How to Get Out of Debt and Stay Out
There’s never been a better time to get on top of your borrowings thanks to record low interest rates. All it takes is a little financial discipline.
We’re a nation of borrowers, with the latest figures showing our household debt levels are sitting at 190% (almost twice as much debt as income), one of the highest levels of any country in the world. The good news is interest rates are at record lows, which means there’s never been a better time to get your borrowings under control and stay out of debt for good.
Let’s take a look at some fantastic options for paying off your debts as quickly as possible and setting up a great financial future.
Better budgeting for debt control
The first step in getting your debts and your life under control is to get real with your finances. Sit down and open your online account and take stock of what you’re spending and what you’re earning. Yes, this is obvious, and yes it’s boring. But getting things on paper is enlightening, even if a little confronting. We all hate it, but it can genuinely be a turning point.
Here’s a list of everyday expenses to get you started:
- Mobile phones
- Home phones
- Car repayments
- Car servicing and maintenance
- Public transport
- Rent or mortgage
- Maintenance and repairs
- Personal loans
- Credit cards
Then, add up your income including salary and wages, and anything else such as earnings from side hustles or investments.
Work out the difference between what you spend and what you earn to get a feeling for how much extra you could be putting towards your credit card, car loan or other obligations. Tip: You need to pay water and electricity bills, but if your clothing and entertainment spending is through the roof it could be brought under control slightly. Although as you can read below, you can save money off ANY bill…
Super saving hacks
Once you’ve got a handle on what you spend and what you earn, think through some options for slashing your expenses. There are heaps of really easy savings tips that can make your money go further. Many of them will seem obvious, but do some of them – it just depends where your priorities lie:
- Use electricity-saving light bulbs and appliances - you should be using them anyway, the environment will thank you!
- Turn off electronics such as computers and lights when you’re not using them. Sounds petty, but it really helps.
- Buy home brand products. A biscuit is a biscuit, right?
- Drop the coffees and drink water instead. Or at least stick to one coffee and really enjoy it.
- Cook rather than use meal delivery services. Even on the nights it feels too hard.
- Work out at the park or beach rather than using a gym. If you really love the gym then shop around for offers.
- Shop around for everything including clothes and holidays.
- Use second hand and swap sites on social media.
Car loan crunch time
When you have control of your everyday expenses, it’s time to look at your other debts to reduce them as fast as possible.
Many of us choose to take out a loan to buy a new set of wheels. After all, it’s often the quickest, most effective way of getting us on the road. But it’s important to shop around to find the best possible loan to make sure you’re not paying too much for that coveted convertible, SUV or coupé. When you take out the loan, make sure you do your research so you understand what the establishment fees are, the cost of the monthly loan service fee, as well as any other charges.
A terrific option is a flexible loan that allows you to make extra repayments when you have the funds. It’s one of the best ways to pay off your loan as quickly as possible. But make sure to also check out any additional charges you may need to pay if you pay off your loan early.
At the same time, remember to always pay your loan instalment on time so you don’t incur any late fees. It’s an idea to set up a direct debit to make sure you never forget to make your repayment on time.
Credit cards aren’t a bad thing
Credit cards can be a good way to pay for coveted items like great clothes, trips and tickets. But it’s really important to use them responsibly. After all, research shows that credit cards are a debt trap for one in six of us.
Credit cards are one of the most expensive forms of debt and attract a much higher interest rate, sometimes more than 20 per cent more than other types of lending such as personal loans.
But they have lots of pluses, too. They offer a convenient way of paying for things and some credit cards offer rewards points on purchases, which can go towards the fun stuff like cheaper flights or holidays.
The best way to use credit cards is to check the fine print and use them wisely. This means understanding how much you will pay in fees and charges, as well as taking advantage of interest-free periods and other benefits. For example, the Latitude Gem Visa offers six months interest free on Visa purchases over $250 and up to 55 days interest free on purchases under $250^, as well as a single annual fee.
Consolidate debt with a personal loan
If you are struggling to pay off your credit cards, a great option is to consolidate your debt with a personal loan. Personal loans often attract a lower interest rate than a credit card. Plus, if you consolidate one or more cards into a personal loan, you’ll have certainty about how much you’ll be paying off each month.
If you opt to transfer you credit card debt into a personal loan, don’t forget to cancel the card and think twice about opening another credit card until your balance has been paid off.
A really great tool is ASIC’s credit card calculator, which can help you work out how long it will take you to pay off your card by just making the minimum repayments as well as how much quicker you’ll pay it off by making extra repayments.
Start your budget NOW! No, really...
It can be easy to get on top of your borrowings. The idea is to get a handle on your finances by understanding what you spend and earn, and make paying off your loans a priority. That’s the best way to get out of debt and stay out of debt for good.
^To take advantage of up to 55 days interest free on everyday credit card purchases, you need to pay the full closing balance (excluding un-expiring 0% Interest Payment Plans) on each statement of account by the applicable due date. Each month make sure that you pay at least your minimum monthly payment, and if possible, more.