Thursday, March 10, 2022
Homemake moneyDealing With Debt When Your Finances Are A Mess

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Dealing With Debt When Your Finances Are A Mess

The feeling of being broke and not managing debt can be one of the most soul-crushing situations to find yourself in.

It really makes you realise the power of money to make or break you.

Debt can destroy your outlook on life. It can remove feelings of positivity about the future because everything in the future costs money. We need money to pay for the roof over our heads, the food in our bellies and the clothes that we wear.

Money pays for the basic necessities of life and if we’re not able to meet our debts or the costs of managing debt we’re unable to meet our most basic needs. This is best illustrated by Maslow’s Hierarchy of Needs, which presents a pyramid of human needs that, more or less, are universally accepted as a depiction of the things we need to be happy. 

The very basic essentials that we need money to pay for are represented in the first two levels of this pyramid. Safety and Physiological needs are the foundations we all need to thrive.

Debt in relation to Maslow's Hierarchy of Needs

A large burden of debt can create worry about how to pay for those things. If you have loved ones to support it can create anxieties about how you are going to provide for them. It’s food, clothing and shelter; the most important things we need to survive. 

Studies have proven this showing ‘Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health. ‘ In this study, conducted at the University of Nottingham, Dr. John Gathergood found those who struggle to pay off their debts and loans are more than twice as likely to experience a host of mental health problems, including depression and severe anxiety.

But I’m here to tell you that we can work it out. If there is one thing I want you to take away from this post it’s this: there is always a solution to your debt problems.  

I know because I have been there myself. I have had debt collectors aggressively chase me for debts and I had men in suits turn up at my family home. For many years, I tried to run away from debt. It doesn’t work. But taking responsibility, taking action and getting to grips with your debt does. 

My Story With Managing Debt

Like many students, I came out of the education system saddled with debt. And moving to one of the most expensive cities in the world didn’t exactly help my financial situation. Pretty as it is. 

managing debt to enjoy life
London, City of Parks

No one ever sat me down and taught me about the importance of personal finance, which is a core focus of this blog, or about managing debt properly. We certainly didn’t go over it in school. We learnt things like algebra, Latin and I sort of mooched through the education system into University and then bam!!

Full time employment, managing your own money, paying rent, paying bills, trying to find a job and keep your head above water. 

As a graduate student I found banks literally throwing money at me in an effort to lure me in as a lifetime customer. As a teenager, you don’t know and you don’t care. Managing debt is simply not a priority, you just want to enjoy the party.

Building up a large and permanent overdraft with my bank meant that by the time I graduated I could not pay it off. I did what many naive, young people do and buried my head in the sand. I ignored the letters, moved to brand new city and just focussed on trying to pay my rent. The bank sold my debt onto a debt collecting company and the debt went from being a bad debt to a horrifying debt. A debt where men in suits turn up at the doorstep demanding repayment. 

Only they didn’t turn up at my doorstep, they turned up at my mom’s house! Having returned home from hospital she was in no condition to deal with my problems. I was totally shocked this actually happened. It was the wake-up call I needed. I decided there and then to pay off my debts, cut back on everything, live like a recluse and make sure this never happened again. 

What happens if you don’t pay your debts

When you don’t pay your debts it can lead to complications that make life very hard for you further down the road. The legal implications of this process will vary from country to country but the principles are pretty much universal.

If you think you can simply move and enter your own version of the witness protection scheme sorry it’s not going to happen. Big brother is watching us and, when it comes to money, they will always find a way to track.. you.. down. So don’t try to hide, everything is easier when you face up to reality and confront things head-on. 

