FOOL'S EYE VIEW
60-Second Guide To Getting Out Of Debt

By Jane Mack (TMFJane)
September 20, 2002

The simplest ways of losing money are always the best. And being in debt is one of them because of all that money wasted on paying interest. It's also one of the easiest ways to lose sleep. So here's a quick guide to getting out of debt and achieving sweeter dreams.

0:57 Denial is a river in Egypt!

So, face the facts! Yes, you work hard for your money, you hold down a job, you pay your way and you're generous with the rounds when you're out with friends, so why shouldn't you spend it as you see fit? The answer, quite simply, is that you can – but only if you've got it! The fact is you cannot spend money that you do not have and it is only by spending sensibly that you will ultimately reap the rewards you deserve for working so hard.

0:48 How much do you owe?

Sit down and do some sums. It's not just the credit cards that count – it's the personal loans, the overdraft, the financing you got when you bought that new washing-machine etc. Add it all up so you know exactly how much in hock you are.

0:42 What are you spending your money on?

If you're not sure where your money is going every month, then find out! Just for a month, make a written note of every single penny you spend. If you're handy with a spreadsheet, then all the better. It's amazing how you can see exactly where you're going wrong when it's staring you in the face.

You'll probably find that it's not really the big things that are hitting you where it hurts, but the small things. Sandwiches and Starbucks coffee, spur-of-the-moment pub lunches, impulse buys, gym fees and frequent trips to the corner shop for drinks and nibbles on the way home from work – it all mounts up.

0:31 Work out a budget

Write down all your essential expenditure – mortgage/rent, Council Tax, utility and food bills etc and see where you can cut back. Can you find a cheaper gas or electricity supplier? What about your grocery shopping? You can't stop eating but you can stop buying ready-made meals and there's no rule that says you have to have meat every day of the week. Work out a budget and stick to it. The aim is to cut back in any way you can so you can free up as much money as possible to throw at your debts.

0:21 Check Your Interest Rates

You're probably paying a vast amount in interest payments on these debts and that is money that could and should be in your pocket. Make the debts 'cheaper' by transferring the balances to a low interest rate credit card. It'll mean that more of your money will go towards paying off the debt itself rather than the interest, and you'll get shot of the whole lot much more quickly.

0:14 Snowball The Debts

This means singling out the most expensive debt (the one with the highest interest rate) and throwing all the money you can at it whilst making minimum payments on the other debts. When the first one is cleared you then chuck all that available money at the second debt, again whilst still making minimum payments on the others, etc. This method really does work. Just as a snowball gets bigger and bigger as it rolls down the hill so the debts get paid off faster and faster as you go.

0:05 Stop Spending!

Okay, this is so unbelievably obvious it shouldn't need saying. Unfortunately it's the reason people get into debt in the first place, isn't it?

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