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31 August 2020
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:
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.
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!
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.
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.
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!
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.
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.
If you have a hard time sticking to a budget it may be the method you’re using. Try to find one that you can stick to:
If you get motivated by tracking every dollar, use an Excel sheet or an app to track your expenses to ensure you don’t go over budget.
I, for one, am just useless with keeping detailed records of my expenditure, so I use a simple system where I spend only a certain amount each day. As long as I spend within that limit, say RM20, each day, I’m fine. If I overspend, I’ll spend less the next day.
Alternatively, use the “envelope system” where you literally stuff a certain amount of cash into an envelope each month. If you’re uncomfortable with keeping that much cash at home, use a digital system like goodbudget.com instead.
Ideally, it’s best to use cash to reduce your debts, but wise use of a balance transfer plan could save you money on interest while helping you pay down debt faster. You can also consolidate debt from several credit cards onto one card.
However, do ensure that you can make the repayment schedule as you may incur higher interest rates as a result.
What’s the best way to ensure that what you’re learning sticks? By teaching others what you’ve learned. As I paid off my debt, I shared my journey through my blog (it’s an old blog that’s now buried under the ashes of the Internet). That kept me going till the end because I couldn’t wait to announce victory at the end of the road.
Years later, my mum’s tough love has paid off. Now, I live debt free. I pay off my credit card balances each month and no longer service a car or house loan. It’s very freeing and I never thought I’d come this far, and it’s all due to the skills I’ve learned during this journey.
The debt repayment journey can be a challenging one, but it’s worth it in the end. Whatever you do, decide to start.
Elizabeth Tai is a journalist and content marketer who works with brands to tell their stories. She writes about personal finance and sustainable living at https://www.elizabethtai.com.