Saving money to help pay back your loan can be a double-edged sword. While trying to find ways to live on less, wouldn’t it be much better if you didn’t have to struggle with anything but unnecessary loans or, even better, no loans at all? How would you feel if I told you that you can easily and effortlessly save anywhere from £200,000 to £1 million during your prime years (and past your prime too); money you could spend to live a great life free from mandatory work!

Think those sums are unimaginable? Inaccessible? Impossible to rack up? I bet that by the end of this beginner’s guide, you will reconsider. In fact, you will find out that your money can indeed work harder than you can! And, trust me, the more you sharpen your financial skills, the more your youth loans will seem like no big deal.

Believe it or not right now, getting rich is what I like to call “an avalanche process”. An avalanche starts small, and somewhat uncertain, but gradually gets bigger, faster, and more powerful. After some meters down the hill, snow accumulates faster than and faster, creating an even bigger snowball. Getting rich is exactly like that. It starts with baby steps and, before you know it, you run a 15-mile marathon without breaking a sweat. You will soon understand what this means…

Should You Starve to Get Out of Loans?

Absolutely not. We will not talk about clipping coupons to save half a buck on the newest O-Cedar Spin Mop and Bucket System, making a budget that forces us to save 10% of our income (and allows us to spend the rest of it guilty-free), or cutting up our credit cards.

No. I will also not talk about my personal struggle with loans and how much effort I put to get out of it. I mean, I was storing my spare change in a piggy bank when I was eight. Apparently, I could never let myself go out and spend more than I could afford to pay back at the end of the month!

Real life reports :

I have just paid off my stag-do thanks to oakam. I am just back from Tenerife and it was brilliant. I had to take out a loan to pay for it but it was so worth it. 

Kyle  McGhee– Readies

Kyle  McGhee– Readies

This unique perspective, though, for which I have my parents to thank, allows me to be able to see quite clearly things that other people living in this tremendously consumer-debt society cannot easily see. Please allow me to explain through some observations. Many people treat their loans as something they simply “work on” rather than an “our ass is on fire” situation. Let’s see some examples.

The Different Opinions About Debt

The University Friend

When I was still in uni, a lifelong friend of mine asked me to lend him some money to pay his uni fees. I transferred the money from my bank account and was left with merely enough money to cover my basic expenses for the academic year. However, I was not worried because I assumed that my friend would make repaying his loan as his top priority. So, I was sure I would have the balance paid back shortly.

The months passed and my friend went on living a normal university life that included lots of eating out and partying. His repayment process was delayed, but that didn’t seem to bother him much. In the end, of course, everything worked out fine because my friend was honourable. However, that taught me a lesson about the different ways people deal with their loans.

The Married Couple

On another occasion, I was visiting Mark and Jill, a married couple with whom I have been friends forever. Mark was showing me his new 4K Ultra HD TV and new Corsair ONE video gaming PC when Jill came home from her second, part-time job she had recently taken up to help repay some old personal debts faster. She was holding a bottle of wine and some take-out food.

You may think that the picture I just described is a typical Friday night. However, do you see that purchasing expensive gaming consoles, wines, take-out food, and TVs was a much more important consideration for Mark and Jill than paying off their laon? Jill thought that she was working two jobs to pay down loans, when, in fact, her second job was to pay for game consoles, wines, take-out food, and TVs.

The “Minimum Monthly Payments” Delusion

I receive many emails from people that are trying to develop their own money-saving strategies and debt-repayment processes. They often detail their debt situation, as well as spending and income situations. Most of the times, there is also a category for loan debt in their spreadsheets. More than often, I also see amounts for cable TV, entertainment, and the running and maintenance of more than one cars.

Part of the debt-section on their spreadsheets look pretty much like this:

Mortgage£90,000 (4.5% interest rate)
Loan £2500 (45% interest rate)
Credit Card 1£4900 (10.9% interest rate)

Followed by a comment like this:

We have cut down on going out to eat and Peter now bikes to work one or two times a week to save petrol on his car…”

Can you see the big issue in these cases? If not, you probably still feel that throwing yourself into unnecessary debt is not a big deal. So, let me make it a bit clearer for you.

Normally, this sort of debt should cause a reaction that reminds a mix of heart attack failure and a stroke!

Imagine the person whose debt we showed above about a month after they got that first credit card. They went out for dinner a few times, purchased a few tanks of gas, and bought some nice suits for the office. The bill climbed to £2200. When it came in the mail, they realised that they only had £1200 in the bank but that was OK because the “minimum payment” was only £140.

At this point, a deafening alarm bell should go off for every single person in this wide world. The response should be:

F*&K! I totally blew it and my spendings are more than my earnings! I must fix this NOW. So, no unnecessary spending from now on. I will get to and from work in the cheapest way possible and make sure I only eat home-cooked dinner instead of out. I also don’t need 2 more credit cards to pay back my debt; nor a budget. I just need to do NO extra spending until I repay all of my debt.

Note: If you come to this realisation several credit cards later, the emergency still applies; only to a greater degree.

