If you’ve built up unsecured debt, then remember the acronym PSAR and you’ll be on your way to waving goodbye to your credit card headaches.
If you play sport and you begin a game thinking you can’t win it, then your shoulders go down and you will end up losing. The same is true of debt.
If you think ‘It’s too hard, I can’t do it’, then you’re not going to get back into the black. You need to believe, without any doubt, that you can pay it off. Visualise being debt-free and how you will feel.
Write down all your credit card balances and list them in balance order from smallest to largest.
Then use the Snowball System. Take all your surplus monthly money – your snowball – and pay off the smallest balance first. Once that’s gone, move onto the next, then the next, always applying your snowball to the lowest remaining balance.
Why? Because when you’re paying off your debts, you need some wins along the way to keep you motivated. That comes back to psychology!
You should also use the Bank Accounts System, which automates your money as much as possible:
- Set up two bank accounts, one for bills and another for personal spending.
- Arrange ALL your regular payments to come out of your bills account – which is also where you have your salary paid. Go through each payment and ask yourself three things: do I need this, do I want this, can I get it cheaper elsewhere?
- Put some WAM into your life: that’s your weekly WalkAbout Money, it pays for all your variable spending. Work out how much you want (or have) to spend in a month after your outgoings, divide it by four.
- Set up a weekly payment for this amount from your bills account to your spending account.
- Your WAM is finite. DON’T dip into your bills account for more, it’s not too long to wait for next Wednesday!
If you can’t start acting on your strategy right now, then put a note in your diary or calendar to sit down and review your finances. Don’t reschedule it, no matter what: nobody is more important than you. Taking action is the key to any success.
Reviews need to be planned: again, put a note in your calendar and schedule time to review. Reviews help you keep on track; you won’t get fit by going to the gym once, and you won’t get financially fit by looking at your finances once either, it’s a process.
Is getting out of debt easy? No, of course it isn’t, but you CAN do it, by following these steps. Imagine how you’ll feel when you get debt-free and use that feeling to drive your actions.
Warren Shute is an award winning Certified Financial Planner and author of the Amazon bestseller The Money Plan.