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A couple of weeks ago I finished paying off my first credit card! It had been a goal of mine for over two months and I cannot describe to you how good it felt to phone my bank and close that account. As soon as I hung up the phone I did a happy dance around the kitchen. I’m not joking. Be thankful you didn’t witness those moves. For many people starting out on their debt free journey, getting rid of that first debt total might seem like an impossible mission. To help motivate and guide you, here is how I paid off my first credit card.
Figured out my debt total
Of course, this is the dreaded first step. Before I could begin paying anything off I had to face my debt total. It wasn’t fun, it wasn’t pretty and my anxiety rocketed as I checked each number and added it to the calculator. It had to be done though. In order to understand how you are going to become debt free you have to know what it is you are dealing with.
My total came to £16,814.49. You can read my Starting Point post here. My smallest debt, my first credit card, was at £586.02. If you follow Dave Ramsey’s baby steps and the debt snowball method you will know that this would be the first debt I would focus on paying off. But before I did that, I had a few other things to put in place first.
Created a budget
The next step was to figure out where all of my money was going. I did this by coming up with a budget. Once I knew where my money was going, I would be able to tell it where I wanted it to go. I feel like that is the major difference between getting into debt and getting out of debt for most people. Setting up a budget gave me control over my outgoings for the first time in a long time.
As my income is irregular I had to do things a little bit differently. My total monthly earnings change constantly, so I had to come up with a budgeting method that worked for me. You can read about it here.
Set aside an emergency fund
Next came the emergency fund. This is such an important step and one that should not be skipped. I understand that for most people, by the time you reach this stage you just want to get started on your debt payments. You have to be patient and wait a little bit longer while you save your emergency fund.
It took me around three months to save my emergency fund, which felt like forever at the time. Thankfully I haven’t had to use it yet, but it gives me such piece of mind knowing that I’m covered if anything goes wrong or my income drops drastically in the coming months.
If you have no idea what I’m talking about you can read my post on emergency funds here. In very simple terms it is a pot of money for emergencies, just as it sounds. It’s greatest benefit is that if somewhere along you debt free journey something unexpected happens, such as a car breakdown, you remove your risk of going backwards with your debt progress. No credit cards are needed to make the payments, you have an emergency fund instead.
Focused my over payments
Now we get to the fun stage! For those who follow the Dave Ramsey method, this is where the debt snowball kicks in. Whilst making minimum payments to all of my debts I threw every spare penny I had at my smallest debt, my credit card. This change in the way I handle my finances has made the biggest difference for me. Before I started to focus on becoming debt free I used to pay a little bit of a card off, then a little bit of a loan and so on. Now, I concentrate all of my over payments on my smallest debt.
Some of these over payments came from money “leftover” once I had completed my budget for the month. A lot of it came from things like selling unwanted clothes on ebay and completing surveys on Prolific Academic (my favourite side hustle) too. Everyone will find something different that works for them.
The beauty of using this focused method is that you see much quicker progress with each debt that you have and your momentum really begins to build!
If you have read my goals post for October you will know that I am now putting all of my focus into my second and final credit card. Using the same method as I did for my first I will put everything I have into clearing this total. Even better, I now have the money available that was going into my first credit card (a minimum payment of around £60) which means I will be able to pay this card off even faster.
Whichever method you find best suited to you during your debt free journey, having focus and understanding of your money are both key. You have to know where your money is going and you have to tell it what to do. Take control of your finances and you will make progress towards financial freedom!