Glen James' 6 steps to get out of debt & the debt snowball explained

Getting out of debt can feel impossible, but here are the 6 steps you need to take and an explanation of the debt snowball to help you kick your consumer debt for good. Maybe you signed up for a credit card (or two), a buy-now-pay-later scheme or a personal loan - whatever it is, we can work together to pay it off and change your financial future! To learn more about the process we’re about to walk down, have a listen to this episode below:

Step 1: no. more. debt.

You must must musssttt decide and agree with yourself (and maybe your partner) that from here on, there will be no more consumer debt in your life. You need to be resolute. There is no point starting to get out of debt if the debt is growing or you go for a couple of weeks and you’re back at the checkout with your plastic ready to slap it around like a terrible 90’s comedy scene.

Debt comes from your behaviour. Are you spending money you actually have? Or are you overspending? Are you trying to have it all now and that’s leading to excessive spending? Or do we simply need a better money management system where income and expenses are balanced correctly? This isn’t about blame! It’s about identifying the problem in behaviour and tackling that first. It’s really important to dig to the bottom of what’s happening in your circumstance so we can prevent it from happening again.

Whatever has happened so far, now’s the time to be strong. Moving forward you are not paying for anything unless it’s with money you actually have in your possession - no more credit cards, no more personal loans or buy-now-pay-later at the counter. Likewise if overspending is your issue we need to get hyper-focused on trimming your expenses until they cost less than you’re income.

If you are truly not at this point where you are serious, we suggest you stop reading now and get on with your day.

Step 2: get a spending plan or decent money system in place

It can be hard knowing how to manage money - which system is right? Do you use a spreadsheet or pen and paper? Do you do it weekly or monthly? Great questions, and important questions, because having a functioning money system will help you save up for the things you want to spend money on, and you will have cash ready for those bills when they come in! A money management system that works for you is the best - in some cases it’s best to start with when you are paid. If you’re paid weekly, then look at your budget from a weekly perspective. Glen James has a spending plan which is a great template to use - it’s super flexible and heaps of people have found it to be useful.

Check out this blog about how to make a budget in 10 steps. It’s super straight forward and provides the guidelines you need to build a system that works for you.

Step 3: build an emergency fund

We don’t want to fall back into debt, once we start our debt repayment campaign. Move all your debt repayments (including your mortgage, car loan - everything), to minimum payments and focus on getting $2,000 saved as an emergency fund. Emergency funds act like a moat around your castle - protecting it from financial attacks! We don’t want you to have to use the credit card for an emergency such as a car insurance excess or emergency dental work that will throw off your debt repayment strategy. If you use money in your emergency account, press pause on paying down your debt (except for min repayments) and top it back up to $2,000. Getting an emergency fund in a separate account may be the first time ever that you have had some decent money saved.

Be aware that the process to this point may feel annoyingly slow. You just want the debt gone right! But think - debts typically build up over time. We need to allocate time to knocking them down. Be patient - take a deep breath. Every step towards being debt free is progress. Stay focused.

Step 4: your (financial) reason for living is to pay down debt

If you didn’t have a life purpose, you now have one! Your financial reason for living is to pay down debt. No holidays, no extra luxuries… for fun, you now buy debt repayments! HOW FUN! No other financial goals, no random weekends away for festivals worth $600 - NOTHING. You need extreme focus in this season of your life, the sooner you get rid of debt, the sooner you’ll have your life back. We promise.

Don’t be afraid to share this with your trusted friends and hey: “Hey! I’m paying off my debts until I’m debt free! Can’t wait, so excited, help keep me accountable”. The best people in your life will support and encourage you.

While you’re in debt repayment mode, get really good at having fun for free or at least, super cheap. Team up with your friends to hang at home instead of going out, get comfortable walking or taking public transport instead of driving and be proud of your choices!

Step 5: increase income or sell stuff

Depending on your situation, you may need to look at increasing your income, even if it’s just for a while. You might be able to squeeze in a second job, a side hustle, or sell some stuff lying around your house. If you haven’t used something lying around for like 2 years, you probably don’t need it. Remember the increase in income may only be needed for a time – don’t overwork yourself forever!

A word of warning about setting up side hustles though - we don’t encourage anyone to set up a side hustle that emotionally and physically destroys them. You need rest. The whole point of the side hustle, if you can comfortably fit it in, is solely to pay down your debts - not to cover your general expenses. Read our 5 tips for setting up a side hustle to help you prep.

Step 6: commence the debt snowball

The debt snowball method is a way to get you the most sense of progress with your debt, as opposed to paying down the highest interest rate first, which could be the biggest lump sum and you may get tired and stop. We need a sense of progress and fast! Follow the diagram below to see how it works: