“Debt is like any other trap, easy enough to get into, but hard enough to get out of.” – Henry Wheeler Shaw
Debt sucks. Like REALLY sucks. It sucks the life and soul out of you. It’s painful. It makes life easier for a while, but when you end up trying to deal with it, it horrible. But the worst thing you can do is ignore it. So once you have your budget sorted, the next thing we need to do is make sure we are looking at debt and starting the get rid of it.
If you are following my FI:RE plan (which you damn well better be!) you will see debt gets mentioned in two steps – Step 2 is “Service any debt while you get organised” and Step 6 is “Pay off debts, except the mortgage.” To try and keep people on track, I am going to do Step 2 here (because it’s simple) and post Step 6 at the same time. DO NOT jump straight from 2 to 6. I’ve done this just so you can take a look and be assured we are going to kick the shit out debt as part of this journey. Just not yet Grasshopper, that piece of financial violence comes a little later…..
Step 2 – Service that debt
You can’t service your debt without growing a pair and looking at what it is. So to start off you need to be brutally honest with yourself and your situation. If you are in a relationships you need to look at BOTH your situation. Get that shit out on the table. Believe me, this can be horrible, especially if you haven’t been entirely honest with each other about money in the past. And let’s be honest, not many people really are THAT honest with each other all the time. Money is shit to talk about, but for this, you are going to have to do it.
Get those debts out – the credit card, personal loan, sofa 4 years credit agreement. The car payment, the carpets, the laptop, the shit you have bought online using Klarna (please, just stop…). And write them down.
- Who the debt is to.
- How much for.
- For how long.
- What the monthly payment is.
- If different from the monthly payment, what is the minimum payment?
- What the interest rate is (we need this in Step 6, so do it now).
- If you are behind with any of the payments
What to do?
Remember, in the budgeting step we worked out what debts we had and allocated money to pay them. THAT is what we are going to do for a short time – just pay them.
Get the minimum payments for each debt. If you have access to a bank, set up automated minimum payments to all of the debts. If that’s not how you service debt, then get your diary aligned so your cheques go out on time. Remember, at this stage we SERVICING debt. We aren’t overpaying. We aren’t reducing. We are servicing. Because we have other shit to organise before we go after debts.
Admittedly, this is going to cost you a little if you were overpaying or paying more than the minimum. But I am 100% of the opinion we need to get a solid foundation in place before we focus on removing problems. We need to fix problems one at a time, and this isn’t always the biggest, even if it is often the most emotional and relieving when it gets sorted.
- Identify the debt
- Understand them all
- Make sure you are paying the minimum, every month, on time.
One more thing. Don’t get any more debts. We have a budget now. You know what you can spend. Don’t go borrowing more and make things worse right now. Cut up the credit cards if you have to. Accept some of the things in the house are old and not getting replaced yet. Just don’t make things worse. Please.
Thats it for Step 2. Simples.