Breaking Free from the Debt Cycle: A Fresh Approach

Breaking Free from the Debt Cycle: A Fresh Approach

Hello there! Jan here, and today we're diving into something we all deal with but rarely enjoy talking about: debt. But don't click away just yet! I promise we'll keep this light, practical, and maybe even (dare I say it?) fun!

The Mindset Shift That Changes Everything

As a money coach AND therapist, I've seen how our relationship with money affects everything. The biggest game-changer? Viewing debt reduction as self-care rather than punishment.

When you pay off debt, you're giving your future self freedom and options. You're saying "I deserve financial peace" and taking real steps to get there.

Debt reduction isn't about depriving yourself—it's about redefining what truly brings you joy and aligning your spending with those values. Often, we discover that financial freedom brings more happiness than the temporary pleasure of purchases we can't afford.

Not All Debt Is Created Equal: The Good, The Bad, and The Ugly

First things first—let's bust a myth: not all debt is terrible!

Good Debt is like that friend who pushes you to be better. It's an investment that grows in value or generates income:

• Home loans: While mortgage payments might seem daunting, you're building equity in an asset that typically appreciates over time. Plus, you get the benefit of having a place to live in while your investment potentially grows.
• Education loans: Think of these as investing in your most valuable asset—you! When education increases your earning potential, the returns can far outweigh the cost of the loan. Just be strategic about choosing education that aligns with your career goals.
• Business loans: Borrowing to fund a well-planned business venture can generate income that not only covers the loan payments but creates ongoing profit. This type of debt can actually create wealth when managed wisely.
• Investment debt: Sometimes called "leverage," this is borrowing at a lower interest rate to invest in something with potentially higher returns. For example, a margin loan to purchase dividend-paying shares could earn more than the loan costs you or an investment property, speak to a Mortgage Broker to show you how.

Bad Debt is more like that friend who convinces you to go out to dinner when you're already over budget:

• High-interest credit card balances: With interest rates often exceeding 20%, these debts can quickly spiral out of control. What seemed like a small purchase can end up costing you significantly more over time.
• Personal loans for depreciating items: Borrowing money for things that decrease in value, like electronic stuff, jet ski, speedboat. They break, become outdated or you get bored with them.  Means you're paying extra (through interest) for something worth less than when you bought it.

Ugly Debt is more like that friend that knows you can’t afford it but encourages you to get it anyway:

• Buy-now-pay-later schemes for things you don't need: These modern credit traps make impulse purchases too easy. Before you know it, you have multiple payments due each month for items you could have lived without.
• Payday loans: With astronomical interest rates (sometimes equivalent to 400% annually), these should not be used at any time not even as a last resort. What starts as a small loan can quickly become an unmanageable debt.

Making Debt Reduction Actually Enjoyable (Yes, Really!)

Let's face it—paying off debt isn't usually at the top of anyone's "fun things to do" list. But with a dash of creativity, you can turn it into something more engaging:

1. Debt Snowball Party Instead of being overwhelmed by all your debts at once, focus on conquering the smallest one first, regardless of interest rate. Each time you eliminate a debt, you'll experience a psychological win that keeps you motivated. Being a visual person I love a visual representation of my goal. Like me, if that works for you, create a visual "debt thermometer" for each debt and colour it in as you make progress. Make a ritual of your final payment on each debt—dance around the living room or simply take a moment to acknowledge your achievement before rolling that payment amount into tackling the next debt on your list.

2. The 30-Day Money Challenge Impulse purchases are often the enemies of debt reduction. For one month, before ANY non-essential purchase, wait 30 days. Keep a wish list in your phone or a small notebook. Write down the item, the cost, and the date. After 30 days, revisit the item and ask yourself: "Do I still want this as much as I did a month ago?" You'll be amazed at what no longer seems important. For items that pass the 30-day test, you can purchase them knowing they're truly valued—not just momentary impulse.

3. Have a "Spending Fast" Weekend Challenge yourself (and your mates) to spend absolutely nothing for an entire weekend. Get creative with entertainment—board games, free community events, nature walks, or using streaming services you already pay for. Meal-plan using what's already in your pantry and fridge! Make it a game to see how creative you can be without spending a cent, and then calculate how much you saved to put toward debt.

4. Reward Milestones Sustainable lifestyle changes need positive reinforcement. For every $1,000 of debt paid off, give yourself a small but meaningful reward that doesn't break the bank—maybe a picnic in the park, a movie night with friends, a new book, or a leisurely afternoon at your favourite coffee shop. These planned treats prevent the feeling of deprivation that can lead to giving up on your debt reduction plan.

5. Credit Card Consolidation Strategy If you're juggling multiple credit cards with high interest rates, consider consolidating them onto one card with a 0% balance transfer offer. Many banks offer interest-free periods of 6-12 months on balance transfers. Transfer all your existing credit card debts to this new card, then divide the total amount by the number of months in your interest-free period to determine your monthly payment goal.

IMPORTANT WARNING: This strategy comes with significant risks! The 0% interest period is temporary, and if you haven't paid off the full amount when it expires, you could face even higher interest rates than before. Most critically, this strategy only works if you:

1. STOP using all credit cards for new purchases
2. Set up automatic payments that ensure the debt will be cleared before the interest free period ends
3. Cut up or lock away the old cards rather than close them (closing accounts can hurt your credit score)
4. Read all the fine print - some cards charge interest immediately on new purchases even during the promotional period

Remember: This isn't a solution to your debt; it's only a tool that gives you a window of opportunity to pay it off without accruing additional interest.

Boosting Your Income (Without Getting a Second Full-Time Job)

Cutting expenses is only half the equation. Let's look at some fresh ways to increase what's coming in:

1. Monetise Your Expertise Everyone has knowledge or skills others would pay to learn. Are you an organisational wizard? Offer decluttering services. Great at designing presentations? Help small business owners polish their pitches. Fluent in another language? Try online tutoring. The key is identifying what comes easily to you that others find challenging. Start with a small offering—perhaps a one-hour consultation or a basic service package—and build from there as you gain confidence and testimonials.

2. Rent Out What You're Not Using Your possessions can become income-generating assets with minimal effort. That spare room could bring in weekly income on Airbnb. Your garage could be valuable storage space for someone in an apartment. Even your driveway might be rentable parking in busy areas. The income goes straight to your debt reduction. Once the debt is paid you can choose to continue to add to your savings/investment portfolio.  

3. Cash in on Decluttering That "one day I might need it" pile is actually money sitting idle! Electronic gadgets can be sold on marketplace sites. Designer clothing might find buyers on consignment apps. Books, DVDs, and collectibles often have ready markets online. When selling, batch similar items together to save time, take well-lit photos, and write honest descriptions. As you sell each item, you're converting unused stuff directly into freedom from debt.

4. Passive Income Projects While truly passive income requires upfront effort, the ongoing returns can significantly accelerate your debt repayment. Digital products like templates, guides, or printable can sell while you sleep. If you're creative, print-on-demand services let you design merchandise without inventory costs. Photography enthusiasts can upload quality images to stock photography websites. The key is creating something once that can be sold repeatedly with minimal additional work. Start small, test your concept, and reinvest initial earnings into creating more income streams.

Your Debt-Free Journey Starts Now

Remember, financial wellness isn't about perfection - it's about progress. Whether you're tackling a mountain of debt or just wanting to make smarter financial choices, each step forward counts.

What's one small action you could take today toward your financial freedom? Share in the comments below, or reach out if you'd like personalised support on your journey.

Until next time, Jan 🐚