What happen’s when you don’t pay your debts is something that’s best avoided. Managing debt is not as intimidating as it sounds but it’s important to know what happens when you forget about managing debt. The key steps in this process are:

  • Your credit reports are impacted. Almost as soon as you stop paying your debts the balance will be marked on your credit reports. These marks can remain on your credit report for years affecting your ability to obtain a lending in the future. A credit report is like a snapshot in time of your credit profile. You can’t hide from them and all companies use them. You can find out more here.
  • Legal proceedings Begin. You will be sued for the debt. It won’t go away unless you deal with it and if you don’t stop it from getting to court or you don’t turn up in court to take responsibility the court will likely rule against you and you’ll be ordered to pay up, or in the worst cases, you may face more severe penalties. 
  • Collectors come to call. With a debt still being owed and legal ruling made against you, the debt will be sold to a Collection Company and the Debt Collectors will then come to call. There’s a reason why Debt Collectors have such an unpleasant job. Because getting money out of broke people is hard, difficult and unpleasant. Collectors don’t generally get paid until they collect the debt. So they are going to do whatever it takes and interpret the law to its maximum flexibility in order to squeeze you for the owed debt. And that can include door-stepping, entering your premises and acquiring your possessions in order to recoup the debt. 
  • Your credit report is damaged. Once you have a bad debt on your credit file it will remain on there for 7 years. Any lender in the next 7 years who comes to look at your file will shut down any requests for loans, mortgages or borrowing you might be trying to apply for. 
  • It becomes almost impossible to obtain finance.  If you do, the interest rates will be huge, because you now represent a repayment risk. You might be thinking ‘so what? That’s what got me into this mess in the first place’. But it’s really a bad idea to screw up your credit history to this degree because a huge aspect of making your money work harder is by leveraging finance in order to create assets, as with mortgages and real estate.

Take Responsibility And Your Change Life

The reasons we build up so much debt are complex. It’s not so surprising when we think about the information ecosystem that we grow up in. 

Personal finance is not even discussed at school! This is a theme that I often come back to on this blog. It’s because I think it’s crazy that we don’t talk about personal finance in school. 

How does the stock market work? What are the different types of mortgages? Is managing debt important? What’s a credit file and why does it matter? These are some of the major controlling forces on our lives and yet we don’t tell our kids anything about it.

When it comes to the Education system, the topic of Personal finance is kind of reminiscent of the ‘He Who Must Not Be Named’ character from Harry Potter. Totally-fucking-taboo!

And during childhood, and actually, through-out our waking lives, we’re literally pummelled from all sides by a commercialised culture that screams Buy this! Buy this! Buy this shit! Pop culture, pop songs and the reality TV encourages us to ‘make it rain’, ‘live it up’, ‘fake it till you make it’ – endless other drivel about what a meaningful life in the developed world entails.

Credit Cards Rewards
Credit Cards Rewards

The problem is, money doesn’t care. It doesn’t care who you are, what you do, where you’re from. It’s beautifully democratic, but if you don’t respect it, it won’t respect you back.

Money is simply a ‘promise to pay the bearer’. It’s a promissory note, and if you break that promise you’re breaking your contract with society…. And society will hunt you down!

Ultimately it comes down to this. If you find yourself in a lot of debt it’s your fault. You took out the loans and you defaulted on them. Managing your debt is your problem. Take a long hard look in the mirror because it’s time to take responsibility and change your life. 

When I realised my debt was spilling out beyond my life and creating anxiety for my family members I knew I had to grow up. It’s an uncomfortable process. Once you begin to exert control over your money, once you start to educate yourself and learn how to manage it you start to shape your destiny.

It’s difficult to know how to do this when you have no clue! But the most important thing is to make a start. I started with my expenses and stopped drinking, clubbing and partying. I didn’t buy any new clothes at all for a year and started doing free things; taking long walks, which I still love to do to this day. Instead of taking the underground to work, I would walk 6km each way, there and back (2 hours of walking a day!), going to free museums and spending time with friends in the park, at the beach or hiking. Not surprisingly I became really fit!

Over the course of a year, I massively cut back on my expenses. I stopped buying lunch every day at work, made it at home and enjoyed my free time without feeling the pressure to spend. My year of being a financial ‘hermit’ proved to me you don’t need to spend money to enjoy your free time with friends and family. In fact, the quality of my life improved massively. I really enjoyed not having the pressure of drinking every weekend and focussing on my fitness instead. I also discovered there are endless life-hacks that mean you don’t have to spend money to enjoy life. Walking is a great way to spend your time, it all depends where you go.

managing debt properly can help you toward financial freedom

I ploughed all the money I saved back into my debts and eventually paid them off. This made me realise that managing debt wasn’t about ignoring it I had to actively be involved. Then I read everything that I could get my hands on about personal finance including multiple blogs and books on personal finance. More importantly, I realised that if I could control my money I could control my destiny. 

