How to cut debt in 5 steps

Debt is reaching unprecedented levels, the average debt per adult in the UK is £28,877. 
Debt has huge negative impacts on quality of life. Almost half of those in debt find it negatively affects their health. Whilst 2/3 find it affects their ability to perform their job. 

With an new year here, why not take the challenge to work towards eliminating debt from your life. Paying off debt can feel overwhelming and it can be hard to know where to start. Follow these 5 steps to becoming debt free to help you along the journey. They are not an instant solution but guidance on your journey of paying off debt. 

Know your situation.
You may owe money here and there, but it is important to have a clear understanding of your financial situation. Create a list of all you creditors, how much is owed to each, what the interest rate is  and how much the monthly balance is. Doing this allows you to see the whole picture and understand what you have to payoff. 

Make a plan. 
Now you know how much you owe and to whom, it is time make a re-payment plan. Do you have a variety of interest rates or are they all very similar (or even 0%). If there is a large difference between interest rates then priorities the higher interest rate debts first. If there is little difference then work from smaller to larger debt. 
A mixture of these two approaches should allow you to determine the order you pay off your debt. Next you need to break them down into manageable payments. When focusing on a debt, remember that you still need to be able to make all the other monthly payments for the other debts as to avoid going into arrears. For example you may have a credit card debt of £1200 and be able to put £400 towards debt each months but other debts mostly payments equal £100 so you are able to put £300 towards that credit card allowing you to pay of that debt in 4 months. 

Implement changes. So you have your plan, now its time to make it a reality. First off stop accruing any more debt, that means stop using those credit cards. If its not in you bank account it cannot be spent. This will mean making cut backs, but that is part of this process of discerning between needs and wants. If you find this a challenge put the credit cards in a place where you won't use them (or cut them up). Use the cash envelope method (either physically or via a debit card) to keep spending under control and track all of your spending. Remember that once the cash is gone, thats it for the month. This can really help if you have a habit of making impromptu or splurge purchases. 

Cut back spending. So you've stopped accumulating more debt, now its time to look at where else you can cut back on in your budget. Look at luxuries such as cable TV and dining out and see what options for cutting back are available. For utilities and insurance providers it may be worth doing a comparison with supplies to see if you are getting the best deal or if it would be better to switch. These sort of big change will usually only happen once in the process so remember to always be on the look out for littler changes that can reduce your spending such as turning down the heating or taking a packed lunch to work. 

Increase your income. Look for ways to bring in more money. This could be taking on a part-time second job or casual work such as babysitting or dog walking. You may start up your own business selling goods such as on Etsy. Increased income may come from your current job by working overtime or selling off holiday hours. Apply this extra income to the debt reducing process to help speed things up. 

Getting out of debt is by no means an easy feat but the freedom it brings into your life when you succeed is immeasurable. 

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If you are new to our blog, we are all about finding new ways for students and millennials to make and save money. Here are some of our favourite sites and products to help you out:

• Start a blog. Blogging is our side-hustle just over a year ago we didn't think I would bring us any income . You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $3.49 per month plus you get a free domain if you sign-up through my tutorial.
• Save money with gift cards Whether its for buying clothes, your weekly shop or dining out use Zeek to buy discounted gift cards to get more bang for your buck. 
• Use Swagbucks for your online searches. Swagbucks is a passive way to earn gift cards. Over the course of a year you could earn $500.  Swagbucks is just like using Google to do your online searches, except you get rewarded “points called SB” for the things you do through their website. Then, when you have enough Swagbucks, you can redeem them for cash, gift cards, and more. Receive $5 for signing up today.
• Try matched betting. Matched betting is a great way to may easy money online. Despite the name it is not gambling and could see you earn £500-£1000 a month for only a couple of hours work a day see here and here. For your free trial head to profit accumulator or join the Facebook 'getting started' group.  
• Sign up for a cashback site like Quidco. where you can earn CASH BACK for just spending like how you normally would online. The service is free too! Plus, when you sign up through my link, you also receive a free £10 bonus!

EveryDollar review

We may be a little late on the bandwagon but a little while ago we decided to give Everydollar (which is Dave Ramsey's newish budgeting tool) a proper try. Previously we had used it on and off, but quickly reverted back to the comfort of our trusty spreadsheet. We quickly realised that it is not designed to be used in the UK and so that hindered our experience. We were unable to download the app, nor could we change the currency so this hindered our experience to an extent. However, will do our best to fair review of it as a product.

What it EveryDollar?
It is an online budgeting tool that is linked to the concepts of Dave Ramsey's baby step program. There is a free basic option where you have to enter all transactions in manually. There is also a premier version which comes with a fee where it is all connected to your bank account. Due to being in the UK we were only able to try the free version. It is based on the concept that every dollar should be assigned a value, be it being spent or saved.

How to use?
Using EveryDollar is very simple. Sign up for an account (its advised that you do this on a desktop). Then add the categories in your monthly budget. As you spend throughout the month, add these transactions into the budget to track your spending. You can use either the desktop version or the app to track expenses during the month. The premier version through linking the bank cuts out some of the steps for adding transactions into the budget.


