Paying off your mortgage and credit cards

Debt, what a rotten word. Yet it’s what most of us have to sign up to, live with and work through if we are to own our own home. Let me say first that I know there are many ways to pay off debt. I’m writing about what worked well for Hanno and I. This is what I have experience in. Other methods may work equally as well but as I have no experience of other ways, I can't write about them.

As I said in the previous post, we paid off our mortgage in eight years. It was not easy, few things that are really worthwhile are ever easy, but we decided on our plan and we stuck to it. Yes we fell of the wagon a couple of times, but when we did, we got right back on and knuckled down again. We also had a healthy deposit when we bought our house.

If you’re thinking of buying a house, don’t wait until you buy it to start putting money aside. Work out how much you can realistically and consistently pay off a mortgage, and from that moment on, start putting that amount aside. While you’re looking around for your home, this money will be building up and when it comes time to pay your deposit, your nest egg is there. Add it to your deposit. Once you’re locked into the mortgage, pay as much as you can each month. Make extra payments if you’re able to.

If you have credit card debt, and have debt on a few cards, I like the snowball method of paying them off. First you make a list of your credit card debt, from the smallest to the largest debt. Then, before you pay anything from the debts, you save an emergency fund of between $500 - $1000 to provide a safety net in case something happens that you need money for. This will allow you to use your emergency fund instead of your credit cards in an emergency.

When you snowball debt, you pay off the smallest debt first, while continuing to pay the minimum payment on your other cards. When the lowest debt is paid off, you go to the second lowest debt and do the same thing. When you pay off the second card, you'll have more money for your payment because you'll have paid off one card, so you use that money to increase your payment on the second card, and so on, until you've paid them all off. Always pay the minimum payment on your other cards.

Be careful of temptation while you're in your period of debt reduction. The bank will write to you offering to increase your credit limit - they say this is your reward for being an excellent customer and for paying off your debts so well, but in reality it's to trap you in ever increasing debt that they reap huge rewards from. It is not in the bank's interest for you to be debt-free. So when they write you that letter telling you that your limit is increased, write back and say you want to decrease your credit limit. Decrease it so you don't face temptation.

Read more about snowballing debt here.

When you have your cards paid off you should keep ONE of them. That one card should have zero balance and a limit of about $500. This is what Hanno and I have now, we have had this card for many years, we rarely use it, but it's there, just in case. We find that paying for things with cash, feels like we are really spending money, whereas buying with a credit card doesn't. There is nothing like the feeling of handing over a couple of $50 notes to let you know you're really spending, and to be careful.

Now, this is the bit that I really wanted to share with you.

When you pay off your debt you have to be strong. It will be very easy to go the other way, say it doesn't matter, or your best friend has a new dress and you should have one too, or the car needs new tyres NOW. Don't betray yourself. Stay true to what you want to do. Stay on the path you've planned out and don't keep spending. If you do need a new dress or new tyres, then they should be saved up for, not whacked on the credit card. Please don't betray yourself. That is what you'll be doing if you keep spending.

I firmly believe that Hanno and I have such a strong marriage because together we decided what our shared values were and we worked as a team for what we wanted. Debt reduction was part of that. We decided that our days of being screwed by the bank were over, we wanted to be free of debt and the weight of carrying that debt around with us every day. Together we listed our debts, together we planned our escape from debt and together we worked towards it. It helped build our marriage because we were working towards a common goal and when we saw each other making the sacrifices necessary for our success that built into our marriage a feeling of pride, security and strength.

I can't tell you what it will take for you to pay off your debt, but if it's giving up your Saturday shopping sprees, selling your decluttered household items on ebay or cutting back on your spiralling grocery bill, do it; do whatever it takes. You and I both know it won't be easy but whatever pain, inconvenience or anxiety it causes will be forgotten when you come out the other end and live debt-free. Having no debt will give you freedom to live the way you want to live. So what's stopping you? Be brave, take a deep breath and dive in.