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?