Sinking in personal debts? Our experts show you how to climb out
At whatever stage you're struggling with debt there are steps you can take.
ASIC recently released the results of a review into car loan practices which showed almost half of borrowers who defaulted on their car loan did so in the first 6 months.
Almost 90% of people who had their cars repossessed still had more than half of their loan to be repaid.
Being in debt isn't a fun place to be. Not only does it cause stress and money struggles, it affects your credit score for a longer-term impact.
If you find yourself getting into financial difficulty, there may be a few steps you can take.
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1. Create a budget
Even if you're not struggling yet, but you want to make sure you can manage your debt comfortably, creating a proper budget is the way to start.
"Create a really detailed budget to account for each dollar you're bringing in, and each dollar that's going out. Look at your past 3 months' worth of transactions to see exactly where your money is going and where you can make cuts to save (you might be surprised to see how much you're spending on some things without realising it). Any money that you can save by cutting out discretionary spending should go towards paying down your debt as a priority. Paying down high-interest debt is more important than building your savings."
2. Get rid of unnecessary costs
If you're starting to feel the pinch, this is the next place to turn. Go through your budget and see where you can cut costs, even the small ones.
"Debt is easier to manage when you're not spending on stuff you can't actually use. Paying for more than 2 streaming services? Cancel all the rest - you don't have enough hours in the day to watch them all, and they'll still be there next year when you've got your finances in better shape."
3. Speak to your lender
If you're really starting to struggle with your debt, your instinct may be to not tell your lender anything. But actually, there are things your lender can do to help.
"If you're struggling to manage credit card or loan repayments then your credit provider might be able to help. You could negotiate a temporary pause in interest charges, debt repayments or switch to a product with a lower rate.
In the long run pausing your repayments will cost you more in interest charges. But it can give you a temporary break while you get your finances in order."
4. Consolidate your debts
If you've got multiple debts you might be able to consolidate them into one easier-to-manage debt. In some cases this can actually save you money on interest, but in others you might end up paying more. It's important to use a personal loan calculator to work out your costs.
"If you're juggling multiple debts, then getting a new loan to consolidate your existing loans can make your life easier. You only have to repay one loan this way. But just remember that taking a few smaller debts and rolling them into a bigger loan with a longer term could cost you more in interest. You may be better off just focusing on repaying your original debts."
5. Call the National Debt Helpline
"If you're very worried about the amount of debt you have you can call the National Debt Helpline for support. Whether you're struggling with loans, rent, credit card debt or Centrelink debt, the National Debt Helpline can give you free advice on how to manage your debts.
It's always better to make the call before things get worse, but the next best time to call them is now."
Call the National Debt Helpline on 1800 007 007 or head to the website for the service's online chat.
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