If you read any site offering debt management advice they will without fail tell you two things you need for getting out of debt; you need a budget and a get out of debt plan.

Perfectly sound advice which is well worth listening to, but how easy do you think it is to plan for it if you have lots of  debts and lots of other things you want to save up for?

Well it is all about perspective and I’ll tell you all about it.

Planning your finances when you are in the red and have more debt than a 3rd world despot can be quite daunting. It’s bad enough having to deal with the debt that you have to pay off but if you for instance have to buy a car or want to go on a great family holiday, that can be a hard thing to cope with.

Sadly it is the truth that it was your own overspending that put you in that place, but how can you turn the desire to get a new and more economical car into something motivating when you have 4 or 5 lean years of hard saving simply to pay back the debt, ahead of you?

That is where the perspective comes into force. Your debt free day may be years away. But the way to bring it forward is to earn more.

There are 3 things that are relevant in this situation. How much you owe (or want to save), the time frame and how much you can set aside every month to reach your goal.

My wife is saving up for a big wedding for her daughters (my step kids) so lets use that as the first example.  Basically the timeline is fixed and so is the amount of money she needs to save.   In situations like this your perspective is simple – in order to save up enough in time for the big day you have to save a set amount. So if you have to save £900 in a year and a half you must set aside £50 per month.

The second example is my need for a new car. If I want to have say £3000 for a car deposit, then my perspective is a little different. The two things I have to work out is if there is a deadline.  If I want to buy within a year, then I have to find £250 a month to set aside just for the car.  If I can only afford £50, then I have to wait 5 years – this is my second perspective.
Are you familiar with snowballing your debt payments? Basically this means you pay off minimum payments on all your debts except your most expensive one. All your spare money goes to pay off this most expensive debt. When this is paid off you move on to the next debt and pay off as much as possible on that.

If you take it a bit further you can add your savings plan to your “snowball” and save up massively once you have paid off your debt.

Patience is required for this approach but the reward is that you will be going on that holiday, paying for that debt or driving in that new more economical car without any debt what so ever. And what could be better than that?

“Paying one additional mortgage payment each year, whether in a lump sum or monthly increments, can lower a 25-year loan down to 15 years.

If you pay more than one extra payment, the number of years will decrease even more. Since this additional payment will be applied only to the principal and not the interest, you end up saving thousands and thousands of pounds on the Total Amount Repayable.”

Only do this if you can afford it. If you’re already short of cash, paying off your mortgage faster doesn’t make sense.

Do your budget planning and make sure you can handle the reduced disposable income before you go ahead.

If you have other debts that charge a higher interest, you are going to be better off by paying those off first.

At the moment I am snowballing an overdraft and 2 credit cards and I am not doing the 13th month until those 3 are cleared up. I use my 13th mortgage payment to actually pay these off faster. I use the monthly increment and add it to the snowball payment.

If you have all the money you need, then this is a great money saving tip.

Now that every news source touts the coming of the next recession I think it’s time you had a closer look at this website. I have around a hundred different tips to save money, make more money or teaching you how to cut costs without having to cut down on what you like.

The best tips I have are quite basic, and it is the plan I will be following myself.

First of all, I will keep a close eye on my monthly outgoings. What ever bills I can fix at a specific monthly cost I will. That way I will reduce the insecurity surrounding how much of my income will be going out on the bills. Having predictability will be the key for me now.

Secondly, I will focus on making extra money where I can. I will be doing car boots with my sons old toys and clothes. And what ever I can sell on ebay I will. I will have an income goal for this activity every month, and I will work my hardest until I have reached that income goal for that month.

Thirdly, I will price compare on EVERYTHING.

Forthly, I will be growing vegetables where I have room in my garden. And if I run out of space, I will try to get an allotment ( although around where I live, there is already a waiting list on all the allotment sites)

Fifthly, I will make pretty darn sure that my job is secure. There are any kind of jobs available out there and I will take any job I need to take in order to make ends meet. I will prefer to make my income in other ways, but if needs must – I will.

Lastly. The debt that I have, I will manage to the best of my ability, and I will continue to pay it down as fast as I can. The payment agreements I have, I will uphold. The interest bearing ones I will pay off faster, rather than saving up a “buffer”. The best buffer I can create is to get rid of my debts.

My goal is to always pay all the bills in order of importance and I will have fun and enjoy every moment of my life while doing so, and I will do it responsibly and sensibly. And I will have a good time doing it.

Now, have you got your financial rescue plan sorted?