Do you have a rising pile of debt that you are struggling to pay off?
If the answer is yes, don't despair. With a little dedication and proper planning, it is possible to reduce your debts effectively and easily.
In this article, we highlight the five things you need to do in order to pay off your debts and get the money monkey off your back once and for all.
- Know your debts: Before you can start to actively and effectively get rid of your various debts, it is important to know exactly what debts you have and where you stand financially. Proper planning is one of the most important steps a person can take in debt recovery - unfortunately however, it is also a step that most people are often scared to take. To take stock of your debts, it is a good idea to write down on a piece of paper all of the money you owe, the interest rates (if any) that are being charged on those debts and the monthly amount that is due for each debt.
- Create a budget: Once you know what your debts are, it is time to create a budget that will help you to pay off these debts as quickly as possible. Planning ahead with your finances for a full year can be daunting, and ultimately, ineffective. Instead, you should budget monthly or in accordance with the length of your pay period. In order to budget successfully, you should write down your income after tax and then all the bills/debts you are required to pay – mortgage repayments, rent, utility bills, childcare costs etc. Once you have worked out what all your expenses are and subtracted them from your income, you can work out how much you have left to pay off your debts. If this amount is too small to pay off your debts as quickly as you would like, you should look for ways to reduce your everyday expenses. Look at our money saving tool to calculate how much you could save.
- Reducing your expenses: There are plenty of simple things you can do to help you reduce your everyday spending. In the first instance, you could eliminate some of the little luxuries you have on a daily basis. For example, instead of buying your lunch every day at work, why not try taking leftovers? Similarly, if you are a big coffee drinker, it may pay to reduce the amount of coffees you buy to one or two a week. It may not sound like a lot, but when you are looking to reduce your spending, every little bit counts.
- Make a payment plan: Once you have worked out how much money you can put towards your debts, it is important to make a debt repayment plan. Work out which debts you want to pay off first. It is a good idea to pay off the biggest debt with the highest interest rate first. Once this has been accomplished, you can start working on the other debts you have.
- Consolidate your debt: If you are still struggling with the range of debt repayments, rolling your other debts into your mortgage can help you to pay less each repayment period and gain some peace of mind. However, remember that those debts will be stretched over a longer period i.e. your entire home loan term.
Finally, it is important that you hold yourself accountable for your debts and if you make a plan, stick to it.
To work through your finances or set out a savings plan, chat with one of our financial planners today.