The positives
- Accountability. Having the budget linked to the baby steps (albeit only the first three) holds you accountable to where you are financially and the progress you are making. I love that it is linked into the baby steps programme and it really helps to keep you motivated on your personal finance journey. For us this is by far the best benefit from EveryDollar.

-Easy to use. We found the whole system very easy to use, edit and customise. This meant we were keen to integrate it into our routine and found ourself reviewing any purchases we had made during the day and tracking them. For those just starting out budgeting it provides a great foundation by guiding you to the categories that would be good to include in a budget. The help guides are clear and comprehensive if you do find yourself having any queries about how to use EveryDollar. 

- Visually attractive. Each category has a countdown tracker (the line reduces as you spend more of the monthly allowance and turns red if you go over). There is also a handy pie chart on the right hand side that allows you to see where your money is going into the various different categories.

- Accessible. Unlike the spreadsheet we were previously using we are both able to access the budget remotely without having to be on my laptop. Because everything is store on a cloud based system, this makes it super easy to access and great if there are several people using the same budget. 


The negatives
- Inflexible. It feels very much that it is designed for a regular income. Our income are very sporadic (being students) and as it doesn't allow for amount to be carried over month to month (because its not in line with the Dave Ramsey methodology). For us it would work better if we could carry over income, instead we had to create a 'checking account fund' and carry money over that way (making it a bit convoluted). Though we recognise that the majority of users will have far more regular incomes than most students.

- Incompatible. The app doesn't work in the UK (and many other countries), and the page can't be accessed on mobile (your just predicted to app store). This is frustrating as we are unable to update on the go.

- Incomplete. The latter baby steps (3-7) are not fully integrated into the system like the first three are. It would be nice for them to be more integrated for example seeing if you are saving on average 15% for retirement. As we are in the latter baby-steps it was therefore quite disappointing to us.

Do you use EveryDollar? How do you find it as a budgeting tool?

Financial goals for 2016

As the new year is already is full swing it has been the time for us to think about our goals and aims for the new year. We have a lot going on in 2016 from our wedding (which is this weekend!!) to graduations and so everything happening this year impacts the financial goals we have. Today we will be sharing our goals of the year.

1. Continue saving for a house deposit. We started contributing to Help2Buy ISAs in 2015 and so we aim to max out those. In addition to that savings account we are aiming to contribute all additional unassigned savings money to our deposit savings.

2. Save £2000 towards car. In 3 years time we will have the option to purchase a car and so we are saving the money each year so that we can purchase the car with cash to do that we need to save £2000 each year. 

3. Have a post-graduation option that doesn't incur debt. I have applied for several options, including my Bar exam (including scholarships), financial sector jobs, and masters programmes. What ever option I end up taking up it is important that it doesn't involve taking on debt. This means if I choose take one further education that there needs to be a scholarship involved to make it a viable option. 

4. C to take up another part-time job. At the end of December C and I made the decision for him to leave his previous employer as it was not a good situation. However, this part time work was important part of our finances and so C is now applying for other part-time work. We are in a position where we can manage without any extra part time work during term time but it would make things much easier and allow us to be more intense in our savings efforts. 

5. Expand my Etsy store. Since I opened it in mid 2015, I have seen it grow much more than I expected. But I would love to expand it further and add new products to the site as well as add new design options for the products already listed. I have found it really enjoyable owning a store and developing products and we have signed our selves up to a build your own business course at our church. 

6. Perfect out budgeting. We are looking to being more rigorous with out budgeting and accountability. Updating spreadsheet and cash envelopes more frequently. As we set up joint banking after the wedding, this should ease some of the logistical issues we have had previously. 

What are your financial goals for the next year?

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If you are new to our blog, we are all about finding new ways for students and millennials to make and save money. Here are some of our favourite sites and products to help you out:

• Start a blog. Blogging is our side-hustle just over a year ago we didn't think I would bring us any income . You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $3.49 per month plus you get a free domain if you sign-up through my tutorial.
• Save money with gift cards Whether its for buying clothes, your weekly shop or dining out use Zeek to buy discounted gift cards to get more bang for your buck. 
• Use Swagbucks for your online searches. Swagbucks is a passive way to earn gift cards. Over the course of a year you could earn $500.  Swagbucks is just like using Google to do your online searches, except you get rewarded “points called SB” for the things you do through their website. Then, when you have enough Swagbucks, you can redeem them for cash, gift cards, and more. Receive $5 for signing up today.
• Try matched betting. Matched betting is a great way to may easy money online. Despite the name it is not gambling and could see you earn £500-£1000 a month for only a couple of hours work a day see here and here. For your free trial head to profit accumulator or join the Facebook 'getting started' group.  
• Sign up for a cashback site like Quidco. where you can earn CASH BACK for just spending like how you normally would online. The service is free too! Plus, when you sign up through my link, you also receive a free £10 bonus!