Real life reports :

What isn’t acceptable, is the attitude and telephone banner of the two Advantis employees I had the misfortune of speaking with. I forgot to change an address, I didn’t run over someone’s pet or rob a bank. If the person on the other end of the phone refuses to pay, that’s when you should turn up the heat. What happened to courtesy?

Adam Astbury– Trustpilot

Adam Astbury– Trustpilot

Bottom line: If you borrow even £1 for something other than a profitable investment or your first house, you should pay that back the very next time you get money on your hands. If you want to get this over with quickly, do NOT:

  • space out your debt with monthly payments.
  • have a budget for entertainment or other such hogwash.
  • start a family
  • get a dog, or
  • go out for dinner and drinks with friends.

You got the idea. There will be plenty of time to do all these things later, when you don’t have DEBT hanging all over your head, weighing down on your shoulders.

Mistakes: Please Make…But Learn From Them!

Nobody is perfect. In fact, making mistakes is a valuable part of the learning process, especially if you make sure you learn by correcting the mistakes you make, rather than letting them overpower you.

Yeah, of course, you would say that” some beginners in personal finances will say now. “The point is that I am much less practised than you. My hubby loves watching football games on cable and I still like having a Starbucks latte every morning before I go to work, so I can’t cancel cable and can’t cut my lattes. Please stop giving me such a hard time. Can I just reduce my consumption gradually?

My dear friend…this is the WRONG ATTITUTE. Running a loan balance is depriving yourself of all the great things you should have. Every buck you pay in interest to the credit card company is slowly and meticulously stealing money away; money you could use to purchase more luxury items for yourself. Sadly, that money is gone forever. On top of that, that attitude is reducing your ability to buy luxury items for as long as you live.

Living a Posh Lifestyle…the Right Way!

If you absolutely need luxury products in your life, wouldn’t it much better if you made sure you got out of debt quickly so that you have money to afford more luxury purchases? You are throwing more than £4000 of your after-tax salary out of the window every year for interest payments due to credit card debts. Imagine how many pairs of shoes, lattes, gaming consoles, flights to dream destinations, and thousands of miles worth of petrol for your Crossover you could get with that money.

On top of everything else, if you get serious with personal finance, the interest savings can also help you reduce the years you need to work by some decades and ensure a good-quality retirement! Is that enough motivation to get started or not?

Your ..“Huge” Debts!

Trust me when I say that “No debt is insuperable (if you have a job)”. Sure, a £10,000, £60,000 or £220,000 debt is big measured against the cost of groceries. It certainly is not money to be wasted. However, since this is an early retirement guide, we are learning how to save much larger sums so that we can eventually live our lives without having to work around the clock until we are 65.

For the majority of us, this means somewhere between £400,000 and around £1 million. If you are just starting out with saving money and personal finances, you may find these sums inconceivable, even impossible to reach. Believe me…after a few years, you will find out that your reduced spending and investment returns will add, at least, an extra £100,000 every year.

Remember the “avalanche process” I talked to you about at the beginning of this guide? Now, you understand more clearly what I was trying to tell you, right?

Achieving Personal Finance Mastery

To obtain the high-level financial skills required to become rich and live the lifestyle you want in the coming years (and for the rest of your life), it is important to become debt-free. So, by all means, do get bolder about shaking it off of your shoulders.

Sure, you can choose not go for “sudden-death” and instead do it slowly. Just like you can lose 150 pounds by lifting a 10-pound dumbell 2 times a day while watching Sherlock and Doctor Who on TV. But, I suggest you put on your walking shoes and get down to business. Walk as much as you can. Three hours a day. Four hours a day. Six hours a day. As much as you can tolerate. Adopt a healthy eating regime and stick to it. Allow the forward process speed things up for you and you will soon reap the fruits of your labours. Likewise, the more efficient path to eliminate debt is to think loans as excess body fat you want to get rid off, well…YESTERDAY!

The more demanding the method you choose, the more (and faster) the benefits you will have. Every pound you decide not to spend unnecessarily builds your money-saving skill. It also teaches you how to spend your money more efficiently. Plus, every pound of debt you pay off, is a pound added to your bank account. In the long run, once you develop these skills, you never lose them. They are for life.

So, if you still have a loan, make it your top priority to repay that debt pronto. The sooner you start, the faster you will be in the position to be able to save for the financial independence you are longing for. When you are close to the finishing line, you can certainly take it easier. But, right now, you engines should run full speed.

Yes, you will need to make some sacrifices, but they will be for a short period of time. Trust me on this one. If your strategy is effective, you will soon find yourself out of any debt and free to start living the life you deserve. You may need to take on an extra job, go car-free for a while or enjoy only local travels, depending on your life situation, but you will be rewarded for your patience and determination to get the job done effectively.

Then, I will see you, my friend, at the next, more advanced, stage, where more magic happens!

Good Luck! MoneyNerd

About the author

Scott Nelson

Scott Nelson is a financial services expert, with over 10 years’ experience in the industry, including 6 years in FCA regulated companies. Read more
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