Good Friday Update: £39,800 cleared - what I learned

longtimelurker2020

**Long post alert **

As scheduled I’ve just paid the last of the wretched £21k loan I posted about in my first thread: What would you do? CC or loan please help 

I’m not quite debt free since I’ve got around £7k to clear on CC2 but the money I’ve freed up by clearing other debts means CC2 will be gone within 3 months.

So why share this now? I learned the most from clearing my loan – CC1 was a walk in the park compared to the agony of clearing the loan – and I want to write this while the experience is still fresh in my mind, to help other newbies and as a reminder to myself while completing the last lap.

There’s no right or wrong way to debt bust as long as we clear them in the end and learn how to manage our finances, so note that the points below are not me advocating for one approach over the other; they are simply things that worked for me based on my personality and circumstances.

My methods:

Zero-based budgeting, giving every penny of one's income a job. For the first time in my life I knew where every last penny I earned was going. This method worked perfectly for me because I’m very regimented so having strict parameters was within my comfort zone. I assigned myself a small allowance to buy the odd book off Amazon and everything else was assigned to essential bills and debt-busting. 

Pay above minimums on your CCs via direct debit and focus on overpaying and clearing one debt before moving on to the other. Prior to MSE I had no strategy, I just spread my repayments around, aiming at nothing and thus achieving nothing. (I’ll admit there was an exception to this rule - I contributed to overpaying our mortgage at the same time I cleared my debt. Long story but it had to be done.)

When overpaying, some choose to snowball (smallest debt first) others avalanche (highest interest first) I focused on the debt that took the most out of my pocket each month. CC2 is higher interest but the loan had a higher balance, so the monthly loan repayment was higher. Now that I’ve cleared CC1 and the loan I can throw their repayments at CC2.

Stop automatically upgrading your phone; keep the handset for longer and switch to a sim-only deal. In my case it freed up ‘only £55’ a month but that contributed to upping my CC direct debit above the minimum so I could focus on the larger debt, which brings me to my next point….

…I stopped disdaining small amounts. Prior to my lightbulb moment, for a saving to be significant it had to be in the hundreds of pounds otherwise it didn’t hold my attention. Which again brings me to my next point…

… it’s related more to saving than to debt busting but when I stopped disdaining small amounts I started to ‘Tilly Tidy’ for the right reasons. It’s something I’d done sporadically in the past, rounding down the money in my current account by moving the spare change to my savings, but I only did it because I liked my account balance to look ‘neat’ when I checked it in the app, not because I thought £4.27p was worth saving. When I joined MSE I was amused to find that the practice had been given a name ‘Tilly Tidy’. By moving the untidy amounts to my savings account nearly every day I saved £500 in around 6 months. I mention this because it was part of the mindset reset I experienced while debt busting. Seeing the small amounts add up to £500 was an eye-opener and I will never disdain a single pence ever again. More on this further on.

Other common advice is to sell items to put towards the debt busting. I would definitely have adopted this method but unfortunately, I had nothing to sell because my spending had been on intangibles, namely a post-grad qualification and an expensive long term West End habit, Dress Circle tickets only, paying for friends and family to join me plus lingering post-theatre meals and taxis home. If I hadn’t spent stupidly on nights out I wouldn't have run up debt on CC1, and if I’d had the right MSE mindset I would’ve first cleared CC1 then saved for my Masters instead of automatically reaching for a loan. Instead I compounded my problems further by adding a third lot of debt (CC2) to the mix. It's horrifying when I look back. 

My tools:

I tried various apps to track my spending but, in the end, a simple Excel spreadsheet for working out overpayments, and a notebook for my zero-based budget worked for me. 

My mindset: 

No pain, no gain – after trying the debt shuffle I finally accepted that when it came to escaping my debt I couldn’t go over it, I couldn’t go under it, I’d have to go through it. I went for the short brutal slog so I could be done with the pain as quickly as possible, and so I'd learn not to make the same money mistakes again. 

You can’t borrow your way out of debt – this is a common saying on MSE and it stopped me from trying to consolidate my debts. 

Debt is not normal. It may be widespread, but it’s not normal. I'd now rather be the outlier in my circle, the weirdo with no debt, who's 'funny about money.' 

Loyalty to banks is misplaced. Shop around for the best deals. It was a huge blow to discover that my bank did not value me and was [censored] me over with such rubbish deals. What an old fashioned way of thinking, which may have made sense back when your local bank manager knew who you were, but makes no sense these days when algorithms manage customer accounts.

Taking on debt is robbing your future self. Another MSE mantra that struck a chord. Obviously mortgages are more of an investment than a debt since you’re actually giving your future self the gift of an asset. And sometimes life deals us such a blow that debt is simply unavoidable. Here I’m talking about unnecessary debt that is mindlessly acquired, as mine was.

I have to thank the MSE forum members for a fundamental mindset reset. As many have said, the debt busting journey is a valuable learning experience. If by the time you’ve cleared your debts your attitude to money and spending has not changed, I’m afraid you haven’t had a true lightbulb moment.

My motivation: what helped to keep me on track

Paying off the loan was the longest stretch of sustained depression I’ve ever experienced. Numerous times I thought YOLO (you only live once) and I’d decide to stop overpaying. It became a challenge for me, who would win – my self-disciplined adult self, or my inner child that sought instant gratification? Which brings me to my next point:

Dave Ramsay – he’s mentioned often in the DFW forum so I checked him out on YouTube. I can only take him in small doses but his mantra Children do what feels good, adults make a plan and stick to it helped during my YOLO moments.