You can buy some of the books I read below and find the rest of them in the resources section of the site.

Good Debt Vs Bad Debt

Lot’s of financial advisors, money bloggers, and your family and friends will tell you to pay off your debts as if they were providing you with a time-honoured piece of financial advice that will… simply sort you out. 

But it’s not quite that simple. In life, there are good debts and bad debts. Like many money matters, the principles are pretty straightforward. Things just get a little over-complicated by the conflicting voices, financial advisors, blogs, services and companies competing for your attention.

Let’s keep it simple. I think the best definitions are the ones I’ve outlined below (obvs):

  • Bad debt is any kind of debt that takes wealth away from you
  • Good debt is any kind of debt that helps to bring wealth to you.

Simple right?

With this definition firmly in mind it’s easy to discern which financial tools present a good or bad debt. But wait, some financial tools can present both types of debt. How is that possible? Let me explain… 

Bad debt is a large credit card debt with a ridiculously high-interest rate of 30% APR (annual percentage rate). You may be paying off in small instalments which means the interest accrues. The APR is the interest rate that is applied to your debt over the year. A 30% APR is therefore 30% interest on the entire debt that is then owed to the lender.  

A good debt could also be a credit card with 0% APR on balance transfers and 0% interest on monthly repayment, providing the full credit card debt was paid off each month, which is often a characteristic of some credit card deals. This type of credit card can be used to create, or rebuild, a credit rating. Your credit rating is simply a track record of your credit, used to create a credit profile, which lenders use to assess your credit-worthiness. 

This good types of credit card debt can be reused to rebuild your rating to make you a more attractive customer to mortgage lenders. This enables you to take out another form of good debt: mortgages. It’s a dance and you need to learn the moves.

Mortgages are a fantastic financial innovation because they have allowed countless billions of people around the world to own their homes. They’ve also allowed investors to create income-producing assets that create a return on the debt taken out. 

And equally, some credit cards can be useful tools to help you restore your credit rating. When I found myself with a damaged credit file I found that I could not obtain a mortgage. I applied for a credit card that was specifically advertised as one to help you rebuild your credit report file. By following advice detailed on I was able to rebuild my credit file completely (caution: this process takes time) but the full guide for doing this is available to follow here.  

Four Solid Steps To Paying Off And Managing Debt

1. Work Out What You Owe

Working out what you owe is like creating the first road map to paying off and managing debt. How will you know where you’re going, unless you know… where you’re going? 

You must sit down and audit every debt in your life. Write it all down and make sure you cover everything! This is the first step on the road to recovery and it’s a big one. Sometimes it feels easier to bury your head in the sand, but the reality will be that your debt interest will continue to accrue and your debts will grow. For each debt write down the following:

  • Name of debt
  • Total amount owed
  • APR (this is the interest on the debt)
  • Minimum payment each month

Next, contact each company on your list, explain that you’re actively addressing and managing debt owed. Now ask them for a debt reduction. I know this is uncomfortable and no one likes to ask for something for free. But remember this might help to reduce the money you owe. The company will initially say no, but politely ask to speak to the manager. You need to speak to someone more senior, generally speaking, because administrators might not have the authority to make a debt reduction.

Tell the manager that you are facing bankruptcy and that unless you are able to reduce your debts, or look at a managing debt currently in a more affordable way it’s very unlikely that you will be able to repay anything at all.  Remember this is a negotiation, not an argument. 9 times out of 10 they will be willing to negotiate if the alternative means nothing at all. 

Keep your negotiations realistic. If you can reduce debt of $10,000 by $3,000 or $4,000 then you’ve already made a significant saving. Make sure you get any agreements in writing. 

2. Control Your Spending And Cut Your Expenses Like Crazy

Part of the reason it’s so easy to end up in so much debt is that expenses just spiral. That nice coffee, your fancy gym membership, your morning commute (if you live less than 10km away from work and you’re relatively fit you can cycle or jog into work each day), avocado on toast? 

You can’t cut out every expense. If you don’t live in a country with free national health care it’s probably wise to keep your health insurance. 

