Christmas and New Year is always a stressful time for families. It’s an expensive time of year with gifts to buy and parties to host but there are a few things you can do to manage your debt and pay it off quickly and painlessly.
As my mother always said “eat your vegetables first”. This means to make yourself open that spreadsheet or just take a lined piece of paper and write down what you spend. Do it quickly before you think about it; “eat your vegetables”. Then take a highlighter and identify the things you definitely need to pay such as electricity, water, mortgage repayment, phone and internet.
Maybe this list will help you identify all the little extra things you buy yourself because an add says “you’re worth it”. Maybe you are worth it but maybe there are some things there you don’t really need.
The other thing you can do is to consolidate your credit card debt into your home loan. For example, say a borrower owes $20,000 on their credit card with an interest rate of 25%. If they make $500 repayments each month, by the time they have paid off their credit card, they will have paid more than $23,000 in interest.
Now, if the borrower consolidated that $20,000 debt into their 30-year, 4.2%p.a home loan, and continued to make the $500 monthly repayments, they will have paid off the $20,000 debt in half the time and paid just over $1,500 in interest – saving more than $20,000 in interest.
The downside to this is that a borrower could turn a short term debt like a credit card into a longer term debt. Consolidation only works if you knuckle down and make extra repayments on your new larger home loan. You also need to reduce the limit on your credit card and pay it off in full each month so that you are not paying interest on the card again.
The other lesson my mother taught me is to live within your means. “Don’t buy steak if you can only afford mince”. I’m sure I have a copy of “101 Ways with Mince” lying around here somewhere. But that’s a story for another day.