enough to get most people started on the road not just to financial stability, but to having a permanent surplus of income over expenditure – and that dream lifestyle one day, maybe. I’d be interested to hear your comments – you can use the form at the bottom of this page if you like. (Your details will never be sold or given out to anyone else.)
I’ve written book about this subject too, called “How to Eliminate Massive Debts with Tiny Payments.” It covers all these tips, and more, in much more detail, and gives full instructions on how to use the budgeting spreadsheet too. You can either purchase it as a physical book, an e-book, or download it from here as a PDF.
You can use this link with the password you will receive to your PayPal email address after payment, to download your copy:
The book is also available on Amazon for e-readers (including iPhone, Android, Windows, etc., with their app)