Here we are focusing on the practical side of money management, but it also holds many emotions for us too.    

Nobody plans to get into debt – it creeps up over time for many, or crashes in for others who have a change in circumstances that is unexpected.

To become financially stable, we need to implement changes in our life so that we can STAY out of debt. Getting into and out of debt can be likened to yo-yo dieting – where we put on then take off weight, only to put on even more weight the next time. So, the real challenge is to stay out of debt.  

Here is my 10-step plan to getting out of debt:

1. Identify Your True Needs – feeling deprived won’t work.

Debt is one of the biggest worries and causes of emotional agony for you – especially if you already struggle with your relationship with money. Shame builds from the feeling of being hopelessly trapped. Cutting out all pleasures from life to pay off debt will simply not work. If you live a life without fun, you will feel emotionally depleted and probably want to spend and therefore get into more debt. Discovering your real needs and then spending within them is essential if you are going to be able to eliminate debt.

There are many people who feel that they need to treat themselves with an expensive purchase which they believe will make them feel better. It does make them feel better for a little while – but not for long. Then the yearning reappears.  Most purchases are made emotionally rather than rationally. The purchase is to heal an emotional wound or need that would be healed better with love or an activity that was free or cost considerably less.

Try to build a picture of what you really need to be happy – to satisfy your real needs.  

Check your wardrobe for clothes, check your kitchen for gadgets, count the kids’ toys that you tend to treat them with. Check whatever is your“thing” and realistically ask yourself - do you need any more?  

Identify the pattern of how and when you spend. Put barriers in place to stop the spending – only take cash out with you and list what you are going to buy, making sure it is within budget. Feel good about sticking to the list.  

Explore and research free and fun activities to do instead of spending. Focus on the challenge, involve the family and make it fun.

Feeling deprived is a lonely place, but if buying things that you don’t really need or want actually makes you feel worse, now is the time to work out what you DO really need. There is well known quote that says:

 “You can never get enough of what you don’t really want or need”.

2. Stabilise the debt – do not skip this step

Plugging your leaky bucket is the first step to stop the debt spiral. Stabilising the debt means not adding to it.  This step is the fundamental step to becoming debt free and staying debt free. Reducing your debt while you are still using your cards etc, or there’s a danger of using your cards if something unexpected happens, will keep you in the debt cycle for years and years.

Like having a leaky bucket, pouring money into it whilst it is gushing out of holes in the bottom is pointless and endless. This step will likely seem pretty scary at first – not using a credit card or overdraft as a crutch, but is it not serving you ultimately.

You will need to get very creative at meeting your needs without using your cards or adding to your overdraft.

Use the Mini Money Map spreadsheet to create a budget to see where you can reduce spending.  You may well have to make sacrifices which may seem unfair but try to think ahead to the feeling of being debt free!

Think of ways to increase your earnings if you need to. Ask for a pay rise, part time work, selling unwanted items, etc. Downsize your car or your phone for example.  Forgo a foreign holiday. Have movie nights in, ask friends to visit and bring a plate of food with them. It may sound harsh, but the sums need to add up somehow.

3. Keep the Costs Down – Switch and Never pay the minimum payment

If you are paying interest on your debt, do everything you can to minimize or eliminate it.

 Use a Credit Card Eligibility Checker to help you to see what might be available to you before applying directly to a card issuer.  This is called a soft application and will not be recorded on your credit report should you be turned down.  

 Cards shown that might be available to you from a Credit Card Eligibility Checker site are not guaranteed, however.  

Transferring debt will incur a fee but if it is 2% or less and it also offers 0% for a reasonable length of time, it would very likely work out a much better deal.

You can also call your credit card provider or bank and ask them to reduce the interest. Tell them that you have been having trouble paying and ask them what they can do to help you. Not guaranteed but worth a try.

Where is the diagram? – here is an update done of the one already provided.  Feel free to make it look prettier!

