I grew up with frugal parents who lectured me on how to save money and to be careful with credit cards. With that financial education, you’d think I’ll be set for life! Instead, I got deep into debt, racking up to RM10,000 in credit card debt in my late twenties. I spent on things such as novels, expensive meals, lots of fancy coffee and holidays. Did I mention I also had a car loan and a house loan? I could barely make ends meet each month.
At one point, I became so desperate that I asked a colleague to be a guarantor of a personal loan. I was hoping to use it to pay off my credit card debt (don’t do that by the way). Wisely, she said no.
Then, I asked my mother. She sternly told me: “No. I will not give you money to pay off your debt. You will have to do it yourself!”
She brushed aside my excuses for not being paid enough. “If you don’t learn how to pay this off yourself, you’ll never learn.”
So, that’s what I did. I paid it off myself and while it wasn’t easy to do, I’m glad my mother gave me tough love. Because I learned many, many useful things during my journey to clear my debt:
1. Start the journey with the right foundation
Before you start paying off your debts, list them all down – know exactly how much you need to pay off. Then, save three months of expenses for emergencies. It’ll prevent you from using your credit card to pay for necessities.
2. Do not pay off debts with more debt!
I know this sounds like common sense, but you’d be surprised how many people do this. Remember, many of these personal loans have high-interest rates. And please, do not turn to loan sharks!
3. Choose your debt repayment method that suits your personality
There are a few methods you can use to pay off your debts:
- Debt snowball: With this method, popularised by American financial guru Dave Ramsey, you pay the smallest debt first. (Meanwhile, you continue paying the minimum on your other debts.) Once you pay off that smallest debt, you snowball that amount to the next smallest debt. And so on until you pay off all your debts. If you know you need the motivation to stay on the journey, this is a great way to do it.
- Debt avalanche method: With this method, you pay the debt with the highest interest first while paying the minimum for the rest. Great for those who prefer to save money.
4. Have a debt payment schedule
Be sure to list down the dates when payments are due and never pay late. This is to prevent you from incurring late fees. It’s a simple step that can go a long way.
5. Learn to live with less
You’ve probably heard of the usual advice: Stop eating out. Find cheap or free alternatives to your favourite activities. Get rid of subscriptions that you don’t need. Living frugally may sound like deprivation, but it can also be fun. The key is to find a community you can be a part of. For example, there’s a personal finance community on the Internet embracing a frugal lifestyle. Join them – it can be fun!
6. Gamify your debt reduction plan
I know this may sound silly to some, but I used to give myself a gold sticker when I reach a milestone in my debt repayment plan. You can do the same. However, instead of buying stuff, try to reward yourself with something experiential like a picnic with friends in a park.
7. Earn more income
You can make items or sell stuff you no longer need. You can also start a small side business to earn more. You can walk pets, deliver goods and do some freelance writing.