When people ask HOW exactly we cleared our debt I always say start with a money in money out diary. Make a list of what you get in (wages, benefits etc) and of course where it goes.
I studied business management in college and it proved to me that my mothers slices of financial wisdom were strokes of genius. One of the first things I RE-LEARNT was to draw up a balance sheet… this is your list of incoming verses out going.
1. INCOMING – wages or salary if you’re posh, benefits… everything from child benefit to child tax credit and working tax credit… EVERYTHING. These are, 99% of the time, fixed amounts.
2. Next list your FIXED OUTGOINGS or EXPENDITURES – Set bills for example electricity, gas, water, TV licence and any phones that have a set amount that comes out monthly/ weekly. If you have and debts you’re currently paying off, list them here as well if the amount is the same each week/ month. Remember to ask your debtors for a means test form BEFORE you start paying off the debt. By law they cannot ask for more than you can pay.
3. Finally list your VARIABLE OUTGOINGS. For us this means our TV/BROADBAND/ LANDLINE bill and our mobile phone bill… Groceries… aah yes, this will depend on if you’re working to a budget or not. If not then its a variable, If, LIKE US, you work to a strict budget each week/ month… then its a fixed outgoing. Not sure what to put down as an amount? Some might put an average, I’m a worry wart and like to put the largest bill amount. That way, in theory, I can only be pleasantly surprised when the bill comes in at less.
4. Obviously the last step is to subtract your out goings from your incomings… this is what you have left… if its in the negative…. you have a problem. This means you have some hard choices to make. You’re going to have to suck it up and drop the proverbial extra pounds.
If the amount left over is a bit wee or if you’re in the negative figures then an INvsOUT
diary will be the best place to start. Spy on yourself for a week (or month if you like) and scribble down every coffee, paper, magazine, pint of milk, loaf of bread and stick of gum. EVERYTHING MUST BE LISTED or it just won’t work. You’ll be surprised how the pennies frittered away each week soon add up to Pounds.
Spend some time understanding that if your outgoings are greater than your incomings, YOU ARE LIVING BEYOND YOUR MEANS! It’s a hard and unpleasant lesson to learn as an adult… but one many of us need to learn (She says speaking from personal experience and a £7k plus debt) #BitterPillToSwallow.
It was at this point we looked around our home (at the time) and decided to basically GUT the place… well, almost. We borrowed money for a whopper of a skip and threw away bags and bags of junk. We knew we were going to loose our home and we didn’t want to (a) move with a load of junk from a massive house to a poky temporary residence and (b) the junk was a reminder of the past we were now trying to dig ourselves out of.
This is a great opportunity for you to clear out those cupboards… a tidy house is a tidy
mind! Ebay it, play.com your old books, DVDs, CDs etc… get rid of what you don’t NEED! Its hard to filter your precious items from the rubbish at the time… but TRUST ME, its liberating and 90% of those precious items… are in fact junk. Be brutal with yourself. The few bits that you just cant part with ARE IMPORTANT. Don’t re-file them away… frame and display them, they’re gorgeous and full of memories and should not be in the back of a cupboard gathering dust. Who knows, they could be the inspiration for your new, cleaner, less wasteful life course.
A house free of clutter… and organised… is inspiring in itself. You now have no reminders of the junk cluttering your home and safe place… so there fore de-cluttering your mind and way of thinking becomes easier. It does work and extra spondoolies (money) from selling your clutter #AnotherMansGold is always a good thing/ feeling.
NOW… Arrange your debts in order. Sort them from urgent to slightly less urgent. Sort the ‘ pay up or die‘ red letter ones from the first notice debts… or the debts that haven’t got to the debt collectors yet. ASK YOUR DEBTORS FOR A MEANS TEST FORM. You can’t pay more than you have… and they CANT refuse your request for a means test. This also give you time to gather your troops, ebay the junk, spend less that week and re-coop some extra cash before you get the form, fill it in and sent it back. Cheeky but true.
Decide with your debtor on a fixed amount and add it to the fixed outgoing list. These debts NEED to be paid off, see that they are just as important as your regular bills.
We made the mistake of setting our electricity and gas to a metre system thinking this would make paying back that debt easier. You are in fact paying A LOT MORE for your utilities and then paying for your debt. Its easier and cheaper to pay your utility bills by direct debit (which is cheaper than metres or bills in itself) and then agree on a set amount with your utility companies that you’ll pay by direct debit each month with your regular bill. This way you’ll save quite a bit of money.
When we converted our Gas to the metre we paid £30 per week for our gas and £10 extra a week for our debt… so a whopping £40 per week or £160 per month. We now pay £40 per month for just our gas by direct debit… i.e. £10 a week. If we were still paying £10 per week for a debt on that we’d still ONLY be paying £20 per week or £80 per month. Thats half of what we paid… ridiculous isn’t it. Metres cost, avoid them where ever possible!
ALSO REMEMBER… IF THE DEBT IS OVER 6 YEARS OLD (8 years in some countries outside the UK) AND THERE ARE NO CCJs IT BECOMES STATUTE BARRED.The debt is not written off but… they cannot be collected upon. Contact your local citizens advice bureau for exactly what you should put in a letter to that debtor. Once you have declared the debt statute barred, they can no longer contact you about it, that would be harassment. There are some debt collecting firms that purposely buy these sorts of debts because they know most people will pay up… ignorance is not an excuse!
Right… so, you now have a clear and tidy (and organised) house… your debts are sorted, organised and you’ve arranged how much you’re paying for each one every week/ month. This alone will lift a weight of your mind… but won’t leave your bank account very happy. This is were some self assessment comes into it. Remember that diary you’ve been keeping… the one that lists what you’ve been spending? It’s important now. REALLY look at what you’ve been spending your hard earned lolly on. Now is the time to cut out what you REALLY DON’T NEED.
This is how we started to clear our debts, the following two years started of hard… cutting out everything unnecessary. We cut out our mobile phones (your grandmother did without so can you), our TV package (back to the basic 5 channels), and our internet (libraries charge very little for the net if anything), takeaways were gone as were nights out and clothing purchases for us adults (kids grow), even the kids clothing was second hand or hand me downs and when asked what they wanted for birthdays etc we said cash or clothing. We got a real dose of REALITY here. No more £50 pairs of jeans and catalogue shopping. No more filling a trolley at pricey supermarkets and wondering where £180 of food went in the week. The list is actually A LOT longer than that but you get the idea.
If you’re serious about clearing your debts… you need to try this.
This is a great opportunity to introduce this site… Its an awesome idea and one EVERY PERSON with or without debt should try… LINK… going a full 24 hours without spending a penny. If you can’t last that long, even if you’re not in debt, perhaps its time you de-cluttered a few homes and minds and really started to think about why you’re spending your money and what you’re spending it on.