A few years ago I was living the London dream. I was working in a fulfilling and exciting events job, going for after work drinks in trendy bars, and having jam-packed tourist weekends seeing London’s fabulous sights. I was so happy with my city life, I even enjoyed my commute – grabbing a coffee and a free copy of Stylist magazine, elbowing my way onto a crammed tube – I had arrived! But what I didn’t anticipate was that even when I was making money, I was growing more and more in debt, and I couldn’t work out why.
I know what you’re thinking – I was just spending too much money, duh! But honestly, the cost of living in London doesn’t come cheap, even when you are frugal as they come. And I was never going to be a wallflower. I wanted to make the absolute most of my time in London, as I knew that sooner or later it would come to an end. I might move back to London one day, but those days of being in my twenties, having flatmates, and doing what the hell I wanted were limited.
The eye opener
I had an interesting conversation with my boss at the time who really kicked my ass into gear when it came to managing my debt. I was fine with having a credit card bill that had racked up to well over £3,000. I paid the minimum payment each month, I was always going to be okay. But he really made me think.
He said he had friends who had started off like me in their twenties with a few grand of debt, and now, in their forties they were nursing heady hangovers of £50,000+ of debt. A situation they just couldn’t work their way out of.
It was the overdraft that was killing me. It cost me nothing in fees, but always being in the minus, with my balance only returning to zero or a few hundred pounds if I was lucky on payday, it was downright disheartening. Imagine getting your pay-check each month and it simply filling the hole in your bank account which you proceed to dig away at again.
Nothing was ever going to get me out of that vicious circle.
What I did
I wrote a budget. I got on excel and made a smart little spread sheet in rainbow colours, and I wrote down all of my expenses in one column, and worked out exactly how much I had to play with each month. To do it properly, with no room for error, I had to be completely psychotic about it. I filled it out every day. I factored in a make-up expense. I had a ‘buffer’ pot for those little unseen expenses. I budgeted more for wine than for food. Basically I wrote a budget for me – the real living and breathing me, not just a thrifty version of me I aspired to but could never be.
And, it worked! I slowly clawed my way back until my overdraft began to shrink. I celebrated each milestone by calling the bank and reducing my overdraft by that amount, and my limit gradually went from -£2000 to -£1500 to -£1000 and so on. After a few months I got a nice little tax return which finished the job for me, and I was completely overdraft free! I cancelled the whole damn thing.
Now to the big problem: tackling the credit cards….
The first thing I did having received my boss’ advice on sorting out my credit card debt was to swot up. I started reading money guru blogs instead of Cosmopolitan, and I did a hell of a lot of research into balance transfers. I realised that my debt was an asset, and banks wanted me. Not only that, but they would literally transfer my dept from my credit card to theirs for incredible rates if I switched to them.
If you have a credit card debt, a balance transfer if possibly one of the smartest things you can do. Instead of me trying to explain it, this is the article that changed my life, and taught me everything I know on the subject.
After doing all my research I applied for the card that suited me best, transferred my balance with an agreed amount of time to pay off the debt before their high rates kicked in (33 months in my case), set myself a monthly amount to pay to achieve this goal, popped it in my kick-ass budget, et voila!
If you are thinking of doing this, there are a few things to note:
- You literally cannot use this card for anything other than the debt transfer as the fees are usually extortionate for spending. That’s not the point. Transfer the debt and hide or even cut up the card.
- Do not use your original credit card either. This is not a free pass to use your credit allowance again. That’s pointless.
- Work out how much you need to pay each month to pay it off in the set time. This will be a lot more than the minimum payment, and you must keep to it. I think mine was around £150 per month. Treat it like you would any other bill.
- Do a credibility checker via this website first to see if you are entitled to the card you want. This will save you from getting a bad credit score if you get rejected when actually applying.
Being in control
Now don’t get me wrong, I was still not debt free for a long time. Paying off that credit card was a long slog. But there was one key difference: I had my debt managed. I was completely on top of my debt, and instead of flinging the minimum payment at it each month which barely covered the interest, I was actually paying it off. Do you know how good that felt?
London can be super expensive, but it can also be the most incredible experience you can ever had. By being smart about your spending you can still do everything and not say no to any experience because of money worries. Just after doing all of the above I moved out of the dingy 8 bedroom house I was sharing (yes, with 7 other people!) and moved into a gorgeous flat with two lovely girls, with an en suite bathroom, in a lovely location. It was more expensive of course, but I could afford it – my budget just needed some tweaking!
I started using websites like Y-Plan for fun things to do within my budget, and my social life got even better despite spending less. I also realised that I could be smart about when I did things. I made the most of drink specials, free admissions on certain days, half price cinema tickets. I even started grocery shopping at certain times as I knew when the local Waitrose used their big red sticker machine on all of their produce.
In fact, I even had the most super duper VIP night out at the Ritz, fulled with champagne, on a budget. Read about that amazing night here.
London, like any city, can be financially crippling, or you can just be smarter than everyone else and be on top of your finances. Then it’s just a hell of a lot of fun.