Repay debt in 6 easy steps

Do you have dreams in which you find yourself drowning? Not difficult to 'read' that dream...it's you and your debt. We're all tightening our belts now, so getting rid of debt is not just a Nice To Have, it's a Must Do. And, says Myles Wakefield, CEO of Wakefields Real Estate, "Once you’ve cleared your most expensive debt, you'll give yourself some welcome breathing space for home loan repayments, your least expensive debt."

Here's our action plan to get out of short-term debt. Short-term debt includes in-store cards, credit cards and personal loans.

The hardest part of this process is facing the monster. It's time to open the latest round of bills to help you get out of debt. Grab a piece of paper or open a spreadsheet, and let's begin!

Step one:

• Make a list of all the accounts you have.
• Check each statement and write down the interest rate and account fee for each account.

If you're struggling to find your interest rate and account fee on the statement, call the accounts department. You don't have to give them your account number to get this information, so you don't have to worry about them asking for money.

• Next, write down the minimum amount you can pay back for each of those accounts (that's normally indicated at the bottom of the statement) and add them all up. Seeing that amount might shock you, but don’t worry. You're already closer to getting out of debt.
• Make a list in which you order your accounts by interest rates, from highest to lowest. Make a second list where you order all your accounts by account fees, from highest to lowest.

Step two:

Now that you have all the information, choose which account at the top of each list you could avoid using for just one month.

If you're afraid that you won’t get through a month without using the account at the top of the list, go down the list until you find an account that you don't rely on so much. Once you have more self-confidence, you can come back to the expensive one.

The good news is you don't have to pay back more than the minimum amount. Your only challenge for the month is not to use that account. If it's a physical card, make sure to leave it at home when you go out.

Step three:

If you managed to make it to the end of the month without using that account, enjoy the feeling of being in control of your money. You have just proven to yourself that you can do it if you try. When your statement comes this month, pay the minimum amount and see if you can go through another month without using it.

It's important to do this with the same account. It might not feel like you're doing much, but in just a few months you'll see the amount you owe reduce significantly. Before long, you'll have paid off that account, which will empower you to achieve even more with the next one.

If you didn't make it, don't be too hard on yourself. Like all good habits, this one can take a while to cultivate. Make sure that you’ve given yourself the best chance at success. Take another look at your list and make sure that you selected an account that you don't rely on too much. Consider choosing an account that you use less often, and try again. You will get there eventually.

Step four:

If you repeat step two and three often enough, you'll soon pay off everything you owe on that account. It's very important that you now close that account completely if it's an in-store account, or to reduce your limit significantly if you don't want to get rid of your credit card completely. 

The idea of closing a line of credit can be very frightening, like you're letting go of a life line. Just remember, for as long as it took you to pay off the account, you managed to get on without it. If you do need something from that store, you’ve now got the amount you paid off every month to buy what you need in cash.

It's not enough to merely pay off accounts. Most accounts charge a fee merely for having the option of credit. You pay that whether you owe money or not. Unless you want to pay the monthly account fee even when you’re not using the account, you need to close your account completely.

Step five:

Paying off debt is almost as addictive as getting into debt. Now that you've closed one account, it's time to move on to the next one. This time, pay the minimum amount, but add some or all of the money you paid towards the account you closed the previous month. You'll end up closing this account far faster than the previous one, and the one after that even faster!

Step six:

Repeat this process until all of your debt is settled.

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