Being stuck in the debt cycle can seem like a treadmill of stress and struggle to try to keep ahead of what may seem like never-ending repayments. Once you add a mortgage, car loan, a few credit card repayments, and some BNPLs to your budget finding any spare cash can become increasingly difficult and make it harder to break away from debt and get back on your financial feet.
If you are constantly making purchases with your credit card and not paying them off in full the following month you are going to eat up a lot of your hard-earned income in interest payments. Money which could be better utilised whether that be; saving for a new home, saving up for your child’s education, putting away for your retirement or having some spare cash for enjoyment such as holidays or seeing your favourite band in concert.
No matter where you are on your journey to financial freedom, there are methods to help you get on top of your debt. Even for anyone with significant amounts of debt, their financial story isn’t over and they can potentially have the most options for action in terms of retraining their habits and living within their means. No one needs to live under a cloud of debt indefinitely. There is a way out!
18 Tips to Help you Break the Debt Cycle
1. Think about the Interest Rate
It can be so easy to forget that the price tag of the item you are about to swipe on your credit card is not the final price you will pay if you don’t pay your credit card off in full when the bill comes.
If your credit card’s interest rate is a whopping 20% or more, every purchase you make on that card that is not paid in full will attract hefty interest charges.
That $99 dress that was 50% off that you just charged will cost you a hell of a lot more over the years if you don’t pay off your credit card balance.
And it doesn’t stop there, that is just one purchase – imagine that interest on every purchase you make! That sale price doesn’t look as good now does it?
2. Cut up your credit cards
If you are the kind of person that can’t resist a good deal and you don’t pay off your credit card in full each month, it is time to cut those cards up! Stop spending money you don’t have. It sounds harsh but really is that simple. If you can’t show restraint, take the easy step of grabbing a pair of scissors and cutting up that card. It will only take you a few seconds and save you a world of stress and hardship in paying off any extra debt. Don’t let your debt keep spiraling out of control. You can get out of this and you can start today by cutting up those credit cards!
If you are buying everyday purchases on the card and are not paying them off in full at the end of the month you need to reconsider your income and expenditure and spend less than you earn. The only reason to use a credit card is to have it as a tool to keep track of your expenses, to earn rewards points on everyday expenses, and only if you are paying it off monthly! If you are disciplined enough to do this you can save yourself some serious money by keeping your day-to-day cash in your mortgage offset account or in a high-interest savings account. Otherwise, get those scissors out!
3. Stop trying to impress others
A lot of people get caught up in looking at other people’s lifestyles and attempt to keep up with them. I guarantee no one ever asks the same people they are trying to compete with – how much debt do you have? Yeah sure, Joe down the road might have your dream car but he probably also has a $200 weekly car repayment to make for the next 7 years which probably isn’t as appealing to your green-eyed monster.
Yet so many people go out and buy new cars, bigger homes, or brand-name designer fashion to fit in with others without a thought for the struggle that is going to put on their finances, such as affording the basic needs of food, shelter, medicine, or their education. Break the debt cycle!
Do you feel the need to buy the latest fashion and accessories? You might be surprised to find that other people are probably not that interested in what you are or aren’t wearing. People are too worried about their own lives to focus on your daily outfit choices or the fact that you only spent $50 on your handbag rather than $300.
I have often had handbags under $50 and constantly got compliments – no $300 designer bag necessary! I remember my friend’s 21st, I asked her where she got her amazing dress from and she said a second-hand shop! You don’t have to spend big to have nice things in life!
If you are surrounding yourself with people who expect you to meet some kind of designer brand level of outfit choices, your probably need to reconsider who you hang out with or reassess if those friends even really care. Maybe it is your own standards you are trying to keep up with.
4. Avoid shopping without a list
Stop going shopping unnecessarily! You’d be surprised how little you’d spend if you didn’t step foot in the shops at all or open the latest sales email. If you have endless emails from clothing shops or stores that tempt you constantly, unsubscribing from them can help remove that urge to buy.