But you can cut, or reduce, a lot. The 3 main expenses are the ones that you should tackle first:


Your rent or your mortgage, and housing expenses, should cost no more than 30% of your income. That can be difficult if you live in a particularly expensive city. But it’s a core rule that you should aim for. If you are not able to reduce your housing outgoings to 30% or less than it’s going to be challenging for you to free up the finance to pay off your debt. 

If you are spending way more than 30% on housing then things need to change. You have some options: get a better paying job or move to a cheaper area. 

Further down the road, you might be able to create some income-producing assets but if you’re in a situation where you need to pay off your debts then that is a priority. You won’t have the time, energy or headspace to do otherwise. 


Your morning commute is a significant expense in any major city, in any part of the world. That’s a fact. So how can you reduce it? You can… walk, cycle or run! Hear me out.

Seriously biologically speaking this is what we humans were born to do. If the distance is less than 10km, and your fitness levels are relatively good, then you should be able to jog or cycle. The average running time for 10km is 45-70mins so cycling it will be a breeze.

If you live more than 10km away from work you need to ask yourself why? Unless you live in the most expensive area of the most expensive city there should be other options. 

When I worked in an office I walked as much as 12km per day 6km there and 6km back. My apartment block at the time also had no lift so I had 5 floors each day too. I was ridiculously fit. I literally had to exercise myself to work and back every-day and I didn’t need the gym.


I’ve noticed over the last decade that people have started to eat out (or eat in) as part of their normal routine. No one seems to cook anymore. My friends don’t even know what a kitchen looks like and they are not rich. 

People go to restaurants for their regular meals. When I was growing up we only went to a restaurant for a super-special occasion, like someone’s birthday. But now, it seems just like normal practice and that includes for people who have massive debts. Smartphone apps like Just Eat mean we don’t even have to prepare our own food.  

If you’ve got a lot of debt, you can’t live like this. Once you cut out the takeaways and restaurant meals and start eating cheaply and cleanly your wallet/purse and your body will thank you for it. 

Eat everything in your house until your shelves are empty and then carefully plan your meals in advance. You’ll be surprised how cheap fresh protein, fruit and vegetables are in comparison to takeaways and pre-packaged food. 

When you go to your food shop you’ll find better value food on the shelves of the discount supermarkets instead of the shelves at the organic or wholefood places. The savings will really… stack up. 

Tackle these three major expenses first. Managing debt requires addressing exorbitant living costs. After that you can take a look at the list of other things below to save even more money and cut back on expenses:

  • Gym membership: workout from home or in the park
  • Utilities: use all of the comparison sites to get the best energy and utilities deals
  • Phone and broadband: negotiate your mobile phone and internet services. Threaten to leave. 
  • Cancel all non-essential subscription services like Netflix (yup, sorry but paying off your debt is more important)

3. Freeze All Credit Card Debt… Immediately!

The ultimate aim is to pay off all credit card debt, but sometimes you need space and time in order to organise that. Managing debt in this way is an excellent strategy for achieving that.

One of the first things you can do is to freeze your credit card debt. So how do you do this?

Technically you’re not going to freeze your credit card interest, you’re going to find a credit card with an introductory offer of 0% APR for the first year, or 18 months, and transfer the balance of your existing credit cards onto the new card with the 0% interest.

There’s obviously some paperwork involved in doing this, but you can cut a significant amount of interest accruing on your debt by taking these steps. There are some excellent, in-depth guides, which will go through the step-by-step process for doing this available online. 

4. Make Money

Cutting back on your significant expenses will help you to organise the way you spend money, but making money is a major way to boost your income and help clear debts. You’re probably thinking ‘well duh if I knew how to do that then I wouldn’t be in debt in the first place!’ Sometimes it’s just a case of knowing where to look. Here’s are some ideas to get you started:

Get hustling!

Get hustling with TaskRabbit or UpWork. Use your digital skills, physical skills or any other skills that these platforms will sell on your behalf to make an extra dollar. Be professional and be on time. 

Sell It Online

I have made thousands by simple selling stuff I no longer needed via eBay. It really helps if you’ve got the original packaging because people will pay more for stuff that comes boxed. And if not get some decent packaging to send your stuff in.

