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I wrote off more than £14,000 worth of debt in just one year using a simple budgeting trick

CLEARING your debt can feel like an impossible task – but Rachel Elliott used an unusual savings method to pay off her more than £14,000 in just one year.

Rachel, 36, went from ‘putting her head in the sand’ of her £20,000 debt, to writing off an impressive amount in just over a year using a method known as ‘pocketing’.

Rachel says she buried her head in the sand over £20k debt - but paid off £14,000 in just one year

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Rachel says she buried her head in the sand over £20k debt – but paid off £14,000 in just one yearCredit: Rachel Elliott
She used to spend £60 a month on takeaways while away from home, but now she always uses her slow cooker

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She used to spend £60 a month on takeaways while away from home, but now she always uses her slow cooker

This is when you have separate accounts or multiple funds to pay each bill or expense, such as rent.

It helps savers keep track of their savings, as well as pay their debts or bills.

Rachel was inspired by a post on the MoneySavingExpert forum where people discuss methods and how-tos.

“I chose to use the pocket method because I could see exactly what was going on,” Rachel says.

“Having multiple accounts has helped me understand my money.”

She has 12 different accounts that she uses to pay her bills and track her savings and spending.

Rachel’s accounts include one payroll account, five savings accounts, one Isa Buying Help account, one bills account, and one spending account.

It should be noted that having multiple credits available or signing up for multiple accounts at once can negatively affect your credit score.

Instead, you can use a spreadsheet or bank that allows you to keep your money ‘potted’, like Monzo.

That’s not the only way Rachel saves cash to clear her debt.

She also set herself up for a year-long zero spending challenge, buying no clothes, utensils or takeout and dining out to save thousands of pounds.

She used to spend up to £3,000 a year going to her favorite bands and going to festivals – but she’s pulled back on this and now spends just £100 a year on this.

Although she still has more than £5,000 in debt to pay, she aims to be completely debt-free by next year.

‘Head in the sand’

Rachel’s debt started spiraling out of control at the end of 2019, when she was saddled with a debt of £20,000.

She has two credit card debts, two overdrafts, a car loan and auto finance debt, plus she used the credit to buy an iPhone, an Apple watch, a Apple watch and a new mattress.

And it will take her YEARS to pay off her debts because she’s only made the minimum payments — but the money is “manageable,” Rachel said.

When her salary suddenly dropped to £18,000 from £25,000 a year after she left her job at a food warehouse to go freelance.

That’s when she started having trouble paying her debts – including a £2,000 bill for unpaid utility bills.

She borrowed money from her partner to pay her rent and bills, and struggled to find work – especially when Covid hit last March.

“I’ve got my head in the sand, I think I’m on top, and I’m trying as hard as I can to pay everything,” she said.

“For us to get what we want, I need to get rid of the debt. We want to buy a house of our own, and then buy the property to rent out.”

Juggling two jobs

In May, Rachel finally found work enough to pay her bills and minimal repayments.

She juggled two jobs with zero-hours contracts – one in the railroad industry, while another was as a caretaker.

Rachel calculates that she needs to work at least 42 hours a week to cover her debt and living expenses, but will often work longer than this – sometimes counting as 90 hours of work per week.

On a good week, she was spending between £200 and £400 a week paying off her debts.

But working hard to clear her loans proved to be a challenge for both her and her partner.

Rachel said: “Everything I was offered, I worked, which was bad for our relationship.

“There are cases where I will be back in a day, or have a couple of hours between different jobs and will just have enough time to change my bags and then get in the car again.”

The avalanche method

But the hard work paid off, as Rachel soon raised enough money to start working out her debts.

She used avalanche method to pay off her debts – which means she paid off her highest-interest loans first.

She wrote off two credit card debts totaling £8,000 first, as the interest rates on them were 31% and 29.8% APR.

Rachel then paid off her two overdrafts totaling £4,000 and then her outstanding water bill of £500.

She then paid off her £800 loan on her car and cleared the £900 loan on her Apple watch and mattress.

In the end, she write off her council tax debt, is 200 pounds.

The “pocket” method

Rachel says having multiple accounts for different things helps her better understand her finances.

“I can see what’s what,” she said. “If I need to top up my car, I know exactly how much it will cost. It just helps me sort out where I need to put my money.”

Before she re-examined her finances, Rachel noticed that she was often overspending, buying luxury gadgets like Apple watches, takeout, and taking on a lot of gigs.

But she pulled back on her spending to save thousands of pounds.

“I used to bring slow cooker for me when I’m away on business, this cuts down on travel costs,” she said.

“We’ll also be doing expeditions while I’m at home.”

Dream of buying a house

Just a year later, Rachel has written off about £14,400 of her total debt of £20,000.

“I feel so proud that I’m almost at the end of the tunnel and one step closer to not feeling like a burden to my partner,” Rachel said.

She advises people struggling with debt to start writing off the ones with the highest interest payments.

“Priority to the bills with the highest interest rates is the way to go,” she said.

“Tell those around you. Money is no longer a taboo subject. Take the time to sit down and take a look at the big picture, see how it costs you.”

How to get help with your debts

If you’re looking to settle your debt, you can help to meet your repayments and shrink the debt.

Here are our top tips to get you out of the red.

Tell your lender

Failing to pay off debt can feel scary – but it’s important that you face what you owe and tell your lender as soon as possible.

Ask for a reasonable repayment plan – if your lender agrees, it can give you more time to pay off your debts.

Understand what you owe

Calculate exactly how much you owe to process the amount you need to repay.

You should calculate a budget based on all your expenses and how much cash you have left to pay off debt.

Prioritize your debts and pay the most serious ones – those that could cost you your home or pay high interest rates, for example – if you don’t have enough cash to cover all of your debts.

Your rent, mortgage, council and energy bills should be paid in advance as the consequences can be more severe if you don’t take responsibility.

Pay more than the minimum

For those with more than one credit card debt, try to pay off more than the minimum payment each month and you’ll pay off your debt faster.

You should prioritize paying off the most expensive loan – the one with the highest interest rate.

This will save you money on costly interest payments.

Get advice

If you are struggling to pay your debts month after month, it is important that you get advice as soon as possible before they add up.

There are a number of charities you can contact who will help you deal with your debt and offer free advice:

Rachel keeps a spreadsheet to record all her expenses that helps her keep track of her spending

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Rachel keeps a spreadsheet to record all her expenses that helps her keep track of her spending
Rachel still has £4,000 left in her car finance bill to pay it off but hopes to be debt free next year

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Rachel still has £4,000 left in her car finance bill to pay it off but hopes to be debt free next yearCredit: Rachel Elliott
Single mother of two stunned to discover she’s saddled with £38k debt in just two years – and vows to pay it off in just 12 months

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Bobby Allyn

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