Pay off your debt using these top tips.
8 February 2016: As living prices increase gradually it's not surprising to note that many Aussies are stressed about their finances and end up in debt. The latest data from Mortgage Choice showed 52.4% of Aussies are “very worried” about their finances, an increase from 45% in 2014.
Here are some key tips to help you pay off your debt.
- Pay off your non-tax-deductible debt first
Non-tax-deductible debt, or “bad debt”, is money you owe on something that won't give you any money back from that particular investment. A personal loan is a type of non-tax-deductible debt.
Pay this debt first and you’ll lower the interest connected with these debts and boost your cash flow. You’ll be stronger financially so you can put money towards your tax-deductible debt, or “good debt”. This will ultimately quicken the time you have till you become debt-free.
A cheaper way to pay off your bad debts is to consolidate them. For example, if you have a home loan and a credit card loan, merge the credit card loan with the home loan. Credit card loans often carry very high interest rates, which means you pay more. Although consolidating will extend the duration of your home loan, you should end up paying less interest overall.
A downside of consolidating your loans is that you could turn a short-term debt into a long-term debt. You could be paying interest for a much longer period of time and end up paying more than you would have before consolidating your debts. So only consolidate if you’re prepared to crack down on your payments on your enlarged loan.
- Learn to use cash, not credit
Instead of racking up debt on a credit card, switch to cash. Use a primary credit card and have it as a backup for emergencies or necessary household items, such as a washing machine or TV. Keep your card in a safe place and out of reach so you’re not tempted to shop on impulses.
If you can't pay the credit card debt off in three months, avoid increasing your card limit.
- Don’t borrow money to get out of debt
If you find yourself borrowing money to pay off your debt, it’s safe to assume you can’t pay off your original debt, so how do you expect to pay off the money you’re borrowing to pay off the money you borrowed? This is not a good way to get out of debt. Instead of borrowing money, you might need to reduce your cost of living, work more hours or ask for a raise so you can get yourself out of debt. If you need to borrow money, friends or family members are a better choice than the bank since the interest rates would be low or non-existent.
- Look at your lifestyle
Evaluate your living situation. Work out what you spend your money on and ask yourself if that’s where your money should be going. Unnecessary spending habits will incur debt and you could be using that money to pay off your home loan or other debts. Look at ways to become a savvy shopper. You can find heaps of bargains online and in magazines that will allow you to put more money towards your debt.
Try to look for other ways to make extra cash. Consider getting a part-time job or raising money from a garage sale. Think outside the box and you’ll find some interesting ways to bring in extra cash.
- Budgeting is king
If you’re trying to get a handle on your debt, one of the best tips is to form a realistic budget. Review your monthly expenses and make sure your income comfortably covers the bills and necessities. Only allow any money remaining after the bills are paid to be spent elsewhere. Stick to your budget.
Find out the core elements that make up a good budget and be sure to stick to it. It won’t be long before you’ll be in control of your debt.