Make a goal of only going to the shops when you need to and go with a list of what you need to buy and from where that you have built up over a week or more. Don’t walk down the makeup aisle if makeup is not on your list. This alone can help you resist unnecessary purchases as most spending occurs when you are browsing which can end up with you buying something you don’t need and will later regret.
Shopping with a carefully prepared grocery list can go a long way to saving money on your weekly shop that can be redirected to paying down your debts faster!
5. Take advantage of new credit card balance transfers
If you want a leg up to pay off your credit card balances, you can consider a balance transfer to a new credit card, some offer 0% interest on the balance for a certain period of time, usually between 6 to 24 months. This can potentially reduce the interest rate you are paying on your credit cards to 0% and help you get on top of your debt in a short space of time.
Only do this if you cut up the new card immediately otherwise you will end up back where you started. Also, be sure you will be able to pay the balance transferred onto the new card within the low-interest period. The new interest rates can be significantly higher usually starting at 19.99% post the discounted interest period so you will want to pay it back within this time frame to avoid the increased interest rates.
This can be a great way to smash that debt balance in a defined period of time at a lower interest rate. Do not under any circumstances add to the balance of this new credit card. It is not for you to spend with, but as a tool to help you get ahead and pay down that debt!
6. Ask your credit card provider for a better rate
Alternatively to the balance transfer option, call up your current credit card provider and ask for a better, more competitive interest rate. If they want to keep your debt on their books they will have to meet your request and better your interest rate. This will save you on interest charges without the time limit of the balance transfer option.
7. Always pay more than the minimum on your credit card debt
When paying off your credit cards always pay as much as you can onto them each month – avoid only paying the minimum. If you can only afford the minimum find a way to change that – cut other expenditure, get a higher paying job, or a second job to increase your income if changing jobs is not an option. Temporary pain will be required to achieve financial freedom.
By only paying the minimum repayment you can add decades and thousands in interest to the debt you are going to have to pay off. Using Money Smarts Credit Card Calculator a $2,000 credit card balance paid back at the minimum repayment of $41 a month would take over 21 years to repay and cost over $6,500. That means you will in effect be paying for those $2000 purchases three times over for the next 21 years! And for some people, $2,000 is just one month’s expenses. Imagine if this is being charged, month after month. The horror!
Never settle for only paying the minimum repayment. There should be a disclaimer under the minimum repayment on your credit card statement that reads: “what to pay if you want to be in debt forever and pay 3X the price of everything you’ve ever bought and have no desire for financial freedom”.
The only time you should utilise the minimum payment is if you are using the Snowball Method or other debt repayment options and throwing all your spare cash onto the lowest debt and slowly knocking each one to zero.
8. Ask yourself if this purchase is a Want or Need
It is important to consider what our wants are versus our needs. Every time you pull out the credit card or cash, ask yourself is this a want or a need?
If it is a want, something that you’d like but could live without, ask yourself if this purchase is so important to you that you are willing to be snowed under by debt in order to have it?
Is it worth paying potentially 3X (or more) the purchase price of the handbag or new runners over a period of years? Or would it be better just to hold off a couple of weeks or months and save up the cash?
If it is a need and you have truly considered it, go ahead and buy it, but if it is an essential expense it should be covered by your budget and not paid for with debt.
If it doesn’t seem worth spiraling into more debt, rethink your purchase. Sometimes we can become so desensitised by buying things with a simple tap that we forget to stop and ask ourselves these important questions.
Being more mindful with everyday purchases can aid us significantly to break the debt cycle!
Shops are designed to make us want to spend more money. Whether it be the loud music, the vanilla caramel-scented candle wafting through the store, bright lights, styled displays or the pushy sales staff. Take a moment to stop and assess whether buying this item is going to add to your long-term happiness or take away from it.
9. Channel your excitement into your savings
Make the decision to buy things in cash going forward. By buying in cash and saving up for highly desired items you can give yourself the time to save up money gradually for it. You will be surprised how easy it can be to save for something that you really want when you know that after all that hard work you will have that item you desire – debt and guilt-free.
