Survey after survey reveals that the national personal debt of the average Australian hovers at around the 50,000 dollar mark. Australia has one of the highest percentages of household debt compared to other countries with similar economies.
If you have spiralling debt, you’re not alone. The good news is you can always take action whatever your financial situation.
The first step for many of us is to get our heads out of the sand. Read on for the tips you need about debt management to secure a brighter financial future.
Understanding Your Debt
Admitting we have a debt problem is a start. Facing up to some stark number crunching can feel uncomfortable at first but it’s vital in order to take back control of our finances. We’re all facing what feels like unprecedented pressure on our finances. That makes it even more important to keep on top of our spending with a viable financial plan.
Start by taking a look at the kinds of debt you have. It may feel as though a whole host of hungry creditors all want a share of your hard-earned cash. This can include:
- Bank loans and credit card debt
- Loans on cars, smartphones, computers and mortgages
- Money owed to friends and family
What’s crucial is to understand the interest rates and fees you’re paying on any loans. You should also be across any special conditions related to your loans, such as any early repayment charges.
How to Create a Budget
It can be very tempting to overthink a budget. Keep it simple and begin with 2 lists:
- Your sources of monthly income
- Your monthly outgoings, including loan repayments
Take a moment to consider your income. Are there ways to increase it by working overtime, taking on a side hustle or selling off any possessions you no longer need or use?
List all your outgoings from utility and phone bills to taxes, insurance and loans. If your salary goes into your bank account on a given day each month, try and organise your outgoings to leave your account 2 days later. If necessary, change the dates of any direct debits and any regular payments to achieve this.
As a result, you’ll have a far clearer picture of what you have left for the rest of the month once you’ve made your essential payments.
Take a good look at all your regular monthly outgoings. Can you cut any of them down by switching providers for certain services? Can you negotiate a better rate with utilities?
Could you join a cheaper gym? Are there any insurance products you’re paying for that simply aren’t worth it or on which you could save by switching providers? Trimming a few dollars here and there can become hundreds of dollars in savings over a given year.
Manage Your Debt by Cutting Out Waste
Take a hard look at the money you have left along with your latest credit card bill. Eating out is one of the most costly regular expenses for many people. Could you cut out regular restaurant or coffee runs and use the money you save to pay down debts?
Could you make savings on your food bill by buying less costly frozen products instead of fresh ones? Here are a few more money-saving tips:
- Do just one grocery shop a week, make a list and stick to it
- Shop for groceries on a full stomach and swap for cheaper brands
- Make use of leftovers and switch to eating more veggies and less meat
- Make your own coffee instead of buying it from a café
- Avoid impulse purchases
Develop a Realistic Debt Management Plan
If you have several loans, check the small print on each and write down the interest rates you’re paying on all of them. Consult with a professional as consolidating loans can often be beneficial; it means combining all your debts into one single loan.
You would manage your debt by paying off all your original loans by taking out another one to cover them all with the aim that the larger loan would be at a better interest rate and typically with more favourable conditions attached. There is the added benefit that you would also be able to see at a glance where your money is going each month.
Taking out a consolidation loan may not be necessary; you could also look at a debt management strategy like the domino debt strategy. This is where your initial focus will be paying off the smallest debt or loan with the highest interest rate first. You would then move on to the next loans one by one until you’ve paid them all off.
Talk to an Expert
It’s important to come up with a realistic debt management plan that you’re going to be able to stick to. You should seriously consider increasing the payments you intend to make on the debt you’re focusing on and prioritise finding any extra money available for repayments in your day-to-day living. Every extra dollar counts.
Some of these strategies might seem overwhelming or they may not suit your unique situation. You should talk to a financial services adviser, by booking an appointment with PAC Financial and one of our financial advisers will be able to talk you through a plan that’s tailor-made to your unique circumstances.
Staying on Track for Your Financial Future
It’s very important to make time each month to monitor the progress you’re making in managing your debt. If you find it hard to stay motivated, make the process fun.
You could ‘gamify’ your savings habits using an app to help you. Try out a savings ‘challenge,’ such as the 52-week savings test. Put one dollar aside on week one, then 2 dollars on week 2, and so on until you reach 52 dollars at the end of the year. Stick to it and you’ll have saved $1,378 plus interest.
Join a money-saving group online. There are hundreds out there, so find one that suits your style and goals. Always exercise a degree of caution before jumping in on any new schemes. Remember the old age advice, “If something seems too good to be true, it usually is.”
Celebrate your milestones, avoid taking on new debt and seek professional advice and guidance about debt management. The right financial planner can help you gain clarity with a plan structured best for your situation savings thousands in paid interest.
Debt Management Made Simple
PAC Financial has a team of experts ready to make bespoke plans to suit your individual needs. We can advise on budgeting and cash flow, debt management, super, tax planning and a range of other services.
Take the first step in securing a better financial future. Contact the team at PAC Financial today for a free no-obligation consultation.