Get out of debt

If you’re about to graduate from tertiary education – congratulations!

Recent graduates have a qualification, a desire to change the world, a head full of memories and, collectively as a nation, almost $11 billion in student debt. Not the most optimistic start to our careers . I say ‘our’ because I too am a recent graduate and have been wondering how on earth we are going to deal with this staggering amount. So, I did a little research and found some good tips on getting out of debt that I’d like to share with my fellow graduates.

Be committed to achieving your goal
Firstly, don’t be daunted by the amount of your debt. No matter the amount, getting out of debt is usually achievable. However, it does require constant discipline, and ignoring the problem won’t make it go away.

Find out the total amount you owe and make this your goal. Stick the amount on your wall, on your fridge or in your wallet to remind yourself. Committing yourself fully to paying off your debt will get you there faster.

Avoid more debt
Having debt is like having weeds in your garden. If you ignore it, it grows incredibly fast, spreads quickly and sucks up all the nutrients so that other plants suffer. To make your garden thrive you have to get rid of the weeds and stop them from growing back. It is the same with debt, and to stop it from growing you need to get rid of those credit cards. Get a debit card instead which works similarly to a credit card, but only uses funds you actually have.

Have an emergency fund

Life surprises us, and things can go wrong, which is why it’s best to be prepared. Set up an emergency account and put around 10% of your earnings in there every time you get paid. Keep doing this until you have at least three months (ideally six) worth of living expenses. Don’t make it readily accessible, for example keep it in an online savings account. Try not to touch it unless you absolutely need to, and if you do use it, pay back the amount you have withdrawn.

Now you may be thinking, why would I save if I haven’t yet paid off my debt? Won’t that slow down the process? Yes it will, but think about it, if you suddenly have unexpected bills, emergency purchases you need to make, or have been made redundant you have these funds you can use without taking out another loan.

Budget, budget, budget!

I can’t stress this enough. If you want to get out of debt and save money a budget is essential. It’s easy to lose track of where your money is going and setting a budget keeps you aware of how much you spend. If you allocate certain amounts to spend on areas such as food, entertainment, or clothes you are less likely to make rash purchases and overspend. There are lots of online tools that will help you do this, and heaps! is great for setting goals and keeping you within a realistic budget you can live with. Find a tool that suits you and use it on a regular basis.

Find ways to save
Be frugal in your day-to-day living. There are all sorts of ways you can save, from buying the home brand at the supermarket, to bringing packed lunches to work, to riding a bike instead of driving. All these things save you a little, but it really adds up. Heaps! will be regularly posting on ways you can save so stay tuned for those saving tips!

Find ways to earn extra income

An extra shift at a part-time job? Babysitting for friends and family? What about all those clothes you never wear, and those gadgets you never use? Try a garage sale, or get online and sell your things on trademe. You may be surprised at how much you can make!

Finally, don’t lose heart. Remember that your degree really was an investment, and you will reap those rewards eventually!

In the meantime, good luck and all the best!

Goals are awesome. They motivate you and keep your on track to getting what you want. In heaps! we’ve made goal setting even easier by creating goal templates for you to choose from. Of course you can still set your own goals, but these templates come with a list of tasks that are filled out already for you and will keep you on track to achieving your goal faster. You can choose from templates like buying a car, buying a house, getting out of debt, saving for a medical procedure, going on holiday and saving for retirement. Check out the screenshot below for a taste of what these templates look like:

When ever you want to add money towards your goal you no longer have to go to the goals page first. Just click “I spent it on a goal” when you’re categorising a transaction and it will do it quickly for you. Check out our new goals tracking page below, it is full of milestones along the way to help you break up your journey.

Even better, now you can celebrate by seeing a goal completed in heaps!. Your completed goals are also kept on record so you can see past goals that you have achieved. Go you!

• Add a new goal from categorisation – If you click on “I spent it on a goal” when you’re categorising a transaction you’ll be able to add a new goal without going on to the goals page first.
• Goals progress display – your goals graphs will constantly update to show how much you’ve saved and spent on your goal.
• Easier editing of goals – you’ll be able to edit your goals easier and faster, mark a goal as spend or investment, and see your goal picture instantly after uploading.

Source: piggybankblues

When you have piles of credit card bills that are yet to be paid, you definitely need some kind of plan to pay off all these cards eventually. Although it may seem easy, making the minimum payment on all your credit card bills is not the best way. If that is how you’re paying off your debt you will probably be stuck with the same bills for years! Therefore, you need a plan to tackle each one of your debts one by one.

The easiest way to tackle your debt is through the snowball effect. This means that you give the credit card with the lowest balance the highest priority. This doesn’t mean that you forget the other cards. You must continue to be committed to pay the minimum amounts on all your credit cards.

Eliminating Credit Cards One By One

Although people might argue that it is best to pay off the card with the highest interest rates first, this does not keep people motivated as it doesn’t seem that their debt is being eliminated. Let us look at an example. A person has the following credit card debts:

Credit Card A: $300 balance; minimum payment – $25
Credit Card B: $750 balance; minimum payment – $30
Credit Card C: $1250 balance; minimum payment – $45

Regardless of what the interest rates are on each individual credit card, devote the rest of that surplus towards paying the balance on Credit Card A. Let us say this individual devotes $200 a month towards making credit card payments. After making the minimum payments on all cards ($25 + $30 + $45 = $100) he or she has $100 left. (Let us neglect interest charges for purposes of showing how the snowball method works). The remaining $100 (or surplus) will go into paying the credit card with the lowest balance (Credit Card A).

So after the first month the credit card balances are as follows:
Credit Card A: $175
Credit Card B: $720
Credit Card C: $1205

Again, repeat the procedure trying to eliminate the card with the lowest balance for the next month
Credit Card A: $50
Credit Card B: $690
Credit Card C: $1160

And for the next month, since there is only $50 left for Credit Card A, more of your allowed spending on paying off debt will go towards paying off Credit Card B:
Credit Card A: $0
Credit Card B: $585
Credit Card C: $1115

Through this method, this person was able to completely eliminate Credit Card A after three months of payments, and now they only have to concentrate on paying off two credit card bills. The psychological factor here is important. If you have less bills coming in, you feel that you have made progress, and there is now less stress in your head.

Source: Debt Counseling Care

Devote a Fraction of Your Income

Set aside a reasonable amount of your income every month strictly devoted towards making credit card payments if you are in debt. Track your spending and make sure you are not splurging on unnecessary items. Some people believe that by paying off only the minimum amount and leaving most of your income in a savings account will benefit because of the interest gained due to savings. However, the interest rates on the credit card debts are much higher than the interest rates you gain in savings. Therefore, that idea is flawed.

Make sure you make all minimum payments otherwise this will only hurt you in the end! And the remaining amount of what you left aside for credit card debt should be put towards the card with the lowest balance. Hopefully everyone will begin to budget their spending and track their expenses so as to not get into any further debt. Debt is a major problem here in New Zealand and the rest of the developed world, and a significant portion of this debt is due to the general public.

Are any of you in a large amount of debt? If so, do you have a general plan of attack as to how you pay off your bills? Or do you just concentrate on making the minimum payments on all your debts? Does your plan consist of the snowball effect or do you try to pay off credit cards with higher interest rates first?