Would you like to be free of debt? We explore some tips that will help you pay off that debt sooner!
How to reduce your debt
Firstly, it is very important that you have a clear picture of the debt you owe. So to fully understand your current financial position, compile a list of all of your loan accounts – such as credit cards, store cards, personal loans, car loans, and home loan(s). It is then helpful to compile a list of basic details for each account including current balance, interest rates, minimum payments and payment due dates. This will then enable you to put a plan in place as to how you are going to pay off each of the outstanding balances/loans. It is important that you have a clear goal on how you will reduce each loan, and by when. In conjunction with setting your goal, it is paramount that you keep up with repayments and, where possible, make extra repayments. This will help you reduce your debt much quicker, as the more money you owe, the more interest you will end up paying. If you happen to miss payments on your debts, interest on your loan will continue to build up and you will ultimately end up paying interest on top of interest.
Ways to reduce your debt
Some methods that may assist you in reducing your debt more quickly include:
- If you have more than one credit card or loan, pay off the one with the highest interest rate first
- Pay off the entire amount owing on your credit card each month to avoid incurring interest charges, or try to pay more than the ‘minimum monthly payment’ required to reduce the debt more quickly
- If you receive your wage weekly or fortnightly, consider making repayments on the same basis, rather than monthly as this assists in reducing your repayments required and/or interest paid
- Make extra repayments on your loans when you have surplus funds (subject to there being no penalties/fees on your loan for doing so – please check with your bank/financier for further details)
- If you are struggling to keep up with several repayments on various loans, consider ‘consolidating’ your debts into one personal loan, resulting in only one monthly payment
Compare interest rates & lenders
Another option, often associated with home loans is to ‘shop around’ with other loan providers and try to find a cheaper interest rate. It is important to be very cautious in this process though and make sure you do your research. A lot of loans may offer an introductory rate that seems too good to be true. The savings you make tend to be short-lived and in the end you could end up with a more expensive loan. An alternative may be to negotiate with your current loan provider to offer you a better loan to match the best deal you can find. This will also help you avoid refinancing costs, which can add up to be quite costly.
Develop a budget
Finally, it is recommended to develop a budget to enable you to track all of your income and expenses. It is important for the budget to be realistic, to ensure that you can fully commit to all repayments and general living costs. It may also provide you with the opportunity to look at which expenses are unnecessary or that you may be able to reduce – for instance, It may be as simple as cancelling some services you don’t use anymore, don’t really need or cutting down on the amount of times you eat out at restaurants, purchase take away etc. The goal is to increase the amount of money ‘left over’, and use this to pay down your debt quicker.
Ultimately, if you want to pay off your debts faster, (subject to terms and conditions of your individual loan accounts/credit cards) it is recommended to increase your required repayments, make additional repayments, and be sure in the future to choose loans with low fees and charges. Alternatively, for any future purchases it can be worthwhile to save on unnecessary interest costs and charges by actually creating a savings plan for purchases, instead of seeking loans or credit. In the event that your debt does start to get out of control, or you are having trouble making repayments, make sure you act quickly and talk to the financier/bank that the loan has been financed through and create a plan to help you move forward.