How I cleared £10k of Debt whilst my Girlfriend was Pregnant

Good morning everyone! Today, I have a guest post from Steve Hoyles, a personal trainer who writes at www.hoylesfitness.com. Let me know if you would like to guest post on Savvy Scot! 

 

I want to share my story with you all. A story of how I cleared £10,000 of debt in 10 months whilst earning an average salary.

I cleared my debts by following an instinctive approach that I feel works more effectively than the ‘consolidate your debts into one payment every month’ advice the banks often preach. Here’s my story…

Back in 2010 I had a combined £10,000 of consumer debt. I suppose you could say I fell into the modern financial trap of ‘don’t save and wait, just borrow the money and buy it now’.

Here’s the thing with my debt – it wasn’t money that I’d spent on clothes, beer and holidays. It was spent on things moving expenses (I moved nearly 400 miles for a new job), a car loan, a computer, home furniture etc. The kind of debt that you can dress up worthwhile, but at the end of the day, all debt is still a drain on your financial resources.

I was meeting my monthly debt payments and wasn’t in financial ‘trouble’, but it was still a burden I wanted to get rid of. I didn’t like the feeling of owing so much money to the bank and credit card companies and didn’t want to feel as though I was working simply to pay off debt.

In October 2010 I heard the two most motivating words in the whole world – “I’m pregnant!” Now getting rid of the debt wasn’t desired, it was required. I had gone from being a boyfriend to a provider.

I’d always said I would only want to bring a child into the world when I was able to afford it, so I wanted to get myself in gear and sort out my debt. I’d looked around at the financial advice sites and felt none of them were ideal for my situation. The bank suggested a consolidation loan, but that would have just kept me in debt for longer – their approach would have tied me in to a loan for 5 years. My plan was to rid myself of it as quickly as I could.

Starting Point

These are my ‘base’ figures. My income figure was from my paid work only – it didn’t include money I made on eBay, any birthday money etc. I only included money I could consistently bank on in my calculations.

In October 2010 my financial summary looked like this…

Car loan: £5,300

Credit card 1: £2,400

Credit card 2: £775

Overdraft: £1,500

Income: £1,500 per month after tax.

Combined outgoings: £940.

I saw this as a challenge – my debt was my enemy and I wanted to attack it. Here’s what I did, in a step-by-step format…

Step 1. I got forensic with my finances.

This one is so important that I had to put it first.

Paying off debt quickly isn’t easy. It doesn’t happen by magic. You have to exercise some very strict financial discipline and understand the money that comes in, the money that goes out and look at where you can make further cuts.

Most people can make a few cuts (reduce your shopping bill, drive less, go out less, reduce phone tariff or TV subscriptions for example) and nowadays even earning a little extra isn’t beyond most people thanks to overtime, eBay and small side businesses.

Once I knew my income and outgoings, I knew exactly how much I left had left over for debt repayment. It was then a case of deciding the most efficient use of this money.

During this time I couldn’t afford to save a penny, literally all of my spare cash went on paying this debt. It’s important to understand this from the start.

Step 2. I shifted as much as I could onto 0% credit cards.

When it comes to debt repayment, you can go with a low interest rate loan and consolidate all of your existing outgoings into one. I was offered this when I spoke to my bank, but opted against it because it didn’t allow flexibility in repayment and would keep me in debt for years. The banks like to recommend this solution because it allows them to make more money from you in interest.

Instead, I shifted as much of my debt as I could onto a 0% credit card. I did this for two reasons…

1. I wasn’t paying interest, making my debts ultimately cheaper.
2. It allowed me to pay off debt quicker, rather than with single monthly scheduled payments. I could make repayments as often as I wanted.

I think psychologically it’s really helpful if you can pay off chunks more regularly than with a single monthly payment. It also allows you to take advantage of extra cash you get your hands on (birthday money, work bonuses, eBay sales for example).

I took out a credit card with a £5,000 limit and 0% on balance transfers and purchases. I then combined both of my existing credit cards onto one and started throwing as much money as I could at it.

I closed down my two old credit card accounts, meaning I then had 3 debts to attack – my overdraft, my combined credit card and my car loan.

Step 3: As well as making cuts, I wanted to increase my income.

I did this in two ways – I took on extra work and I started selling on eBay.

I was full-time employed, but I starting taking on some personal training clients out of working hours. This was a great way to bring in extra money (and eventually led to me leaving my job and going self-employed a year later, but that’s another story).

In time, the personal training income was helping to speed up the debt repayment.