Credit Card Deb Diagram

4. Freeze your cards

Ask your credit card provider or bank to freeze the card so you can’t use it. Don’t cancel any cards though. Put any that are not frozen by the provider in a jar and into the freezer, so they are literally – FROZEN. No more using the cards!

5. Build a firm foundation with “sometimes” savings

You may think it is silly to start saving while you are still in debt, but it isn’t. Not having savings was a reason you got into debt, now they will help you get out. This is the part where we save our way out of debt.

It is time to build savings for essential items coming up – Christmas, car insurance etc. This will break the cycle of having to use debt to pay for them as and when they arise. Let’s call these Sometimes Spending. It is a good idea to have a separate account to pay them into.  Here is how it works. Let’s use Christmas as an example. You decided that your total budget for Christmas is £900. Divided by12 months of the year that is £75. Start putting £75 per month, every month into the Sometimes-Spending account.

This is the real rock methodology of getting out and STAYING out of debt. Again, use creative ways to accumulate money in the Sometimes account if things are tight already. Also, if you are paying a chunk more than the minimum payment, reduce this to JUST above the minimum payment for now, e.g., minimum payment £63, you pay £100, reduce it to £73 and put the rest into the Sometimes account. We want to do everything we can to avoid sabotaging the debt pay down or use the card again.

Don’t forget to use the Sometimes money guilt free, when the time is right, e.g., use it to pay for the car insurance when due if you have been setting it aside.  Don’t be tempted to save it and then use the card instead.

6. Use the Snowball Debt Destroyer to Reduce the Debt

List the debts in order of pay off intention on the Snowball Debt Destroyer spreadsheet (available for you to download). You might put the most expensive first, or the smallest first. Financially it is best to put the most expensive (highest interest rate) first. Put them in the order that works for you but remember that the reason we are doing this is to be debt free.

By using the Mini Money Map and the Snowball Debt Destroyer you are making the decision as to how much money you will pay towards your debts EVERY month. This figure will stay the same until ALL your debts are paid off. One fixed amount, like a mortgage or rent – regular as clockwork.

7. Know how much you will have when your debt is paid off

If you are paying £500 per month to pay off debt, when the debt is gone you will be £500 better off per month. How will that feel? Picture it, feel it too. Use this to encourage you to keep on track.

8. Build up a POM fund

When you can, start building a 'Peace Of Mind' fund. Some call it an emergency fund, but I prefer to call it a POM fund. Start with pennies – anything. We did a 21 day challenge on Facebook and we managed to save around £15k between about 10 of us – it is amazing what you can achieve with focus and intention.

Aim to save up 3-6months of living expenses– what you need to survive.  That way, should you lose your income you monkey brain will be calm enough for you to logically work out how to get your income coming in again.

9. Celebrate being debt free

Make sure you celebrate – you will deserve it.  It does not have to be an expensive celebration – a walk, a lovely bath, something that fits your budget.  WOO HOO!

10. Avoid consumer debt – even 0% unless you have the funds sitting elsewhere

The temptation to take advantage of a 0% deal can be very strong when you have worked hard to become debt free. Easy for that naughty voice to tell you that it will be ok to spend a little now as you achieved so much before. Please don’t succumb. Use the Money Map System© Sometimes account to build up cash for the purchase you want to make.

If you are using the Sometimes account on the Money Map, and you have all loans set as cheaply as you can and covered, then saving and investing is next.  

Saving out of debt is the sure way to make sure you stay out of debt in the future.

Resistance will be overcome – discovering the source of the resistance will help to break it. Ask yourself, which money type behaves “like this?" How can this behaviour pattern be broken?

Practice changing, and change will happen.

The contents on this page have been produced by Fanny Snaith, money coach in cooperation with borofree. These contents are for guidance only and do not represent a recommendation for investments nor an advice to get a loan. The debt guidance is provided for educational purposes and to allow consumers to use their money more effectively.