The five things you need to know about your consumer debt in order to blitz it and be free of it forever.
A frightening statistic I read recently is that over 93% of people who have some form of consumer debt – a credit card, overdraft, a store loan, an IOU, revolving credit facility – have no idea how much they owe, what interest rate they are being charged, how much they are going to pay in total or how long it will take them to repay the debt if they only make the minimum repayment.
That means 93% of people with consumer debt are floundering around in the dark, regarding what is going on in their debt world.
That is a dangerous and frightening place to be.
If you have consumer debt in your life, there are 5 things you must know about each debt to get your power back and be able to break free from it.
That’s what this video is about. Watch it now.
It’s very easy for us to disconnect from this thing called consumer debt.
In a way it’s easier to avert your eyes and just go la, la, la, la.
In Episode 1 of the new money transformation TV series I have recently filmed for Channel 4 TV, called, “Save Well, Spend Better” , the devastating consequences of rampant consumer debt on families, health and relationships come out in full force.
These people had the courage to finally face their debt situations and realised consumer debt is going to destroy the rest of their precious lives if they didn’t choose another way.
They chose to be free of it and do whatever needed to be done to get their lives and freedom back.
The choice must come first. We need to choose ourselves and make our lives more important than any perceived shame, loss or thing we may miss out on.
Once the choice is made, there are five key things you must know about that debt you have in order to start blitzing it.
MUST KNOW DEBT INFO #1 : Who You Owe
So you have to open those envelopes, you have to open those emails, you have to go on a treasure hunt. And I say a treasure hunt because you’re going to free yourself when you find these gems. You have to go, what are all the debts? Who do I owe? And make a list of them. So every single debt that you owe and you might as well also include your neutral and expansion debt on this. List it all down so you know where you stand because here’s the thing. In order to get to someone else, you need to put a plan in place, you need to get direction, you need to get movement and flow.
But you can’t get to that new place, that financial freedom, that free of debt, if you don’t know where you currently are. And that’s also what keeps many people stuck because they go, Ann, I wanna break free of debt. And I say, “Well, tell me what’s going on in your life.” Well, I don’t know. And that is so devastating. So, who do you owe?
MUST KNOW DEBT INFO #2 : How Much You Owe
How much do you owe each person?
Every credit card, every store card, every over draft …
List them out and determine the outstanding balance on each.
Once you’ve done that download this cool Debt Blitzing Tracker and fill in the total consumer debt you are going to break free from and have fun tracking the blitzing.
MUST KNOW DEBT INFO #3 : The Interest Rate
This is super important. What is the interest rate you are being charged on your outstanding balance? And there might even be different charges depending on whether it’s things that you have bought on that credit card, whether you’ve withdrawn cash on that credit card. Whether you’ve done a balance transfer. But you want to understand, what are those charges? So few people understand the interest rate they’re being charged in their debt, let alone what that even means. And so super important you understand that interest rate.
MUST KNOW DEBT INFO #4 : The Minimum Monthly Repayment
You must know what your contractual minimum monthly repayment is on each debt. Every single debt you take on has a contracted minimum repayment.
Now what is terrifying in most countries, by law the minimum repayment somebody who is in debt must pay is 1% of the outstanding balance plus the interest for that month is the monthly minimum repayment. This is almost nothing. If you are only paying 1% plus the interest on that side, you are hardly making any dent in that debt. And that is why, if you’re only paying minimum repayment you will end up paying between five and seven times more than the base amount that you borrowed, plus it could take you between 15 and 22 years to clear. Just based on the average interest rates currently being charged out there in the world. And if you’ve got a bad credit rating and you’ve taking on a credit card or a loan with a higher interest than average because of you’re out of desperation, that is going to be even more.
So super important, you’ve got to understand the interest rates.
MUST KNOW DEBT INFO #5 : How Long Will It Take To Payoff and How Much Will You Pay In Total
Using a simple credit card repayment calculator, like this one I like, work out how many years and months it will take you to pay off the debt and how much you will end up paying if you only pay the minimum repayments.
This is often a huge eye opener and motivator to get blitzing fast .
These are the five key pieces of information you need to put together a structured debt blitzing plan.
Using the proven debt blitzing process in the JFDI Break Free From Debt program , you only focus on blitzing one priority debt at a time. This principle is super important. The information you’ve collected will also tell you which of your debt is your first priority debt.
You pay all the extra money you come up with against your priority debt while you keep paying the minimum repayments on all your other debts.
Your aim is to come up with the equivalnet of 10% of all the income that comes into your life, and pay that amount against your priority debt, over and above the minimum repayment. In the JFDI, and Squeeze programs I show you where to find this extra debt blitzing fuel.
So which is your priority debt?
The priority debt is the debt that you’re going to payoff quickest.
That’s why you must know how many months would it will take to clear each debt if you only pay the minimum repayment.
Many people believe it is more logical to pay off and focus on the debt with the highest interest rate first. This sounds sensible right?
But here’s the bottom line.
That is why the strategy of focusing on the debt with the smallest repayment time and clearing that from your life as quickly as possible has been shown to have more success than focusing on the highest interest debt. This is because we love to win.
When we clear a debt or track and celebrate the steps along the way, we get a juicy hit of serotonin and dopamine that makes us feel good. This tells our brain the actions we are taking are GOOD and we want to do more of it. This self reward progress system helps us stay the course and gives us momentum.
If you’re interested in understanding this more, read James Clears great book Atomic Habits.
If you focus on the debt with the highest interest rate, although logically it’s going to save a bit more money, it will usually take longer to clear and this results in boredom, sense of not getting anywhere and lost momentum. Which often leads to people giving up on themselves and their debt free goal.
If you have any consumer debt in your life take action to free yourself now:
- Get those 5 pieces of information for each piece of debt.
- Put your JFDI debt blitzing plan in place
- Identify your priority debt
- Squeeze the juice to free up extra money to blitz with
- Automate the blitzing,
- Track your progress using these FREE Doodle Your Debt tracking sheets, and
- Celebrate each step of the way knowing you are freeing yourself from this thing called consumer debt.
- When you have cleared the consumer debt from your life, write out how much consumer debt you blitzed on a piece of paper, take a photo of yourself and post it on Instagram, remembering to tag @thewealthchef, so we can all celebrate your success together and you get to inspire others that it is possible.
In the comments below I’d love you to share:
- how much consumer debt you have
- How long it would have taken you to clear it if you only paid the minimum repayment, and
- write “I’m breaking free” to declare your committment to break free from it for ever your life.
Why am I asking you to do this?
Firstly, you will have to get the 5 pieces of information to work out exactly how much consumer debt you have, so hopefully it’ll motivate you to take that action.
Secondly, by sharing where you’re at you’ll also be able to de-energize any shame, judgment or guilt around it, so you can look at it practically and deal with it in an empowered way instead of hiding from it.
I dare you to be brave.
And if you’ve got no consumer debt in your life, share this too and have a big celebration because that’s something to be super proud of.
Keep taking baby steps, free yourself from debt, focus on building assets and choose you.