mastering debt

​Owing money or falling behind on repayments can be stressful.   The good news is there are practical steps you can take to help you get out of debt - and stay out of debt.

 

Know what you owe

​

The first step is to get a clear picture of what you owe.  ​For each debt, write a list detailing;

• who you owe money to

• the total amount you owe 

• minimum monthly repayment

• due dates for repayments

• the interest rate

​

Include buy now pay later, credit cards, loan repayments, unpaid bills and any other money you owe.

 

Work out what you can afford to pay

​

​The easiest way is to make a budget, this will help you to get clear on what you can afford to pay towards debt repayments.

​

Review your expenses to see if you can cut back on any spending to increase your debt repayments. Establish Needs vs Wants.

• ​Cut back on non essential spending

• Cancel any unnecessary subscriptions

• Switch providers with better deals for power/phone/insurance 

• Sell assets such as a second vehicle you don’t often use or unused items around the house

• If you can, try to increase your income

​

Continue to make minimum repayments

​

​Check your list of upcoming payments and make sure you can pay at least the minimum payments by the due date.

​

Speak to your lender or bank

​

​Talk to your lender about options. You have a right to ask a lender to change your loan terms if you've suffered a hardship that you couldn't have seen coming, and you can't meet your repayments as a result.  This could include reducing your repayments, pausing them for a period, or extending the loan term to make payments more manageable.

​

​You can also speak to your bank about these options to manage your debt;

​

• Consolidation loan (to combine multiple debts into one lower interest loan with a single monthly repayment)

• Balance transfer (to move your credit card debt to a new credit card with lower interest).

• Mortgage hardship options such as repayment holidays, switching to interest-only payments, or extending your loan term to reduce monthly payments

​​

Prioritise your debts

​

If you're juggling multiple debts, it can be helpful to choose one or two debts to focus on first.  Take a look at your debt list and consider which ones make the most sense to prioritise.

​

Here are two common strategies:

​

Option 1 - Debts with the highest interest rates (Avalanche Method)

• Pay extra toward the debt with the highest interest rate, while making minimum payments on the rest.  

​​

Option 2 - The smallest debt first (Snowball Method)

• Focus on paying off your smallest debt first. Once paid off, put that payment toward the next smallest.

​​

Targeting high interest debt will save you the most money in the long run. However, some people find tackling the smallest amount of debt first works better for them because it keeps them motivated.   Choose the method that best fits your situation.

​

Make Extra Payments

​

​Once you’ve decided which debt to focus on, start paying more than the minimum whenever you can. Even small extra payments can make a big difference by reducing the total interest you’ll pay and helping you clear the debt faster.

​

Save for the unexpected

​

When you've got your debt under control, keep the momentum going.  Start by saving for unexpected expenses.  Saving regularly will help you avoid money problems in future.