It’s so easy to get into financial trouble. A splurge, an unexpected expense, and suddenly you’re learning how to turn those 15 cans of chickpeas you have had in the pantry for 4 years into a palatable dinner.
There’s no magical way of reducing debt. Sorry. But if you’ve been wondering ‘how can I get out of debt faster?’ there are some small and large steps you can take to help with debt reduction.
Create a budget
A budget is not a life sentence. It’s more like home detention. You still can have a life, but you have to live within your rules.
Creating a budget involves taking a good hard look at your situation and your spending habits. It’s not fun but it will change your behaviour. Write down all your sources of income, and all your outgoings. Then, make a list of all your debts. Finally, look at your bank account and see where you’re actually spending your money. Is it a $5 coffee each day? That cheeky $20 bottle of wine from the supermarket on weeknights? Or are you donating money to your local gym each week with a membership you never use?
You’ll find an obvious discord here: a clear difference between what you THINK you spend, and what you ACTUALLY spend. The solution to this problem is to create a budget with a realistic plan for spending. Build in money for socialising, travel and your shoe addiction so you can still have fun. A budget that’s too punitive is like the cabbage soup diet; fine on day one, but pretty soon you’ll find yourself sneaking in treats, unable to maintain the routine.
Cut out expenses
Look at your big expenses first. Can you find a cheaper place to live? Ditch the car and bike everywhere (with bonus fitness as a side effect)? Cook at home rather than eat takeaways?
Now take a look at your smaller expenses. Gym, Netflix, insurance, electricity, internet – can you shop around to find a better deal or cancel it altogether? Are you paying for your landline phone? Get an internet-only package or wrap your cell, internet, and TV fees up with one provider to save money.
If you’re not already a fan of second hand clothing, head down to the local Salvation Army and grab yourself some bargains. Wash them to remove the weird second-hand-shop smell and you’ve got new clothes at a fraction of the cost.
Go to the library instead of buying books. Go to the movies on Tuesday night instead of Saturday. Drink water instead of Coke. French press coffee is deliciously caffeiney without paying $5 for it (and saving a disposable cup from landfill). Take dinner leftovers for lunch the following day.
Develop a debt reduction strategy
Look at all your debts. Can you quickly pay off some small ones? Psychologically it’s nice to get rid of a debt, it makes you feel like you’ve achieved something. Or should you focus on working hard to bring down a high-interest debt? Plan what works for you.
Credit cards make debt reduction impossible
If you can, cut up your credit card. Get a debit card instead. While some loyalty schemes might reward you with free stuff you don’t need and points you can’t use, unless you can manage your debt effectively and pay off the full balance every month, don’t do it. Those interest rates will eat your money faster than the cookie monster eats biscuits.
Restructure your debt
If you have loads of high-interest loans (think credit cards or pay-day loans) or you’re behind on payments and falling deeper into debt, then consider a debt consolidation loan. Calculate if you actually will be better off doing this. If the interest rate is lower than the existing debt, it may be a good idea.
If you have a credit card that’s out of control, many banks let you transfer the debt to their credit cards with an interest-free period. ONLY do this if you can pay the debt off in that interest-free period.
This might seem counter-intuitive, but don’t stop saving. You should still contribute at least the minimum 3% on your KiwiSaver in order to get the $521.43 government contribution each year.
Consider starting a savings plan into a bank account. Even $5 a week adds up, and it means when unexpected expenses happen there are savings to use rather than being plunged into another round of eye-watering debt.
Sell your stuff
If you have stuff you don’t need cluttering up your life, consider this an exercise in becoming more Zen. Hop on TradeMe or Facebook Marketplace and sell those old clothes, electronics, and general miasma of life that you don’t use. People pay good money to take away your rubbish. Amazing.
Get a side hustle
There are a huge number of ways to make some extra cash after your day job. Pet sitting means no rent to pay, and fluffy animals to cuddle. Uber lets you drive around and chat to people. Become a user tester.Teach English online. Get paid for doing not much on the internet. The options are endless.
Move to Southland
With average rents and house prices a LOT cheaper than main centres, if you can get a job and want a lifestyle change, then consider a permanent move. The average rent in Auckland is about $500 a week. The average rent in Invercargill is $260. Not to mention that you’ll spend less time commuting, have a far simpler lifestyle, and you’ll likely meet Tim Shadbolt. Of course, you might want to check on the power bills down South. If you’re not used to minus temperatures, frost and snow could come as a shock!
Stop spending money
How’s your willpower? Do a brutally honest assessment of your budget. What do you need to survive? Cut out everything else. Go cold turkey on spending money. Cut out Netflix, Sky, takeaways, alcohol, gym membership (use free workouts from FitnessBlender), and take the bus or a bike instead of Uber. Be brutal. Set a time period that’s realistic, from three to six months, and prepare to read books from the library, walk around the park with friends instead of drinking at the pub, and spend time with your family playing board games instead of staring at the TV. Reducing debt has never sounded better!