It is important to know how to become debt free. As of July 2017, the personal debts of everybody across the UK added up to a staggering £1,537,000,000,000. (That’s £1.537 trillion. Ouch.)
Over the past year (since May 2016), that figure has risen by £48 billion and the average debt per adult in the UK has risen by an extra £929.97. And that’s not all. The average debt per household is £56,731.
Per adult, the average debt is £29,698, which comes in at around 113.5% of average yearly earnings.
(All figures accurate at time of publishing. Taken from The Money Charity’s latest report on UK Debt.)
Which begs the question: with the average debt coming in at a higher figure than the average salary, is it ever possible to become debt free?
Yes. It is. But it ain’t easy.
Our top tips for becoming debt free:
Tip One: Get to know every inch of your debt
This is the key step in the process: you can’t start to work towards a debt free life if you don’t know how much debt you have.
Grab a pen and paper and write down all your debts: credit cards, loans, overdrafts and mortgages. (If you’re a student with a government student loan, it’s up to you whether to include it. It’s not a debt that affects your credit score or that has to be paid back, but it can hang over your head a little. Completely your call.)
Next, make sure you’ve made note of all the fees and interest for each debt. (This will help you pay off the right debts first.)
Tip Two: Look at why you’re in debt
This is the self-reflection part. Look at why you’re in debt. Have you bought your house? Have you borrowed money to renovate or buy a car? Have you left university having lived out of your overdraft and borrowed money? Have you been living beyond your means? A mixture of a few?
Be honest and frank with yourself, and write down a list of things that have caused your debt.
These are things that you can work on changing as you work towards living debt free.
Tip Three: Budget, budget, budget
Once you’ve calculated all of your debt, it’s time to look at how you’re going to start paying it back.
Unfortunately, that’s more than likely going to mean cutting back in some places.
It’s time to grab that pen and paper again and look at receipts and receipts and see where you can trim the fat.
To begin, look at leisure expenses. Can you cut back on takeaways or morning coffees? Is there a cheaper gym you can use?
And remember, small changes make a big difference.
Look at this chart from Hatched.com on how small changes can make a big difference.
|Estimated Items Per Year (For One Single Person)||Cost||Total Potential 1-Year Savings|
|Weekday (252) coffees||£2.70 per coffee||£680|
|Weekly (52) meals out||£12.50 per meal||£650|
|Monthly (12) gym membership||£51 per month (+ one-off £15 joining fee)||£627|
|Yearly body “maintenance”||£876 per year||£876|
|Summer holiday (1)||£327.50 + £227 spending money||£554.50|
|Fortnightly (26) night out||£58.48 per outing||£1,403.52|
|Monthly (12) iPhone contract||£45 per month||£540|
|Monthly (12) cinema trips||£8.49 per ticket||£101.88|
|Total 1-Year Combined Saving||£5,433.30|
|6-Year Combined Saving||£32,599.80|
Look at that total saved after 6 years.
That’s more than the average UK debt, demonstrating that little changes can make a big difference if you commit to them. And that’s the key. Once you’ve decided where to cut back, stick to it. You’ll start to see real progress in no time.
Of course, getting yourself debt free isn’t just as easy as cutting out your morning coffee. There’s a lot more to it than that.
If you’re struggling to repay all of your debt, it might be a good idea to consider speaking to a debt counsellor to set up a debt management plan. They can help you sort through your situation and work out a journey to debt free life. (Just make sure you’re getting the best advice and great service, and not just somebody looking to make some quick money.)
Alternatively, debt consolidation loans can help you manage your debt by combining all of your debts into one monthly payment, giving you a whole month to budget and prepare for it.
The repayments for your consolidation loan will be the same amount every month, so you’ll always know how much is leaving your account and when, and it takes the hassle out of trying to track when each payment is due every month.
That said, debt consolidation loans aren’t right for everyone – check out our article on the subject to see if a debt consolidation loan is right for you.
Here at Bamboo, we offer loans for anywhere between £1,000 and £8,000. If you’ve sought advice and are looking to borrow money to consolidate your debt, why not see how much you could borrow from Bamboo? If you’re approved, you could be on your way a debt free life within 24 hours. (Representative APR 49.7%. A guarantor may be required).