Thanks to my work, I had all kinds of promotional gym t-shirts and bits of exercise equipment that I didn’t need. I started selling these on eBay and managed to make £400 over the course of 3 months, which helped me to clear some of my credit card debt.

Making cuts is one thing, but combine that with a little extra income and you’ll double the benefit.

Even if you have no ‘sellable’ skills such as a trade, you can offer things like dog walking, ironing services etc. You’ll be amazed at what people will pay for.

My personal training business started off relatively slowly, but by the end of the year it was giving me around £400 per month of extra income which was a massive help when it came to clearing my debts.

Step 4. Once a debt was cleared, I closed down the line of credit.

At the time I had an overdraft of £1,500. The problem I had with my overdraft is that I thought of it as money in the bank, when it wasn’t. I was complacent with it.

I made a point of cutting my overdraft down very quickly. I took it from £1,500 to £1,000 on payday and made sure I was very careful for the rest of the month (that month I paid less off my credit card, rather than the large overpayment I usually made) and then got rid of it completely over the following three months by taking a similar approach.

When I cleared my overdraft, I called the bank and asked them to remove the facility. They were reluctant, but I was insistent and they removed it. Now I couldn’t spend money there that I didn’t have.

The same went for credit cards. When I paid the balance fully, the account was closed and has never been re-opened.

Step 5. I paid something off every week.

As I mentioned earlier, typically a loan is repaid with a single monthly repayment. There’s nothing wrong with that, but I’m the kind of person who likes to make repeated progress, even if it’s small.

By shifting more of the debt onto credit card, I would make a payment every time I came into some money via an eBay sale or a client payment. Importantly I didn’t ever see this money as my own – it all went straight on paying off my debt.

I found this regular extra payment helped me get into a ‘Me vs. Debt’ mindset, rather than just making sure I had money in the bank to pay my loan every month. It also meant that when I did make the monthly payment it went further towards paying off the debts.

I didn’t really trust myself at the time to not spend any additional funds, so it was a case of as soon as the money hit the bank, it was sent right out again on a payment. I removed temptation immediately, a strategy I recommend for anyone, including my personal training clients when it comes to unhealthy food!

You’ll be amazed at how quickly small repayments will eat into a debt. I tried to pay off at least £30 per week on top of my monthly bill payment by exercising a little stricter financial discipline.

Within a few weeks the extra payments really began to add up.

Step 6. I made my loan cheaper.

Not many people know this, but banks will often offer a ‘settlement fee’ for a loan if you pay it in one go.

At the time I had a car loan of just over £5,300. I called the bank and asked them for a settlement fee if I paid it all in one go – they gave me a figure of around £4,400, so £900 off the loan!

I had cleared all but £300 of my credit card debt. The card had a £5,000 limit with 0% interest on purchases, so used that to pay off the loan and close the loan account. My car debt was now smaller and on the credit card, making it interest-free. I also had the ability to pay it off more regularly than monthly.

At this point I had gotten rid of my overdraft and most of the original credit card debt. By adding the £4,400 card loan to the credit card I still had £4,700 of debt, but it was interest free and I could pay it off as quickly as I was able.

By now I had around £800 per month to throw at debt repayments. I know this sounds like a lot of money, but just by cutting back on certain things (reducing Sky TV package, mobile phone package, cycling more than driving, shopping more sensibly and taking food to work rather than buying lunch) I was saving around £120 per month. Add to that the reduction in debt payments and I was saving another £400 per month.  The rest was made up from income.

A week before my first son was born in July 2011, I had paid off all of the money I owed. I had no savings, but more importantly I had no debt.

What I Learned

Clearing my debt was an eye-opener. I learnt a lot about finances, banks and myself. I developed and practiced a financial discipline I’d never had before. I developed personally, ending the process far with a far more mature attitude to money and purchasing in general. I learnt that banks are happy to reduce debts for a quick repayment.

Clearing my debt inspired a nod towards minimalism in my life and a total change in what makes me happy. I have far more control over my spending and an appreciation of good use of money as opposed to simply spending without purpose. I wouldn’t be exaggerating if I said it changed my life.

Those tips to help you pay off your debt again….

1. Understand your finances.
2. Shift the debt onto credit cards, not a consolidation loan.
3. Where possible, increase your income.
4. When a debt is paid, close the line of credit.
5. Make small weekly payments.
6. Make your debts cheaper.

I’d love to hear if you have found this article helpful or have any questions! Leave them in the comments and I’ll answer them for you!

 

Steve

 

Hi! I blog about health, fitness and nutrition at my website www.hoylesfitness.com. I have an email list there where I send out fitness discounts, offers and tips. I’d love to see you over there!