With a new year and a new decade comes promises of starting afresh - and for many people, that may mean letting go of old debts and getting back in touch with healthier money habits.
So if you’ve been sweeping your credit card balance or personal loan debt under the carpet, it could be time to whip out your figurative vacuum cleaner and tidy up your finances. Here are 6 strategies to help you wave goodbye to lingering debt and say hello to a more financially savvy you:
1. Jot down your IOUs
Just as any big bedroom cleanup starts with arranging all your belongings in front of you and taking a good look at what you actually own, the first step to clearing your debt is getting organised!
Spend an evening with a pen and paper, or with an Excel spreadsheet open - and make a list of all your debts. Include key details like the interest rates, minimum monthly repayments and payment due dates of each loan or credit card you have under your belt. Don’t forget to add up how much you owe in total.
Although a daunting task, this could serve as a great wake-up call and it’s also a super easy way to rewire your brain to think about the bigger picture.
2. Whip your budget into shape
We’ve all been there - treating ourselves to a new pair of branded sneakers when our shoe rack is already full, or subscribing to one too many streaming services (Netflix, Spotify, Disney+, Amazon Prime… you name it).
But to kick your debt to the curb in 2020, an airtight budget is more important than ever - and that means giving up on many of those indulgences.
Start by giving your existing budget a health check - review where your money is going and which expenses you can afford to cut down with our budget calculator. Make sure you prioritise the necessities like rent, groceries, power bills and petrol, and put enough funds aside to cover those costs first. After all, it won’t do you any good to make a big credit card repayment, only to find you now have to pay your rent with that same card.
4. Let apps and automation do the heavy lifting
Chances are, many of us have missed a credit card repayment here and there because it’s slipped our mind. The result? Late fees and high interest charges which add to your debt pile, rather than subtract from it, not to mention the dint to your credit score.
It’s time to banish the bad habit and take advantage of the range of money management apps now available which take the hassle out of managing and staying on top of repayments.
As someone who has been working in debt consolidation for many years, Easy Bill Pay Director, Deborah Southon, says automating your finances is a great way to stay on top but also in control of your finances.
“Platforms such as Easy Bill Pay, help empower people to be the master of their finances. The automated platform helps people stay on top of bills, minimise late payments, track spending, set savings goals and claim back more time to enjoy life,” she said.
“Having a structure of bills, savings etc. to be automatically paid from your bank account means you won’t forget to make payments and are aware of your outgoings.”
4. Make prioritising your pal
Focus on one debt at a time. You’ll still need to meet the minimum repayments for all your other debts so you aren’t stung by late payment fees but by prioritising on one debt at a time you can chip away at your debt in a manageable way. There are two common methods for prioritising debt, and the one you pick will come down to your individual situation and money attitude:
- Start with the highest interest rate first. Debt that will grow the fastest is also debt that piles on the quickest. By getting rid of the biggest killers (usually credit cards), you’ll avoid the worst of this snowballing effect.
- Start with the lowest balance first. Big feats are achieved by taking small steps - so if the thought of climbing the debt repayment mountain already overwhelms you, this is a way to help you stay motivated, as debt will vanish faster before your eyes.
5. Consider rolling your debts into one loan
But wait! There’s another way to tackle multiple debts hanging over your head: a debt consolidation loan, which combines all your debts into one loan with a lower interest rate. This potentially means big bucks saved in the long run - hundreds, if not thousands, shaved off your interest bill.
“Debt consolidation loans not only take away the pain of managing multiple debts, but they can also help to end the cycle of debt,” said Mozo money expert and director, Kirsty Lamont. “Unlike a credit card where you have flexibility in the amount you pay off each month and the timeframe in which to pay it back, with a debt consolidation loan you’ve got a fixed date when the debt will be paid in full.”
6. Seek out a helping hand
“People from ALL walks of life could benefit from assistance with their finances,” says Southon.
“Young, old, employees, busy freelance professionals, business owners, parents and students, everyone can use a little bit of help with automating their finances and being more financially aware.”
If you’re comfortable talking about your situation over the phone, the government offers a free and confidential financial counselling service, the National Debt Helpline. But if face-to-face contact suits you better, you could find a financial counsellor in your local area.