But trust me, it works. I have sold everything: suits I never wore, shoes, trainers, kindles I never used. Presents that family members got me that basically were not wanted. Don’t feel guilty about it. I’m sure they would rather you had the money to pay off your debts and reduce your anxiety. 

Get A Part Time Job or Get a Raise

Depending on your current situation this might work well for you. If you already have a full-time job then my suggestion would be to seek out a raise. Approach it professionally and don’t make it an ultimatum type of conversation. 

Working Part Time

If you’re a student or have other responsibilities that getting a part-time job might be the right step for you. 

In the years that it took me to transition from full-time office life to working for myself I often worked part time jobs. I’m a big advocate of them for anyone who can afford to work part time. 

If you only work 3 days a week you have an excellent work-life balance and the free time can allow you to explore other opportunities like real estate. Equally, you do not get drawn into the office politics because by the middle of your working week you’ve only got a day or two left in the office and you just don’t have the time.

Working part-time is great for students and anyone who is in the process of transitioning to a working-for-yourself-lifestyle. It means the shift isn’t so sudden and it helps to provide some security whilst developing new opportunities for yourself. 

4 Easy Steps to Getting a Pay Raise

  • Explain to your boss that since you started in the role you have added XYZ to your list of duties and responsibilities and, by adding value to the role, you’d like that to be reflected in your pay packet. Ask your boss what they might be able to offer in terms of a raise (it might be more than you expect and if you put down a figure you’re limiting yourself at the outset).
  • If it’s less than you were expecting. Explain that you were looking at something in the region of XYZ and say why. Explain the additional value you’ve brought into the company.
  • If you don’t get a raise at all or the raise you wanted don’t despair! Remember it’s a negotiation. Politely but firmly ask your boss to agree to the duties and responsibilities you would like to take on that can be assessed again in 6 months time as a measure of whether or not you should be granted a raise.
  • If, in 6 months time, you still don’t get a raise, start looking for a new job that pays more, if not before. The company doesn’t care about paying you what you’re worth and they don’t have your best interests at heart.

Use Debt To INCREASE Your Wealth

I described earlier on in this post the difference between good debt and bad debt. This is a concept that Robert Kiyosaki talks about at length in his book Rich Dad, Poor Dad. 

real estate can be a positive way for managing debt

Many people in the personal finance world see debt as the long, threatening tentacles of the evil money-grabbing banks and credit card companies. They claim all debt is bad and that you must rid yourself of this evil as soon as possible. 

But that’s an irrational, emotional view. Debt is neither good or bad. It’s just debt. 

The economy that we all depend on relies on debt to work. It’s what keeps the wheels greased and it’s kind of essential to the world we live in. So how can you use good debt to your advantage?

Once you’ve cleared out all the bad debt from your finances, checked all of your credit reports and improved your credit report score you can start to look at using good debt as a tool to increase your wealth. 

The principle is simple: good debt puts money in your pocket, bad debt takes it away. Good debt is a mortgage that enables you to buy and rent a real estate property. Bad debt is a high-interest credit card that takes money away from you. 

Banks are lining up to invest in individuals willing to do the work. Anyone can get rich by leveraging in mortgage finance and using it to buy real estate. Remember a mortgage allows you to buy a property that is up to 95% more expensive, depending on the loan to value, than you could buy with cash alone.

When you rent that property you are effectively getting 100% of the rental return and using it to pay off a low-interest debt that’s spread over 30 years or more. 

Getting to grips with your debt and learning the importance of managing debt is one of the best decisions you will ever make. In many ways, it’s a lesson for life itself.  

By confronting our debts we are confronting one of life’s problems. When we do that it’s possible to see that debt is a problem that’s not so scary after all. Taking control of your debt means that you are taking control of your life. You are in the driving seat and pointing your life in the direction that you want to go.

Debt is neither good or bad, it’s not out to get you and it’s nothing to be scared of. It’s simply a tool. How we choose to use that tool can define the financial outcomes we experience in our lives and how that experience shapes our lives as a whole.  

Now it’s up to you. Where do you want to go?

▶︎ hey, I'm Tom

I'm here to help you make money online, start your own blog, build freedom and walk to the beat of your own drum.

Life is short, start living it your way.

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