Nicheliving Tapping

Tips on how to get your debt under control

Owing money or falling behind on repayments can be stressful but the good news is there are steps you can take to relieve the financial pressure so you can see the light at the end of the tunnel. Your debt can be hurting your chances of a home loan down the track, so we have pulled together (with the help of our finance team), tips to squash your debt and tricks on how to get your finances under control so you can start saving for that house you have always wanted.

  1. Know what you owe

Although the first step is an obvious one, it’s an important step to get your debt under control. The first step is to get a clear picture of what you owe. Start by making a list of all your debts, including credit cards, loan repayments, unpaid bills, fines and any other money you owe, don’t forget to include how much you pay in fees and interest. Then add up all the debts to see how much you owe in total. We understand this is not a pleasant task and it may be somewhat confronting, just remind yourself that you’re taking charge of your money. And that’s a good start.

  1. Work out what you can afford to pay

The next step is to work out what you can afford to pay. Start by working out what you have coming in versus what goes out, this is why it’s crucial to have a budget. You can read more on why it’s important to have a budget here, where you can download our free budget spreadsheet template to help get your finances in order. This will help you identify where there may be room for movement and where you could save a little bit extra here and there to add to your repayments.

  1. Prioritise your debts

Next, it’s important to prioritise your debts, work out which debts are your priority debts and try to pay them first if you can. Some example of priority debts includes:

  • rent or mortgage payments
  • council rates and body corporate fees
  • electricity, gas and water
  • car repayments — if you need your car for work or essential travel

An example of lower priority debts include phone, internet and credit card bills but don’t forget there is always help out there if you need so don’t be afraid to ask questions and seek financial hardship where you can.

  1. Create a savings buffer

Life is full of unexpected surprises which is why it’s crucial to have a savings buffer or an account with emergency funds for those not so brighter days. Use any surplus you have each week to build up your savings buffer. This will provide a financial safety net to cover any unexpected expenses or future changes to your income or circumstances. When it comes to managing your debt, it always helps to expect the unexpected.

  1. Pay your debts on time

We realise it’s easier said than done but time management and debt management often go hand-in-hand and paying your debts on time can prevent you from accumulating additional expenses from late fees or interest charges. We recommend setting up alerts to remind you when payments are due or paying by direct debit on a monthly or fortnightly basis depending on your incoming payments. It also helps to remember that late payments could affect your credit report, which includes your personal details, the types of credit you’ve applied for and details about your repayment history which can impact you down the track, especially when applying for a home loan.

  1. Try and pay the full debt amount instead of the minimum amount owing

There are only two options when paying off repayments, pay the full amount or may the minimum owing. Similar to when you receive your car insurance, you can pay in 3, 6- or 12-month instalments and the tempting option is of course always the minimum amount. Although it’s a good option at the time, it could hurt you later, so we always recommend trying to pay the full debt amount instead of the minimum at the time of owing. Keep in mind that you can still incur interest on the balance that’s leftover, and this means you could end up owing more money. On the other hand, if you’re able to pay the full amount, typically you won’t be charged any interest at all so this is always the best option.

  1. Shop around for a better deal

You never know, there could be some hidden costs that could also be impacting your debt repayments that you didn’t even know about. Factors such as high interest rates and added fees can really affect how much you pay back on top of the base amount you owe. If you have a loan or credit card, you could save money just by using comparison sites to shop around, and see if another provider can offer you lower interest rates and fees, or more suitable repayment conditions. It doesn’t hurt to ask around, don’t feel obliged to stick to what you know as it’s important to find the best suited suppliers for you.

  1. Know you can reach out

If you’re finding it hard to keep up with your repayments, consider calling your providers as soon as you can to tell them you’re experiencing financial hardship. Most providers have a provision for bad debt (an amount they estimate is uncollectible), and there may be people within their company who can assess your situation and work with you to find a better payment plan that could assist you during difficult times.

We also have a great in-house financial team that can assist you with any questions you may have. In addition, you can also seek free financial counselling through the National Debt Helpline, either by calling on 1800 007 007 or visiting their website.