Do you have debt? Time to get your numbers straight!

This is the second of my posts on how to pay off debt as part of the Debt Movement (if you haven’t joined yet, please do so here)

Now I am really starting to enjoy this – did I tell you I don’t do feelings very well? Some may argue that my numbers are not something to be proud of either but they are certainly better than feelings (I am after all a self confessed pre-clinical Aspie). Let’s get serious about this ‘debt butt kicking’!

In my previous article, I focused on feelings; the ones that we have when there is no certainty about whether we have debt or not and how much this may be. These feelings are important because they are early warning signals and may be a sign that you have too much debt. This is why, were you to identify with the feeling(s) the smart move would be to get your numbers straight.

Here, I’ll focus only on the numbers regarding your debt – my experience is, that debt busting works a bit like eating an elephant, in small bits that don’t intimidate. I also found that it is wise to leave several days between steps (elephant portions) so that our brains and emotions can cope with the pressure (what the heck, in my case it was the shock of my life).

What to do?

If you are to get anywhere with debt busting you have to do the following:

  • Open all boring looking letters that you have received and piled in a corner (or behind a cupboard): you may find that some of these are in beautiful but threatening red inside.
  • Check your monthly financial statements for the last three months; pay attention to the outgoings and link them to bills (particularly rapidly increasing ones), credit cards and loans.
  • Sort out, and look through, all statements on credit cards and loans; if you use internet banking go online and order your statements.
  • Check your credit rating; and/or
  • Find a friend or hire a professional with associates in accounting that can help balance your pocketbook.

Trust me; not knowing is the real killer and the thing that makes having debt a ‘predicament’. Do it! Do it even before you finish reading this article!

Then again, you may wish to know what you are looking for :).

Look for the following information:

            How much debt you have

First and foremost you will have to find out whether and how much debt you have. This may sound as a ridiculously simple thing; so much so that you may wonder why I am including it here (after all, I am not famed for knowingly patronising my readers). I am writing about this because it is not that simple!

Would it surprise you to hear that, although I had the vague feeling that we are in financial trouble, I had absolutely no idea whether and how much debt we had? Neither did John; it had all taken a life of its own and, to a degree, this was the issue. Even when John and I started sorting things out we first found about £60,000 (about $96,000) and gradually went up to a mind boggling £100,000 ($160,000). Did I mention that I had the shock of my life? Yeah, it happened at the lower number; every time I learned about a new debt I went completely mad with rage…and this went on for about three months!

So trust me on this one and save yourself and your partners a lot of grief: work out how much debt you have properly and meticulously.

Before you go any further exercise your primary school maths and add the numbers. Surprised? Most people are.

Having a panic attack? Just take deep breaths and repeat after me:

‘This is a problem not a predicament!’

And the main thing: just let it out; if you feel like crying, do so; if you feel like kicking some furniture around – please do! Just get done with the emotion and return to reason!

            Who are your creditors?

Assuming that you have ‘the number’ and you know how much you owe, you need to figure out who your creditors are.

Working this out will allow you to take various decisions regarding how urgent it is to pay the debt back; whether you need to consider consolidation etc. For instance, owing money to payday loan company is obviously a very high priority in the order of repayment; or if you find that you have over five creditors you may consider simplifying and consolidating (particularly if you could do this at lower interest).

And please, if you owe money to family and relatives don’t automatically see it as a ‘low priority’. From where I stand, ignoring debt to parents, for instance, is disrespectful and very hurtful.

            What is the rate of interest?

Yep, you need to work this out for each and every debt you identified already. In some cases, credit cards for instance, it is easy; in other cases you may need to do a bit more digging around. Do it! Hopefully, realising how much money you pay the bank for the misfortune to have debt will be sobering and motivating. In my case, realising that our household was paying the salary of a junior bank employee gave me such impetus to pay the debt back – and as fast as I can – that I would count this knowledge as invaluable and very motivating.

            What are you paying?