When you really want something, you will know if it is worth your hard-earned money as you will be making the necessary sacrifices to get it. You might start spending less on eating out each week or skipping regular drinks nights in order to save to go on that first overseas holiday.
When you save towards something you want and work hard in order to acquire it, instead of feeling a sense of guilt or buyer’s regret, you will feel a sense of accomplishment and joy knowing that you worked hard and saved for something meaningful that was going to add value to your life and that you paid for in cash. There will be no looming debt hanging over your head for months or years to come.
I can’t imagine anything worse than going on an amazing two-week holiday and coming back to deal with the debt that remains after the fun is over. It’s going to be a lot easier to be motivated to save leading up to that amazing experience than once it has been and gone and you are dealing with the debt consequences.
10. Buy what you can afford, not what you can borrow
When we bought our first home we were surprised to see how much the banks were willing to lend us. As I did our actual budget (not the bank’s budgets they use to justify lending you a huge mortgage) we could see how borrowing the larger amount was going to be a huge financial strain.
Instead, we stuck to a mortgage that would be well within our budget which will go a long way to help us break the debt cycle. This included built-in safeguards that gave us some extra financial security in case rates went up or in the event that we had to live off one income.
Only you know your true spending habits and what you can reasonably afford to pay back. Don’t let others convince you that your borrowing power is bigger than it really is. Check out the benefits of a smaller home (and mortgage) here.
11. Don’t become accustomed to the mentality of having debt repayments
I have seen this happen time and time again with young and old alike. They pay out their perfectly good car after 5-7 years of repayments and immediately start talking about what car they want next.
Even though they have a perfectly functioning car, with time on their side to save for the next one, the thought of saving up for a car over time, or having a slightly older car is considered too painful, so they go out and get another car loan.
Break the cycle! Be weird and say no to debt!
If your car is reliable and not that old and mechanically sound, it is so bad that you hold onto it for a couple of years more and save up to buy your next car in cash completely debt-free? Paying $100 or more a week for the next 5-7 years is a big commitment and is going to get old fast!
12. Reassess what you are willing to get a loan for
Be selective with what you are willing to go into debt for. Only go into debt for purchases that increase in value or are considered an investment. Getting a degree in your chosen career can lead to a higher salary, and a house can provide a return through equity.
On the other hand shopping sprees on the credit card, holidays and a new car aren’t an investment and don’t hold their value so going into debt for items like these should be avoided.
Do you want to be paying off a shopping spree years down the track after the clothes are out of style and most likely already donated to charity or sitting in the back of your wardrobe?
If you need to get a mortgage for a house that will increase in value over time, that can be considered “good debt” but a $2,000 credit card balance for some new clothes for summer is not “good debt” and should be avoided.
13. Put every spare dollar that you can towards your debt
Most people when buying their first home are signing up for huge 25 to 30-year mortgages. If your mortgage is a 30-year mortgage, it doesn’t mean that you have to wait that long to be debt-free. Aim to pay it off as fast as you can.
Are you prepared to stay in your full-time job, particularly if it is a job you don’t enjoy, for the next three decades until you are 60 to own your house? By adding an extra $50 a week to a $500,000 mortgage you can reduce your mortgage by over four years and save $65,000 in interest. A huge saving! You may think a measly $20 a week will not make a difference with your debt, but it will! And every small bit it further motivation to add more and more and is just the start of the debt snowball effect!
Imagine what you could do if you could add $100 a week to it in additional repayments! Break the debt cycle and avoid letting your bank or credit card provider dictate what your repayment timeline will be.
14. Save up an emergency fund of $2,000
Part of the never-ending debt cycle is attributed to not planning ahead. Suddenly your car dies on the freeway and you need to put $1,200 on the credit card for repairs. The hot water system goes and again you are stuck without a leg to stand on and putting that on the credit card.
