After the Christmas spending spree and the summer holiday season, your credit card may have a good work out. It’s easy to build up debt this time of year and subsequently feel overwhelmed about repayments.
If you’re in this situation, don’t despair! Here are a few easy things you can do to reduce your debt and get back on track.
1. Build a budget
Before you can effectively pay down your debts, it is important for you to know what debts you have. Collect all the information about your debts and then create a budget that stops you from spending more money than you have. You may want to create a tighter short term budget at first to pay off your debts. For example, for the next month you could choose to spend less on entertainment and eating out so you can direct those costs to pay off your debt. Once this is achieved you can create another budget that has a little more flexibility and yet ensures you can afford all of your expenses.
If you have quite a bit of credit card debt or a few personal loans with high interest rates, you can consolidate this debt into your home loan. Consolidating your existing debt into your home loan can help you to reduce the interest you pay on each of your debts – as the interest rate on a home loan is generally a lot lower than the interest charged on credit cards.
3. Transfer balances
If you have a sound credit history but a few credit cards with high interest rates, you may be able to negotiate with your financial institution to have your credit card debt transferred onto another card with a lower interest rate. Sometimes you can even get a low introductory interest rate and use this period to make extra payments on your card.
4. Check your home loan's health
Australia’s lenders are keen to attract new business at the moment, as such, they are offering some significant incentives to new customers – including free usage of any ATM in Australia, and even cash-back incentives to those who open a new account. You may also find switching lenders can help you to save money faster – money that can then be used to pay off your debts. What have you got to lose? Research your options and see if there is a better financial institution out there for you.
5. Use redraws wisely
If you have a redraw facility connected to your home loan, you may be able to draw out any extra payments you have tipped into your home loan and use this money to pay off your other existing debts. It is always a good idea to pay off your debts with the highest interest rates first. But while a redraw facility can be a handy feature, it is a good idea to use it sparingly. Dipping into your loan too often will reduce the interest savings made by the extra repayments, and you may also be charged a fee for each redraw.
6. Compare to find a better deal
You may be paying more than is necessary on your home loan, insurances, utility bills, etc. Comparing your options via your mortgage broker can help you find the best deal suited to your needs and may see you save money.
For more information or to contact Rob Lees, your local Penrith and Blue Mountains mortgage broker visit www.mortgagechoice.com.au
Image source: www.choice.com.au