May 15, 2019
Many Australians live for years with debt that was only meant to be ‘short term’, often costing them thousands of dollars more in the long run. Paying off debt can free up cash and save you heaps in interest charges – which makes it a worthwhile goal to aim for.
While not all debt is bad – your home loan for example gives you the opportunity to build equity & growth in a property over time – bad debt is anything that won’t make you money in the long run like:
- Credit card debt
- Personal loans
- Car loans
- HECS debt / student loan
So, if you have decided that you want to get your debts paid off, let’s look at some essential things you need to do to get them out of your life sooner.
Decide that paying off your debt is the top priority
We all know that making something your top priority means it is more likely to happen – including paying off your debt. Having a goal of what you will do with the extra money once your debt has been paid off will help you stay motivated to stick to the plan.
Clear time in your diary to plan and brainstorm some ideas on how you could save a bit extra until your debt is paid off. You may need to host a few dinner parties at home instead of eating out, or cut buying your coffee down to three times a week. But if you decide this is what you want, it’ll all be worth it in the end.
Make a list of all your debts and what you owe
Being in control of your debts means knowing exactly what you owe. It might be a scary part of the process, but it’s essential. Write down a full list of your debts, how much you owe and the interest rate you’re paying.
Prioritise the highest interest rate debts first (likely your credit card or personal loan) and figure out exactly how much you need to get it paid off. Make sure your debt list is visible and accessible to you (not hidden away in a drawer) so that you can cross of each debt as it’s paid or use it during any catch ups with your adviser.
Review your rates and see if you could save
Multiple debts will mean that you’re paying different interest rates on each, which can quickly increase your debt – especially with those higher interest ones. Review your rates on your own or with a mortgage broker you trust, to see which ones you could likely get a reduction on. Refinancing your car loan for example, could help you save money on repayments while you’re working to pay it off.
Switching your credit card debt to a product with a zero interest period could give you some breathing room & a chance to pay it off sooner.
Review your life for spare cash
Sit down with your credit card & bank statement. Go through each to figure out where there might be some spare cash you can put toward paying off some smaller debts now.
Ask yourself some important questions:
- Is there something you’re paying for that you don’t need? (like buying lunch everyday)
- Can you decrease any of your regular bills? (like reducing your phone plan)
- Is there something you could do without for 6 months? (like your gym membership or second car)
- Is there anything you could sell? (like that couch in the spare bedroom)
- Could you redirect any of your regular income to paying your debt off? (even if it’s only $20)
Shop around with your electricity & gas providers to see if you could get a better deal. A recent Choice study states that the average Australian could save $400 p.a. just by switching.
Make sure that the money you’re saving is going directly towards paying off debt, and you’re not just spending more on living (this is where an effective budget comes in handy).
The most important thing here is to be honest with yourself and remember, this is your top priority! You will have more money in the long run, and less will be wasted on interest payments that don’t go towards paying down your debt anyway.
Ask about debt consolidation
If you have multiple bigger debts that may take a while to pay off completely, debt consolidation could be a fantastic strategy to get you saving right away. Debt consolidation involves rolling all of your smaller debts up into a larger easy-to-manage, low interest loan.
Smaller loans generally have much higher interest rates (which increase your repayments significantly), so merging them into one larger loan will give you access to a much lower interest rate, not to mention all the admin time it’s going to save you.
This means that more of your repayment goes to paying off the debt sooner. It is important to investigate debt consolidation and whether or not it could benefit you with a financial adviser so you can make an informed decision.
Our local financial planning team are here to help you be debt free
The main point is that you don’t have to live with unnecessary debt. It is possible to become, and stay, debt-free while still maintaining a social lifestyle and saving for future goals. And with the backing of expert advice, it doesn’t have to be hard.
Our financial adviser David and his team will help you put together an action plan to pay off your debt faster and putting your money to work for you. We'll also give you the structure and support to keep you accountable to your set goals & help you make the right financial decisions in the long run.
We believe in the difference financial planning can make so much that we offer a complimentary first appointment with our financial adviser. Book yours with Mortgage Choice in Camberwell & Canterbury today on 03 9813 3522.