Often when people think that they are paying their debts they mean that they are keeping up with the minimum payments on credit cards. This covers very little more than the interest and keeping this up is like accepting a life sentence. Although the situation is usually not as drastic with loans (except payday loans, perhaps) you will have to realise that for considerable length of time your monthly payment is mainly interest and very little principal.

Would you believe that in 2010, after paying close to £1,000 ($1,600) every month for twelve months, we ended the year with a loan that was only £2,500 ($4,000) lower than at the beginning of the year? This is over £9,500 (over $15,000) interest! St this rate it would have taken us ten years to pay the loan off and…well, really a lot of interest!

            What proportion of your income goes on debt re-payment?

This one is very important but it is not so much about how much you are paying off than how much do you have left to live on. Even when people are in debt they should remember that there is life to be lived, and experiences to be had.

You are to pay your debt off; not go on a date with the Spanish Inquisition!

            How long would it take you to pay it all off?

This is easy: you know how much debt you have, how much you are paying off and what is the interest. Simple calculation, really. And there are some really good debt repayment calculators around – just search for one and use it if you can’t do it manually.

Sometimes, this one can be hard to stomach but if your calculation says something like: ‘It will take you 150 years to pay your debt off’ (with fewer words perhaps) do not despair. This only means that you will have to change some things.


…but not least, you will have to find a way to keep this information so that you find it easy to use and helpful when you need to take decisions and you can keep record of how you are getting on. This, however, is entirely up to you; I used a simple spreadsheet I designed myself (ok, John did some work on it as well).

How is it going so far?

15 thoughts on “Do you have debt? Time to get your numbers straight!”

  1. Good post.  It is often said with many things that the hardest thing is getting started – and in the case of debt, it’s in understanding what exactly the debt is and what you’re truly facing.  Having knowledge helps us make a plan, and then we can take action.  Seeing the numbers, particularly how long it can take to pay off debt, can help with the motivation process.

    1. @Digital Personal Finance: This is exactly why I said that getting the numbers staright morphs a predicament into a problem; and I’d rather have a problem any day. The difference is knowledge and the possibility to look for solutions (it is an old Maori saying that if there is no solution there is no problem).

  2. My head was buried in the sand because all the payments were quite easily covered and went through automatically by direct debt. When I chose to quit my job I got serious about my numbers and made a neat little spreadsheet :). My amount of debt is quite high but my interest is fine, I just have to be creative with ways to find money for overpayments now, to get rid of it even faster!

    1. @Pauline: Spreadsheets are ace! I used to gaze lovingly at mine when I was not tweeking things. This is what the next articles in this series are – the importance of overpaying agressively at early stages.

  3. Tackling debt is a sobering experience and it is easy to be in denial over finances. I distinctly can remember at one point collapsing in a corner and weeping over a soggy spoonful of ice cream. A whole pint of Peanut Butter Ripple later and I was firmly marching to the local library to browse the personal finance section and wrap my head around the magnitude of my debt load. Great tips to help others begin an empowering financial journey, Maria.

    1. @Jenna: Thanks, Jenna! It is different when someone has suffered through it, isn’t it? (I personally am not sure I would say ‘I would have rather not had debt’; it changed me completely, for better, and made me so strong and flexible.)

  4. When I was still in the hardship program, the calculators were telling me that it would take 250 years to pay off my student loan! If I don’t get any more nasty surprises, I should have it (the last of my debts to get paid off because it’s 5X the size of the next largest debt) paid off in about 6 years.

    1. @Edward: Go, go, go Edward! Also student loans are very low interest, arn’t they? One should think carefully how one does this one. What is clear though is that paying off one’s debt is a matter of getting really mad about it! Be it over a tub of ice-cream or a tumbler of whisky.

      1. The big loan is in line with today’s mortgage rates, thanks to a discount from consolidating. But I”m not interested in playing arbitrage with interest rates. For me, it’s about paying off the credit cards first, the medical loans second, the small student loan third, and then finishing off the big student loan. Get them gone and then worry about making my money work for me.
        I’ll take the ice cream, thank you. Every hangover I ever had started with whiskey!

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