Take Control of your Debt

In the pursuit of financial well-being, one of the most critical steps is getting your debt under control. This journey is not just about eliminating debt but to also create sustainable habits for more success in the long-term.

Take a look below at Moneysmart’s simple yet effective steps to get out of debt and stay out of debt.

Know what you owe

The first step towards getting out of debt is understanding where you stand. Make a list of all your debts (credit cards, loan repayments, unpaid bills etc.), that includes how much each debt is, the minimum monthly repayment if applicable and when the payment is due. From here, you can add them up to see your total amount owed.

Get help if you need it

If your debt feels too overwhelming, you may be tempted by quick-fix solutions such as payday loans or increasing the limit on your credit card. Remember, your financial adviser is there to help. They can assist you with options you have available to you and create a plan to get you back on track.

Work out what you can afford to pay

Working out how much you can afford to pay towards your debts is the next step in getting things under control.

Start by making a budget where you include all the money you have coming in (salary, pension) and money going out (food, rent, mortgage). Add these up and compare the money in vs the money out.

Make savings or cuts

If you have more money going out than coming in, or your expenses are higher than you’d like, it’s time to decide what expenses you can cut. Pick things that are realistic and that you can stick to.

When you’ve made your spending cuts, subtract money going out from money coming in and the amount left over is how much you can pay towards your debt each month.

Prioritise your debt and bills

Work out the highest priority bills to pay first such as:

• Rent or mortgage payments
  Council rates and body corporate fees
• Electricity, gas, water and phone
• Car repayments

These high priority debts and bills should be paid first. If you’re having difficulty paying a big bill, contact your provider to see if they can offer an extension or pay in instalments.

Start small and snowball your payments

Now that you’ve prioritised your bills and your debt money is sorted, it’s time to get started on your repayments. The snowball method involves starting small and paying off your debts one by one following these steps:

• List your debts – from smallest to largest.
• Pay the minimum – pay the minimum amount due using your debt money.
• Pay off the smallest debt first – use the rest of your debt money to pay off the smallest debt. Pay as much as you can each month, until you clear it.
• Celebrate and repeat — when you’ve paid off that debt, reward yourself to inspire you to keep going. Then move onto paying off the next smallest debt, and so on.

Get a savings mindset

When you’ve got your debt under control, keep the momentum going by saving regularly to help you avoid problems in the future. A great start is to create an emergency fund or open a savings account

Taking control of your debt is a crucial step towards improving your financial well-being. The simple steps provided by Moneysmart, combined with the guidance and expertise of your financial adviser, can provide you with an effective roadmap to help you succeed.

Source: https://moneysmart.gov.au/managing-debt/get-debt-under-control