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INSIGHTS
Take control of your finances
Being in debt or falling behind on payments can be a real source of stress. The good news is, there are things you can do to get out of debt – and stay out!
In this article, we’ll break down the steps to tackle your debt and get back in control. No more stress, no more worrying about how you’re going to make ends meet. You’ll have the tools you need to chip away at your debt and start living life on your own terms.
1. Know what you owe
Make a list of everything you owe
Now that you’ve decided it’s time to take control of your debt, the first step is getting a clear picture of what you owe.
Create a list of all your debts in one place, making sure to include the following information:
- How much you owe
- Who you owe it to
- Minimum repayments
- Repayment date
- Debt term
Be sure to include all types of debt, including credit cards, personal loans, home loans, unpaid bills, fines, buy-now-pay-later accounts, credit cards, loans, unpaid bills, fines, and anything else you owe money for.
Once you have your list, add up all the debts to see the total amount you owe. This might be a bit scary, but don’t worry. You’re taking control of your money, and that’s a big step in the right direction.
Get help if you need it
Getting the full picture of your debts can be overwhelming. And reaching for a quick fix like taking on more debt can be tempting. But try not to make any rash decisions. If you feel out of your depth, there is help available.
Try finding a financial counselor who can talk you through your options and make a plan. You can also ring the National Debt Helpline on 1800 007 007, Monday through Friday from 9:30am to 4:30pm.
Think about consolidating your debt
While adding more debt to your plate isn’t a good move, you might want to think about consolidating your debts. That’s when you transfer the money you owe to multiple organisations into a single loan.
This approach can take a bit of the pressure off, as you’ll have just one organisation to deal with, and one repayment to worry about. But it may cost you more in the long run if the interest rate and/or fees on your new loan are higher.
Debt consolidation isn’t for everyone, and it’s important to do your research before you make a decision. Here at Hume, we have a number of options to help if you’d like to think about debt consolidation – from refinanced home loans to personal loans.
2. Work out what you can afford
Get a feel for your finances
Now that you know everything you owe, it’s time to start planning how you can pay those debts right down. If you haven’t already, do a financial self-audit to figure out what money you have coming in and going out.
Go through all your transactions and categorise them into things like bills, transport, groceries, etc. Our budget planner can help break down the process if it feels overwhelming. At this stage, you’re just trying to get a picture of where you’re at.
Find ways to cut and save
If you find there’s a gap between the money you have coming in and the money going out, it might be time to make some changes. Even if you’re not in the red, you can probably still tighten up your budget to help get a handle on your debt.
Take another look at your budget and see if there are any areas where you could cut back. Some expenses you won’t be able to do much about – we’re looking at you, rent and groceries – but others might have snuck up on you. Remember to be realistic though – if your budget is too strict you’re less likely to stick to it.
What you can repay
When done, subtract your estimated expenses from your income. What’s left over is the amount you can put towards paying off your debts each month.
Now, you might be thinking you should put some of that money towards saving – which is a great thought! However, if you’ve still got debt to your name it’s important to pay that down first before you think about saving. Otherwise the interest you accrue on your debts will eat into your long-term savings.
3. Start chipping away at your debts
Figure out your priorities
If you’ve got lots of different debts, chances are they haven’t all been created equal. Now that you know what you owe and what you can afford to repay, the next step is to sort your debt by priority.
There are a couple of things to consider when prioritising your debts:
- Which debts could have the most serious impact
It’s important you don’t fall too far behind on the necessities. First up, make sure you’ve got things like rent or mortgage payments sorted, along with electricity, gas, water, phone and internet bills. - Which debts have the highest interest rate
It’s a good idea to tackle high interest debts first. That way, you’ll reduce the amount of interest you accrue over time, saving you money and allowing you to pay off your debt faster. - Which debts could be quick and easy wins
Being in debt can have a big toll on your mental health – even if you’re working towards bringing your debts under control. If you can, find your smallest debt and pay that off first. The win will help motivate you to move forward.
Make repayments work for you
Next up, take a closer look at your repayments to see if there’s anything you can do to take some of the pressure off.
Take a look at the frequency of your repayments. Making your payments on time will reduce extra fees and interest that might add to what you owe. Look for ways to help yourself keep on top of things – whether that’s automatic payments, calendar reminders, or aligning your repayments with your pay cycle.
If you’re having trouble keeping up with your bills and debts, reach out to your providers for help. If you ask for financial hardship assistance they may be able to help by offering flexible repayment options or temporary relief to help you get back on track.
Don’t be afraid to start the conversation – it could make all the difference in getting your finances under control.
Pay the minimum – and then some
When it comes to actually making repayments, it’s important that you pay the monthly minimum amount on each and every debt first. That will help you keep your debt from spiraling too far out of control because of late fees or penalties.
If you’ve still got some cash left over, put it towards paying off your high priority debts – even if that means making more than the minimum repayment. The more you’re able to kick into your repayments, the more you’ll save on interest and the quicker you’ll be able to pay off those pesky debts.
Catch the savings bug
Once you’ve got your debt under control, don’t let it creep back up! Staying in the habit of saving regularly can help you avoid money issues in the future.
Here are some tips to get you started:
- Be prepared: Your very first savings goal should be to build an ‘emergency fund’ to use if the unexpected happens. Aim to save enough to cover three months of expenses, then six months if you can.
- Start small: Make a plan to save a little bit each month. Open a savings account and make regular payments into it – you can even set up an automated payment. Even a small amount can make a difference.
- Set a goal: Think about what you could achieve with your savings. Pick a clear goal that you’re saving for to help motivate you to keep up your spending, even when short term temptation arises.