Therefore, what he needs to do is pay off his most expensive debt first — his store card. The first steps to getting out of debt There is one thing you must do before you set out to eradicate all your debt: Take a once-and-for-all decision to: In my book a genuine bargain is something you need to buy but which you manage to get at a lower price than you expected to pay for it.
There are various actions you can take to make this easier on yourself. Cut up all your credit cards and store cards; Cancel your overdraft limit.
This is costly and may eventually have to be formalised, so you are back in the overdraft trap again. American money expert Alvin Hall you may have seen him on television suggests that anyone with trouble curbing his or her expenditure should keep what he calls a money diary.
The basic idea is that you carry a small notebook with you wherever you go and write down details of every single cent you spend. You should include everything — from your daily newspaper to your mortgage repayments. If you are prone to impulse spending — or if you always spend more than your income — I can see the good sense in this approach.
You can also download the free Money Doctor app that will track your spending. Seven great reasons to get debt free Seven reasons to pay off all your debts — including, perhaps, your mortgage. Owing money is stressful. There is a real peace of mind which comes with not owing money and with owning your home outright. Suddenly all the money you are spending on servicing your debts will be available. Why should you have to wait until you are 60 or 65 to give up work?
Beware compounding your debt woes It is compound interest that makes debt so expensive: When you are earning it, it has the power to make you very rich. When you are paying it, it has the power to make you very poor. It is the reason why banks, building societies, credit card companies, and other financial institutions make so much profit from lending money.
And it is the reason why ordinary investors can make themselves rich simply by doing nothing. It is a fiendishly simple concept called compound interest. Perhaps the easiest way to understand compound interest is to look at two hypothetical examples: In other words you are paying interest on the interest.
Put another way, your interest is earning you more interest. When you borrow money, compound interest is working against you. The credit card company allows you to make a minimum payment of 1. Compound interest is your greatest enemy and your greatest ally. When you are in debt, it works against you. But when you have money to invest you can make compound interest really work for you.
The biggest threat to your financial wellbeing The greatest threat to your financial wellbeing is borrowing. I am not talking about reckless borrowing, either, but ordinary debt borrowing in the form of personal loans, overdrafts and credit cards. This is because the cost of borrowing money is a huge drain on your most valuable asset — your income. You must also factor in the opportunity cost — the money you would otherwise be making if you were investing your income instead of spending it on servicing your debts.
Let me give you one simple example: Which is why, I explain here the benefits of being debt-free, together with two proven methods to make paying off all your loans fast and painless.