The start of your journey on the road to financial freedom will be by learning how to handle debt and credit cards. The reason being, that more often than not one comes with the other, as debt is built using money we don’t have and credit cards do exactly that! give you access to money that you don’t have. There are other ways of getting into debt, too numerous to mention but there is only one way to get out of debt and that is by taking control of your finances.
In order to take control of your money you need to understand the rules associated with money and credit cards are a great place to start to understand how money works and the rules banks and lenders use to make money off of you.
I know if you’re here reading this, you are likely to have or had a lot of negative emotions attached to money, some of which we have started to tackle in our blog “6 top beliefs why you’re broke” and we also started to address them in the blog “six steps for overcoming negative beliefs”. These blogs are a great place to start if you haven’t already read them, as they will help you to learn and implement a few things which will allow you to approach these first few tasks about handling your debt and credit cards with the right mindset.
Take your time to work through the tasks below, a week should be sufficient.The first task is to understand and find out your credit score and see a copy of your credit report. Your credit score is a numerical representation of your creditworthiness, used by lenders to determine the risk of lending you money. A credit score is a three-digit number, typically ranging from 300 to 850, that indicates your creditworthiness.
The three main credit bureaus are Experian, Equifax, and TransUnion. They compile credit reports and generate scores based on the information in your credit report. I strongly advise that you check out your credit score and report by contacting one of the three bureaus mentioned or by searching online for your relevant bureau. A lot of companies do offer you free access to your credit score and report if you sign up for an account. The reason for keeping an eye on your credit score and seeing your credit report will become more apparent as we move forward with our finances. For now just be sure to know what information lenders have on you and where to find it.
The second task is to become CRYSTAL CLEAR on the amount of DEBT that you have. To do this, either create a spreadsheet or you can do it the old fashioned way and have a notebook. Be sure to call your spreadsheet or notebook The road to financial freedom. On your spreadsheet or in your notebook list all your debts including any credit cards and then create a table including the creditor, total amount owed, interest rate, minimum monthly payment and direct debit date. See example below.
| Creditor | Total amount owed | Interest rate Apr | Minimum monthly payment | Direct debit date |
| Uome credit card | £3576.99 | 19.8% | £36.00 | 3rd of the month |
| Iou credit card | £6546.76 | 22.4% | £65.00 | 11th of the month |
Thirdly Calculate Your Total Debt: If you have completed the task above you will have already gained confidence from understanding the full scope of what you owe. Now you are in control of what you owe, it’s time to start your plan.
Using the example above the total debt owed is £10,123.75 and the current monthly payments are £101. If we were to divide the total amount £10,123.75 by 48 months (the time we would like to clear the debt in) the monthly payments would be £210 per month. We are currently already paying £101 so the extra amount we would have to find is £109 per month. If this figure currently seems too much then try dividing the whole amount by 60 months which would be £168 per month so the extra amount we would have to find is £67(very doable without even looking at other sources of income). So there we have it three tasks in and we are debt free in 60 months.
Lastly, if you are currently in debt and have more than one credit card and you can meet the minimum payments on them all, the only method to use when clearing them is the Snowball Method. Focus on paying off the smallest debt first while making minimum payments on others. Once the smallest debt is paid off, move to the next smallest. Reason is belief and confidence will be the key to your financial freedom so having experienced a big win in clearing a card you will be super motivated for the next.
Feel empowered? You should do.
Let us know how you’re getting on and for fun find out and let me know what Apr means and how it works?
