Really great advice on how to become debt free
Australians currently rack up $38 billion on their credit cards. That’s an average of $4,900 per cardholder. And the average cardholder is paying around $800 in interest per year if their interest rate is between 15 and 20 per cent.
A new study from Veda Advantage shows 17 per cent of Aussies (2.1 million people) are struggling to repay debts, and may have to sell assets, rely on family, transfer debts or even skip meals to repay them.
While it might often seem an insurmountable challenge, have faith – there are often effective solutions if you approach it rationally and calmly. Following are a few steps to consider in addressing your debt as a New Year’s resolution
Step 1: List all of your debts – This is an important first move. Go to the website of every financial institution to which you owe money. Then, copy down all balances with their respective interest rates. You should also know what your minimum payments are for every account. After tracking down all of your debts, you’ll have a better idea of how much you owe.
Step 2: Set periodic goals – When you set a goal to pay off your debt you should first assess how much money you can contribute toward debt repayment every month. Then you can do a rough estimate of how long it will take you to get out of debt. It could take longer than this to repay your debt, but this is a good way to understand roughly how much longer you have to bear this burden.
The final goal is to pay off all of your debt. If you can feasibly complete this in a year it’s a significant achievement. That should be the end point of your timeline. Then, it’s up to you what other goals you’d like to set. This will push you toward accomplishing your goals way faster than you would have originally anticipated.
Step 3: Start paying off balances from highest to lowest – There are a few schools of thought here but the most logical is to pay off the debt with the highest interest rate first, then work your way down.
Make the minimum payment possible for every account, besides the one that you’re trying to eliminate first. And remember every time you pay off a debt you have more to throw at the next one.
Step 4: Trade in big-ticket items – Do you have a fancy car or two in the driveway? You can significantly reduce your total debt by trading in your car(s) for something less expensive. Then take that approach to other unnecessary stuff around the house. If it’s not really important and dragging down your recovery efforts, get rid of it. There’s always time for more stuff when you’re debt free.
Step 5: Keep working – To pay off debt faster you can also work more or start working again if you‘ve retired. More money = more debt repayment.
Keep disciplined about this routine and you’re well on the way to ridding yourself of that niggling debt.
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