Why I'm loving the small house movement

In the past 40 years living space per person has doubled and 1000sq ft bigger in the USA. When it comes to houses the notion of 'bigger the better' is considered by society to be true. Many people have several spare bedrooms in their house and homes far beyond a size they need for their family size. 

It is this context that makes the tiny house movement so intriguing. Typical tiny houses are between 100-400sq foot (whilst the average USA house is 2500 SqFt). What is amazing about these tiny houses is how they manage to compact all the necessities into a small space without the cramped feeling. 

Though not everyone will want to take downsizing the this extreme, there is a lot that can be learned from living in a smaller home. As a college student I spend the last two years living in a very small space (a small single room + communal kitchen) and now C and I have a very small 1 bed flat. It made my living space simple and minimalistic as there was not space for clutter. 

                           Peachtree City Architects & Building Designers Our Town Plans



Here are some of the benefits of living in a smaller house:

- You learn to discern between needs and wants. Due to the lack of space for furniture you learn to furnish primarily with essentials. By having mostly essentials your house will look clean and uncluttered and I find having an uncluttered home is a real de-stressed. When I moved into the flat I realised how much of the things I had amounted at my parents house I had not used at all whilst being at college. It made me reflect on how much I had been hoarding over the years. 

- Bills are much cheaper. The less space you have to heat, the fewer appliances you have, the fewer numbers of bathrooms the less your household consumption will be and consequently you bills will be much less. 

-More ecofreindly. This goes along with bills being cheaper with less use of utilities your houses carbon footprint will be much less. In addition, it is easier to use green methods to heath your home. Plus a small garden means less spent on watering it. 

- Entertaining is funner (in my opinion). You make not have enough space to sit 10 people round a table for a meal but that doesn't mean you cannot entertain and have fun. We love having raclette and poker nights with our friends. We put the raclette grill on the table and we sit on the floor to eat and play cards. 

-Easier to decorate. Upkeep and decoration of a smaller house is inherently easier and less expensive. There are fewer rooms to think about co-orindating the wall colour to the cushions. 

- You spend a lot less time cleaning. Less rooms and sq ft means less rooms to clean, plus fewer pieces of furniture and less clutter means you can spend more of your time doing what you want.

- Less debt.  A smaller house means smaller monthly mortgage payments, freeing up money in your monthly budget. A smaller mortgage means there is less risk so the is less stress and worry about money in your life.

- Housing mobility. A less expensive house means more people will be able to afford to purchase your home, compared to a more expensive home which will become more niche in the market. This means you can get more value for money when you sell and may be able to move easier.   

- Change your mentality You start to think differently about your possessions. Stop over purchasing, pick smaller appliances, look for items with dual purpose and things that can easily be store. Bigger is not better when it comes to a small home. You become less tempted to accumulate items. 

Have you ever considered downsizing?

Establish an emergency fund or pay off debt?

Your snowed down with debt, got no savings and overtime you make progress paying off your debt. Now some advocate having a 3-6 month emergency fund before tackling debt whilst others such as Dave Ramsey reconvened a set amount such as $1000. Emergency funds are important and have the potential to give us financial peace of mind. 

It is unlikely you will find a savings account that gives as high an interest rate as paying your debts saves. So it would technically mean that you will save money on interest by paying the debt off first. 

However, this principle fails to take into account one key point. Emergency expenses occur in life, things that we cannot foresee. Without an emergency fund, you will find you self taking one step forward and two back (so you end up paying the interest on the debt anyway). The whole aim is to avoid acquiring new debt whilst paying off existing debt. Having an emergency fund gives you peace of mind and means that you are able to avoid a crisis. Also when an incident occurs, you money can still go towards you debts and you are able to pay off at the same pace and momentum.

I advocate building up a small emergency fund, that doesn't take too long to build and then once you have that in place start paying of the debt. But make sure you are making all your minimum payments. I think that a 6 month + emergency fund whilst paying off debt is overkill, even though there is more employment uncertainty in this economic climate. There is no set amount that works for all, you need to asses the likely risk of an emergency. If you have little assets such as living in college halls, no car etc then you would need a much smaller emergency fund than someone has a home, cars, children etc. I would say that a £1000/$1000 is a good starting point and adjust this amount up and down depending on your level of assets. 

This amount should also be guided by your amount of debt, if you have a smaller amount of debt and it is going to take less time to pay it off, then statistically speaking there is less time in which for an emergency to arise (and less time to have multiple emergencies). Conversely, the more debt, the longer it will take to pay off the more chance of emergencies occurring. Its all about that debt to income ratio. 

However, one of the problems of building a emergency fund whilst getting out of debt is that you may not have the right mindset yet. Be sure that you can avoid the temptation to spend that money unless it is an absolutely emergency.

By using a hybrid approach you are achieving both necessary goals of building an emergency fund and paying of debt. 

Ultimately the approach has to be your own as only you know the nature of your debt.