In this guide, we’re going to talk about how to pay off your debt responsibly. This is an important topic for Australians, as more and more people are struggling with debt. According to the Australian Securities and Investments Commission (ASIC), Aussies owed over $51 billion in credit card debt in 2016. That’s a lot of money. Here are some tips to pay off your loan debt responsibly.
Learn Your Financial Position
Too often, borrowers only focus on their minimum repayments and ignore the bigger picture of their overall financial position; this can be a mistake. Also, they bury their heads in the sand and hope that somehow their situation will improve on its own. Of course, this doesn’t happen, and the situation deteriorates.
If you want to get control of your finances, you need to take a holistic approach and look at your entire financial picture. This means understanding not only your credit card debt but also your mortgage, your car loan, your personal loans, and any other debts you may have; it also means understanding your income and your expenses.
Prioritise Debt Over Savings
You might want to save, but if you have debt, that should be your priority. The reason issimple: credit card debt, personal loans, and other types of unsecured debt have much higher interest rates than savings accounts. That means you’re paying more in interest every month, which means it’s going to take you longer to pay off your debt.
Why not remove your debt entirely and then start saving? You’ll be able to save more money because you won’t have to pay interest, and you’ll also feel better knowing that you don’t have any debt hanging over your head.
Create a Plan and Set a Budget
You may have been dreading that this would come (sorry!) but creating a budget is one of the most effective ways to get your debt under control. When you know where your money is going, it’s easier to make changes and find ways to save.
There are plenty of helpful budgeting apps and websites out there that can make the process easier, so do some research and find one that works for you.
Start with the Highest Interest Rate First
Once you have a budget in place, you can start to focus on paying off your debt. And the best way to do that is by starting with the debt that has the highest interest rate. Why? The higher the interest rate, the more money you’re paying in interest, which means less money is going towards the actual debt.
So, if you have a $500 credit card balance with an interest rate of 20%, and a $5,000 personal loan with an interest rate of 12%, you’ll want to focus on paying off the credit card first. Alternatively, consider a consolidation loan from Cashify and bring all your loans under one roof.
Make More Than the Minimum Payment
Also, don’t think that you need to stick to the minimum payments if you have more money available. You want to try and make more than the minimum payment each month, even if it’s just a little bit more. The reason for this is that the minimum payment is designed to keep you in debt for as long as possible. By making more than the minimum payment, you’ll be able to get out of debt much faster.
If you’re in debt, follow the advice in this blog post and you’ll be on your way to becoming debt-free in no time. Just remember to be responsible with your spending, make more than the minimum payments, and don’t be afraid to ask for help if you need it!