Greater cost-of-living pressures have made it easier than ever to fall into debt. But owing money needn’t be a long-term thing, particularly if you understand the system.
You don’t have to be a big spender to accumulate debt: often, all it takes to fall behind is an unscheduled trip to the dentist or a higher-than-expected utility bill. Unfortunately, once you owe money, staying on top of your regular day-to-day expenses suddenly becomes much trickier. But there’s good news – with a bit of strategy, pulling yourself out of debt is perfectly achievable. Consider the following:
Figure out exactly how you got into debt
Sometimes, we have no choice but to take on a debt, to pay for unexpected damages, for example. But often there are steps we can follow to stop us falling behind in the first place. Take a close look at your monthly spending (try an app like TrackMySPEND or Pocketbook) and focus on the areas where you might be living beyond your means – are you driving to work instead of catching the bus, or making frequent trips to the cinema? It’s also worth weighing up your rent or mortgage and being honest about whether you can afford your current living situation.
Try to avoid fees and interest
Personal money trouble has a nasty habit of snowballing, and it’s often due to how the system works: for example, credit card providers charge interest on your debt, which compounds over time. On top of this, many utility providers implement late fees, adding them onto next month’s bill. Paying on time might mean sacrificing that pizza you’re craving or putting off a haircut, but it will leave you with more money to spend in the long run. Avoid missing a payment by listing the dates all your bills are due on a calendar, and refer to it regularly.
Combine your debts in one place
It can be tempting to sign up for multiple credit cards and loans to give yourself more options for distributing payments or to take advantage of sign-up offers. But having debt spread around like this makes it harder to keep track of and leaves you vulnerable to extra fees and penalties. If you’ve fallen into the trap in the past, now’s the time move all your debt into one place (known as debt consolidation). You’ll have fewer bills to worry about and the bank you’re consolidating with will often waive interest on the debt you’re moving for an introductory period, which gives you a chance to pay off more, sooner.
Go credit card free
If you’ve always had a credit card, it can be difficult to imagine living without one. But using credit cards and not paying the bill in full each month can cost hundreds or thousands of dollars in interest, and can also stop you budgeting your income properly. Seriously consider saying goodbye to your credit cards once you’ve paid them off – remember, you can now use a debit card for online purchases.
Don’t go it alone
Although it can be tempting to downplay or ignore your debt, speaking to the people to whom you owe money can be surprisingly helpful. If you’re behind on utility bills, for example, consider calling your provider and explaining the situation – you may be able to get your late fees waived for a set period of time. Your local bank manager can help you make sense of your loans and credit cards and might be able to reduce your interest by switching you over to a different product. The government’s MoneySmart website also offers assistance.