Plan ahead. Budget emergencies are just as likely as the chance of rain. Find a way to save up $2,000 as quickly as you can and keep it in an account for emergencies only. This does not include a nice handbag that is on sale or last-minute drinks with friends. This is only for genuine emergencies like a break-in occurs and you need to change the locks or you have a severe toothache and need to get it looked at. Get organised and sell your clutter if you have to.Â
If you have to use this fund, you will need to build it up again. Next time you have a flat tyre you won’t have to panic and stress about finding the money and won’t even need to think about bringing out the credit card.
15. Prepare a budget and stick to it
Knowledge is power when it comes to finances. If you are aware of what your budget is you can be more mindful of your spending and more likely to break the debt cycle. If you know you have a $500 electricity bill every quarter start budgeting for it every week. Don’t wait until the bill comes and then try and figure out where the $500 is going to come from and end up paying your bill late with an added late fee.
If you own your home, be prepared to spend regularly on maintenance. Living week to week can put you in a bind when your home needs urgent repairs and you haven’t planned ahead and put away money for such events. Check out these Everyday Savings Tips to help kick-start your budget and free up some cash to break the debt cycle!
16. Learn to be content with what you have
Once you realise how little you need to be happy the desire to consume more diminishes. You no longer feel as big of a rush buying things. The thought of parting with your hard-earned cash will make you more mindful of what you are buying.
Learn to be content with what you have. This alone can go a long way to break the debt cycle.
Do you really need a brand new $35k car on finance on your $50k salary when your current car works perfectly fine?
Are you willing to pay x dollars every month for the next 60 plus months? In good times and bad – when you are unemployed, when you are trying to live on one income when you decide to cut back hours at work to study for a new career – that debt is going to still be there. Being in debt removes opportunities.
Maybe having that spare money each week could allow you to go on an overseas holiday each year, cut back your work hours to spend more time with your family or allow you to retire earlier. Sometimes more stuff is not the answer to contentment.
17. Find new past times that don’t involve shopping
If you are finding yourself constantly browsing online shops or at the mall, you may need to pause and recognise the habit and ask yourself – is there something more valuable I could be doing with my time? How often are you shopping, for how long and how much are you spending? Keep note of it.
Gradually retrain yourself to stop the automatic habit of logging into your favourite store’s site or browsing aimlessly on your lunch break. Think about all the things you could be doing instead of shopping; reading a new book, going for a walk, meeting a friend for coffee, learning a new skill or hobby, catching up with family, or seeing a new film.
If you have friends who you shop with regularly, make a suggestion to do something different together. There are plenty of things to do that are more enjoyable (and often free) that you could be doing instead of shopping and wasting money.
18. Review your credit card statementsÂ
In order to break the debt cycle and get your finances back on track, you need to establish where you are spending your money and wracking up debt. Check your credit card statements monthly and analyse them. When you know where you are spending your money you can become more mindful and take action to stop it. Is it at Kmart on clothing and homewares? Are you spending too much on eBay or Amazon?  Are there stores you are visiting in your breaks for something to do? Is your spending occurring on the weekend because your friends work and you don’t know what to do with your spare time?
Work out where you are spending and place yourself on a ban from going to that shop or buying from that shop online for a month. Just pick one spending problem area. If your weakness is buying makeup, avoid shopping for any new makeup for that month and see how you feel after a month. Maybe you can stretch it out for two months without too much pain. Then you can add another store to the ban list until you can retrain your mindset to shop as you need things, not as a pastime or unconscious purchase.
Do You Want to Learn How to Spend Your Money With Intention?
If you want to take control of your financial future, stop stressing about money, and learn how to spend your money with intention, book in for your free Q&A call to see how Minimise With Me Financial Coaching can help you gain clarity around your finances!
You can learn more about Minimise With Me Financial Coaching services here.
What are your debt goals? Do you have a plan in place to break the debt cycle? Are you using the debt snowball method to pay down your debt? Share your goals and wins to achieve financial freedom below 🙂
