6 minute read
Kiss Goodbye to debt-shame and detox your credit
By Phoebe Blamey
Debt is always made out to be the evil villain of the money world. There are countless books about getting out of debt, becoming mortgage free, paying out those credit cards and the evils of buy now pay later. Like it or not, debt is a real part of life. There is nothing wrong with holding a bit of debt. It’s time to shift our thinking and understand how we can make friends with debt. Say goodbye to ‘debt-shame’ and start to get a real understanding of how debt can serve you well.
Good debt versus bad debt
There are many reasons you will hold debt in your lifetime. You shouldn’t be afraid of being in debt, but you need to understand the types of debt. You may have heard about good debt versus bad debt. Most financial planners or tax advisers call good debt any tax-deductible debt. Good debt is considered as any debt you take on to improve your life, such as home renovation, buying a better car that is not falling apart or taking a holiday. Whereas, bad debt is considered anything you are unable to deduct like credit cards but also your home loan (which is actually building you an asset, so I think this is partially true). I think of bad debt as debt that has become out of control or unaffordable; think credit cards at their limits that you can only make minimum payments on.
Get to the bottom of your debt
To get started on your debt detox, it is important to look closely at the debt you are currently holding. How much of your borrowings are sitting at their limit accruing interest and causing you stress? How much of your debt is something you are taking for granted as part of everyday life? I bet you don’t mind paying off your home loan as much as you mind paying your credit card bill, particularly if you are on a minimum payment cycle.
Accept your debts and gain control of Your money
No-one wants to admit to being in debt. I am no exception to this. Years ago, I found myself in a position with $35,000 of credit card debt. As a single mother with a daughter at a private school, I was trying hard to keep up appearances. I wanted my daughter to have it all, and if I am honest, I wanted to look like I had it all. I knew this wasn’t sustainable if I wanted a bright future for us both without more money worries ahead. It was time to take control of my money situation. Gaining control over your money is not a big revelation – it is a few very small, simple moves in the right direction. I managed to break my debt cycle by using these simple technique.
Check your rates
If you have a home loan, you will know the big plan is always to pay it off before you retire – but let’s see if you can free up a bit of cash now. Go onto your banking and check your rates. Are you paying a higher rate than your lender is advertising? This is often the case. I have a client who is paying 3.36% when their lenders advertised a variable rate of 2.4%. This client freed up $300 a month. A lot of lenders do this so ask the question. If you don’t ask, you don’t get. Imagine how much money lenders make if their clients are not checking their rates. If you don’t have a home loan you can use the same technique with your phone, electricity or streaming services, there will always be something you can renegotiate to save a few dollars. Once you free up this cash, you need to use it to pay extra on one of your cards. I chose the highest rate card but others may prefer the lowest balance. If you pay one card with a little bit extra each month, you will significantly cut down both card and interest payments. Remove the temptation First things first, you need to take your bank cards out of your wallet and iwallet. This immediately removes the temptation to use them every day - and every time you pay them down by $1000 you should reduce the limit. Try and give yourself a limit that is the equivalent to a month’s net household income. If you have after pay, it’s recommended that you use the same technique.
Be Patient – It takes time The worst thing about this sort of debt is that you can probably barely remember what you bought with it. I took years to pay off my large credit card debt but I learned quickly that there is no point dwelling on it or feeling bad. Just think about dealing with it and changing your habits for the future.
Plan ahead
Once you have all of this I place, you can comfortably go back to using your credit card for the fun stuff, like a post Covid holiday (we all need one of these!)To do this you will need to start to plan how you will use your debt. For example, work out how much you want for your holiday, home renovation or new car. Instead of just buying it and hoping for the best, work out how much you can pay off it, and how long it will take. Use a calculator to work out how much you need to pay to meet that deadline. For example, paying $300 a month on a $3000 card debt at 25% interest will take a year to pay off and accrue $398 of interest. Sounds good, doesn’t it? That calculation takes a few minutes but now rather than receiving your bill every month like it’s a big surprise, you will actually know.
A small move but it's liberating!
Knowing what is going on with your debt when you use it gives you control over it. Give it a go for yourself and see how easy it is to detox your credit lifestyle.
Phoebe Blamey who is the author of the Happy Money Journey - a guide to helping women become unshakeable with their money! It is a friendly, fearless personal advice to help make good money decisions and live life on your own terms. I think your audience would love her! The Happy Money Journey was born from Phoebe’s years of experience in learning about money and seeing how different people approach it. She also lived through her own happy money journey, from being drowned in credit card debt to now owning her own business and spreading her amazing energy and knowledge.
