How to Escape the Rat Race – Step 2

Destroy the debt!!!

Being in debt can be a massive anchor tugging you below the waterline with whoever it’s attached to struggling to keep their head above the water. Most people have some sort of non-mortgage debt, and a lot of people are paying more than 10% interest on this!

Being in debt is commonplace. In fact, in some cases is a necessity. Most people buy their cars with a car loan. Student often find themselves up to £20,000 in debt once they have finished university. However, leaving this unchecked can sink you.

Do not fear though. Clearing your debts may be easier than you think. Firstly, you need to make sure you are living below your means. See my step 1 post. Once you are living below your means list your non-mortgage debts with the interest rate you are paying alongside each, e.g.:

Car loan, 5%
Credit card, 19,9%
Store card, 28.9%
Overdraft, 9,9%

Now you are living below your means, use everything you have left at the end of the month to attack the debt with the largest interest rate (APR)! In this case, it’s the store card. Keep attacking it with your leftover money until you have paid it off. This may take several months, maybe even a year or more. But this step is ESSENTIAL in gaining financial freedom. You’ll never get ahead with huge debts weighing you down!

Once the store card is paid off, aim at the debt with the next highest interest rate – in our case, the credit card! You should now have more money to throw at this debt than you did the first because you no longer have to pay a hefty 28.9% APR from the store card! Keep at it, and soon you will have cleared this debt too!

Wow, two down, two to go. Overdraft – ready, aim, FIRE!! With the money you are now saving from not having to pay the credit card and store card you can fling all you have at this and before you know it, you’ll have killed this debt too.

Finally, aim at the car loan. You’ll kill this one off in no time.

This method is called Snowballing, because as you pay off the higher interest loans you have more and more money to throw at the other debts, and can reduce the time (and money) it’ll take to pay off each loan by many months, maybe even years.

Once you have shaken off the debts it show time – you can now really get cracking with becoming financially free!!