Having debts hanging over your head can feel like a dark cloud that follows you everywhere you go, but there are ways to bring on the financially-fit sunshine.
When it comes to the dark cloud of debt, it can be hard to muster to motivation to do anything about it.
If it’s a big debt cloud, it can feel insurmountable. A small debt cloud? You may be tempted to continue making the minimum repayments until it has shrunk to nothing. But maintaining debt can cost you big in ongoing interest.
Michael Watson from La Trobe Financial says getting debt under control can be easier than you think, and he has some expert tips to help you pay off your debt faster and take control of your financial future.
Assess the damage
Many of us have at least some debt – a a mortgage, a car loan, credit card debt. Michael says if you’ve made the decision to tackle your debt monster the first thing you should is assess your financial position.
“Take a look at all of your outgoings over a few months – it can be surprising to see where the money goes! Look for savings wherever you can and understand how much income you can put towards debt reduction,” he says.
Once you have a little pot of savings that you can put towards your debt, assess where it can be used most effectively.
Plan for success
A general rule of thumb is to pay out the shorter term, expensive debts first.
“Store credit and credit cards, personal loans and car loans are all generally at higher rates and can make up a large portion of your take-home income. Each one you pay off frees up disposable income to put towards paying out the next one,” Michael says.
Going in with a plan can save time and money in the long run.
“Too often debt reduction is done without a plan, and that means it’s done without focus. If you know how much you can put towards each, and then pay them out strategically or one at a time, you’re giving yourself the best chance of success.”
Consolidating your debt can be smart, but, Michael warns, you have to stay focused on paying it off.
“If you consolidate your debts, say into your home loan which might have a much lower interest rate, you may be better off provided you maintain your repayments at the higher level.”
But, once you’ve rolled your debts into one, ensure you maintain your focus on keeping your budget under control. “Otherwise, you might start racking up debt on your freshly-repaid credit cards again,” he warns.
Get debt help
Banking, telco, energy and water industries have their own Ombudsman for dispute resolution.
The national Debt Helpline (1800 007 007) has information on how to negotiate payment terms.
The Australian Financial Complaints Authority (AFCA) provides free, independent dispute resolution. If you’re considering a financial services firm that isn’t a member, don’t deal with them.
The answers given to the questions noted above are our personal views and do constitute financial advice and should not be relied on in lieu of professional advice. We have not considered your personal financial circumstances. We recommend you seek the assistance of an accredited financial planner or advisor.
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