Just one hour’s pay to end debt

Six simple steps to free yourself from liabilities

This is the road to debt

freedom in 2021.

Life is never a straight line. We have highs and lows and our spending is no different.

I was speaking with my children this week and explained that when you have an expensive month, like we did in December, it’s right to reign in the spending a little in January, to offset. Otherwise you could easily find yourself in debt.

That’s coming into sharp focus now as December credit card statements arrive in inboxes and on doormats.

For some, the statement will reflect Christmas extravagance.

Some balances will even include purchases that date back to 2019!

Given the lockdown conditions, online retail sales in December are forecast to break records, up 36% year on year, according to the IMRG Capgemini Online Retail Index. That’s the highest annual growth since 2007.

The challenge with online sales is that there is no emotion involved in the transaction – there’s no spending pain. When you pay cash you see the money leave your hand and you physically experience the transaction. Online, you click and the payment is automated for you, and then your product arrives. It’s fundamentally different. This non-attachment behaviour can get us into big financial trouble and it’s part of the reason I believe credit card debt in the UK and much of the developed world is out of control.

Unsecured debt levels fell last year as many reduced balances during the first lockdown. But forecasters the EY Item Club expect a rebound in 2021.

The average UK credit card interest rate is 22.5%, according to the Bank of England. No one can afford to carry a liability like this. If you’ve had enough

The average credit card rate is 22.5%, no one can afford this sort of liability

of this financial burden on your shoulders, then follow my six-step plan to repay your unsecured debt (credit cards, overdrafts, loans, car finance):

First you must avoid making things worse: stop using credit. Change your spending habits and set up my Bank Account System, which automates your finances and encourages boundaries on your discretionary spending. 2. Keep your credit card debts separate. Don’t consolidate them, but ensure you’ve got the lowest interest rates possible, especially on cards that hold your larger balances.

3. Put your balances in order, from smallest to largest.

4. Ensure you always maintain the minimum payment on each debt.

5. Take at least 12.5% of your net income – representing the first working hour of each 9-to-5 day – and use it to repay the smallest balance.

Do this each month until it’s repaid, then close the account and move on to the next-smallest balance. Repeat. 6. You can accelerate the process by selling unwanted items online from around your home, such as unwanted gifts you received for Christmas.

Whatever your situation right now, becoming debt-free is possible. It’s done every day by people around the world, so why not you? You need to believe you can do it, make a plan and then follow the plan, checking in regularly on your progress.

To learn more about the Snowball debt repayment plan go to Warren Shute.com or search for the Money Planner podcast.