Borrowing money to fill a gap in finances is a common practice. However, due to a number of reasons ranging from poor financial management to a financial emergency, one can fail to pay off the loan and end up in debt. A huge number of people are debt-ridden. In fact, on average, an Australian household owes about $250,000.
If you find yourself in a similar situation, you need to pull up your socks and try to get out of debt as fast as you can. Being in debt can have a massive impact on your finances.
1. Figure out your finances
First things first, you need to figure out your situation. Knowing where you are stuck is the most important step in getting debt-free.
Get a handle on all of your finances – your income, your expenditure, the money you owe, and your savings. Once you have all the numbers with you, carefully analyze them and understand where exactly you stand financially.
If you see that your income and savings are close enough to the amount of debt you owe, you can plan out a way to pay it off as soon as you can. However, if you notice a big gap between the two, you will have to make a plan of trying to increase your income in order to reach a level where you can repay the loans.
2. Reduce your spending
When you are trying to pay off your debts, the last thing you want is to spend the money you have on frivolous things. Make a list of all your expenses and slash off anything that is not an absolute requirement.
The things that you can do without should not take up your money at least until your debts are paid off. The money should instead be used for repayment. Try to minimize the usage of credit cards.
Sure, they make payments smoother but you will have another burden to pay the money to the creditor along with a rate of interest. Cut down on costs as much as possible and use more cash than your credit cards. Avoid taking any additional loans as well.
3. Pay off the higher debts first
Make a list of all the money you owe to all the lenders. This will give you a good idea of where you stand currently.
Not just that, it will also give you a list of debts you need to pay off first. When there are multiple debts, trying to pay them all at once can get overwhelming and it will be difficult to manage your money. The best thing to do is find a particular debt with a high rate of interest and pay that off first.
Pay the basic monthly installment of all your debts and use the extra money for paying off one debt. If a high-interest loan stays for a long period of time, you will have to pay more in the long run so repaying that first will benefit you greatly.
4. Pay off Multiple Low Debts first
If you are someone who relishes in the small victories, then this is the option for you. Unlike the previous step, you will have to focus on paying off the lower interest debts first.
This is especially helpful if you don’t have the income to deal with a higher debt at the moment. You can pay off several low-interest debts quickly and avoid paying too much interest. Once they are done, you can move upwards towards the higher loans and start repaying them.
5. Seek advice from debt mediation agency
Despite all your best efforts, you might have problems repaying your debts because of a shortage of funds or some other reason. In such a case, it is important to seek advice from experts.
A debt mediation agency like https://www.greatsouthernbank.com.au/ will have a discussion with your lender and try to come to a solution that is suitable for all. They will try to settle your debts in a way that you are comfortable with and help you get out of the burden and rebuild your finances.
Getting out of debt as soon as possible is important. The longer you stay in debt, the more strained your finances will get.