The interest I’d agreed to pay over the term of the loan. I know I go on about this loan a lot but the day I read the loan agreement thoroughly and saw the eyewatering interest I’d accepted to pay over the 4-year term I was incensed. I’m not sure who at, but the anger motivated me to cut out all but essential spending so I could overpay and save my future self from paying that interest. The pandemic restrictions also meant I was able to spend less and overpay more.

Roaming around various MSE boards motivated me to get out of debt so I could do other things with my money. I spend a lot of time in the pensions and savings/investment forums, also the mortgage-free forum, which is what inspired us to overpay our mortgage and bring it down to under £5k as I type – we’re now effectively mortgage neutral.

Although conventional wisdom on MSE is to not save as you clear debt, I put the £500 I’d saved from Tilly Tidying into a stocks and shares ISA (which I’d read a lot about on the investment forum) and then set up a direct debit for the lowest monthly investment allowed, to maintain momentum on that. On days when I’d get fed up with debt busting I’d think about how I’d rather my debt repayment was going into my pension or S&S ISA.

 In conclusion: I'm determined to stay on track and clear CC2 before Easter. This last lap is critical and I mustn't get complacent. If I'm able to stay the course I would've cleared £21k (loan) + £8k (CC2) since my first post in March = £29,000. Adding CC1 (£10,800), which I'd cleared just before my first post, my total debt cleared will stand at  £39,800. Never again. Fingers crossed, touch wood etc. 

ryanm8655

An interesting read, congrats on clearing the loan. Keep up the good work.

DawnW

Great post, very inspiring. Thanks.

Narola1976

Great post, thank you

Sharon87

Great post and some good advice. I'm in the middle of the my debt free journey (about 50% of the way there - about 7.5k left to go). I use YNAB 4 for a zero budget, before it started charging monthly, and it's helped me figure out where I'm overspending and where I need to budget properly.

I find that once a budget is sorted, having DD for my credit cards on fixed amounts works out best and overpaying them. I worked out which deals are on 0% and till when, then I figured out the best way to pay them off in time before they expire and allocate the money needed. Some won't be paid off before they expire, so I'll do another transfer, but I have a spreadsheet to help out.

In terms of reducing spends - when you see how much you spend on one particular thing over the course of a year it's a true eye opener. I used to spend so much money on taxis in London a few years back because it was easier, but not always faster. The public transport network is so good I just wasted money when it wasn't necessary. I rarely use taxis unless work pays for it or it's actually needed (like when I stupidly slept in before a flight - my taxi cost almost the same as the flight).

In terms of phone - I've never automatically upgraded - it's a stupid concept when you think about it - "I've just paid for my phone in full, so let's get a new one". I try to buy the phone outright now or buy direct on a 0% plan and budget it every month if my savings are depleted

Another tip - have some emergency savings. I work freelance - PAYE contracts in TV, so there are times when I'm out of work. I used to have to rely on the measly amount of benefits and my credit cards to survive before. But now I built up an emergency fund, which is a good thing too, because I've been out of work for 3 weeks this month so next month I will need to dig into that emergency fund to help keep my afloat until I start my new job next week. I will need to replenish my savings during this contract, so that means reducing my entertainment/social/holiday fund to bring my emergency savings to at least £1000 (ideally it'd be around 3k).

MrsMcCarpy

Hi longtimelurker2020,
I also have £21k to pay off and you've inspired me to get shifting, 2021 is the year!  Well done.....

tacpot12

You shouldn't underestimate the value of your posting the details of your success and the lessons you learned. Others will take great comfort from your story of how you repaid a significant amount of debt. It's not easy, as you have found, but it can be done. Congratulations on a magnificent achievement. It will feel great when you make your last repayment. As this is so close, it is worth thinking about what happens when you are clear of debt. I would definitely recommended that you spend a month of repayments on something nice for you and your family - perhaps a slap-up take-away and some new clothes. After that, you can start to proactively save for all the expenses that you know will be coming over the next 12 months, and also build up an emergency fund for any unexpected expenses.  Well done!

enthusiasticsaver

A fantastic post.  Congratulations and look forward to seeing you on debt free roll of honour when the last CC is gone. 

longtimelurker2020

Thank you @ryanm8655, @DawnW, @Narola1976, @enthusiasticsaver. I hope this helps someone else in the same way MSE forum members have helped me. 

@[Deleted User] a large income is relative isn't it! I'm sure some City CEOs grumble privately about their multimillion £ salaries not being large enough. For what it's worth I'm a higher rate taxpayer although London's property prices and cost of living often make me feel like I don't earn enough.    

@Sharon87, @tacpot12 you're absolutely right about the emergency savings, I'll make that my next goal after CC2 is gone. From what I've seen on MSE - and reinforced by the shock of the pandemic - 6 months' worth of expenses in savings is what to aim for. 

@MrsMcCarpy I wish you the best of luck in clearing your £21k in 2021, the sense of relief is amazing. I didn't realise that how I felt about my job was related to my debt - it felt like I was working for nothing; in fact working to hand over money to the banks. I was depressed and thought I hated my job. It's not my dream job but as the debts drop off I find I'm more positive and upbeat at work, and I'm sure I'll stop counting down to payday.  

the-mrs

This was such an interesting read. It's great that you are happy to share what you've learned along the way.
Happy new year and best of luck clearing that last 7k. You can do it!

FootyFanDan

What an inspiring post - there will be so many who are just beginning their journey and to see it can be done will inspire. Congratulations on clearing the loan and here's to getting that CC cleared.