If you have ever asked yourself "How can I get out of debt?", you would obviously understand that the whole process can be very difficult. It takes most people decades to get out of the debt they owe. There are many reasons why people find themselves with debt - from student loans to house mortgages, and even people such as “mum-and-dad” investors and professional property flippers can find themselves over leveraged from taking out house renovation loans. After a few years, you might realize if your personal finances have gotten out of hand, and in such circumstances, paying off debt can become extremely tiring. Some people even spend their entire lives paying off their debt. By writing this article, we're here to provide financial debt help to our readers with some simple advice and ways to get out of debt. You can also get in touch with our debt counsellors who help you with your debt repayment plan. So, let's look at some ways you can get debt relief to start working toward a debt-free life!
1. Get Out Of Debt - Manage Your Budget
The first step, and maybe the most important, is to stop creating more debt. All of the hard work, effort and energy you put into finding a way to get out of debt doesn't matter if you overextend yourself financially - in a single day it’s possible to end up where you started! Start by setting a strict budget and adhering to it. The budget should include your income and all of your essential expenses. This being said, it is always a good idea to give yourself a financial buffer (such as 10% of your income) to prevent yourself from having to dip into other accounts, or other bills. Whilst reviewing your accounts, this is also a good time to cut out unnecessary expenses. You may have a gym membership you don’t use or ten different streaming service subscriptions that you don’t get the full amount of value out of - if that’s the case, consider cancelling them. Cut down the number of times you go out to eat each week or month. Setting up a tight and strict budget is one of the most important steps to help you to stop adding debt, and start getting ahead in your finances.
2. Get Out Of Debt - Sell Unnecessary Things
Most of us have a garage full of things we've hoarded over the years, never use and will likely never need! If this sounds like you, it’s time to set up a yard sale and sell it all! Any funds you make can be immediately used to pay off your outstanding debt. Consider it this way, your unloved trash is another man’s treasure - and it might actually be used for something good instead of just sitting in your garage wasting space and collecting dust.
3. Get Out Of Debt - Get Better Interest Rates
One common way to reduce your debt, is to call up your bank and ask the loan clerk for a better interest rate. This, of course, depends on the bank, your credit rating, and the type of loan you’ve taken - but a lot of times, if you come prepared to negotiate with quotes from other lenders, the bank might agree to give you a lower interest rate. The hardest part about paying off debt is because the interest rate compounds over time, so even if you can only take off a percentage or two from your annual payment, it will make a lot of difference over time. Considering that most mortgages last 30 years - that could mean a difference of $20K in your pocket! You could put that toward your superannuation fund! Before you go ahead and try to negotiate, be sure to check your credit score with an Australian Credit Reporting Agency such as Equifax, Illion, or Dun & Bradstreet. Having a good credit score and no previous non-payments, will help you refinance your loan. Simply call them and ask!
4. Get Out Of Debt - Stop Expensive Spending Habits
A lot of people are caught in huge debt traps, simply because they have developed expensive habits. For example, if you drink and smoke a lot, that might be a problem not only for your health, but also for your mounting debt. If this sounds like you, consider reaching out to Quitline (free call 13 78 48) which is an Australian Government Initiative to help you quit smoking, or call Alcoholics Anonymous Australia on 1300 222 222 to start your journey to living a happier, healthier, debt-free life! Expensive spending habits are a seriously big issue, and overcoming the urge to impulse shop will also help you pay off debt. When you are about to splurge, instead of looking at the dollar value, perhaps try thinking to yourself in terms of how long it will take you to earn the item! If your wages are $20 an hour, that $80 pair of shoes will cost you 4 hours of your time! That’s expensive!
5. Get Out Of Debt - Make More Payments than the Required Minimum
Oftentimes, debt collectors and banks charge interest rates that compound on a daily basis, so if you pay off all of your debt as soon as possible, you will actually end up paying less interest on your debt, than if you only make the minimum repayment amount. By only making the minimum monthly payment, it means you end up paying more in the long run and staying in debt for longer, and they end up making more money off you, over time. Legally you're allowed to pay more than the monthly minimum. Technically, you could pay all of it off if you have the funds. Therefore, it's always a good idea to pay more than the minimum on a monthly basis (if you're able to) and get the debt over with as soon as possible.
6. Get Out Of Debt - Consolidate Debt
A common strategy that usually works well is to consolidate those debts which have a high interest rate, with another loan that has a lower interest rate. Big lenders are usually able to offer a good rate, and because of their size, there is usually less risk for them to loan money, than for smaller lenders! However, some smaller lenders (or subsidiaries that represent the big banks) offer competitive interest rates! For example, if you take out a low interest rate personal loan from your local bank and consolidate your current debt with that loan, you will effectively lower the total interest rate payable on the total debt amount. This strategy will help you pay less debt overall - and you may even be able to change the instalment duration and buy yourself some room to breathe.
7. Get Out Of Debt - Start Another Part-Time Job
This might not be easy depending on your life and work situation, but if you can start some other job - maybe something you can work on from home – it will greatly help. Obviously, the more money you make, the faster you can make the payments, and the sooner you can pay off the debt.
8. Get Out Of Debt - Get a Raise at Your Current Job
If you're not self-employed, you can ask your boss for a raise. A lot of companies have plans and packages for their employees to help them get out of debt. Of course, this might not work for every company or every industry, but it doesn't hurt to try. Prepare for having the conversation, by reviewing the hard work you have done over the past twelve months. Just as if you were trying to apply for a job, create a resume of the results you have achieved for your company, and quantify your value. Practice the art of negotiation with a close friend or family member. Not only will you gain the confidence to negotiate with your boss for a pay rise, but you may even be able to use this skill and confidence to negotiate with creditors to get a better interest rate.
9. Get Out Of Debt - Negotiate Debt Settlement
Another interesting strategy is to contact your bank and negotiate a way to settle the rest of your debt. This can be tricky and difficult, but it can work. There are many companies that offer debt settlement services (such as Credit Counsellors Australia), and who will do the negotiation on your behalf. This strategy depends on your credit score. If you have a good credit score, it would normally be expected that you have the capacity to service your debt obligation and that you are able to pay the full amount. If you have a bad credit file, this may give lenders an indication of your current financial status - however, there is no guarantee that they will agree to reduce the amount that you owe, or waiver interest. If you are having trouble negotiating debt settlement with creditors, consider a debt agreement.
10. Get Out Of Debt - Seek Professional Insolvency Advice
If your debt situation has gotten WAY out of hand, and you’re scared you mightn’t be able to stay financially afloat for much longer – you could be insolvent. Some signs of financial stress and insolvency include: an inability to pay for debts when they fall due, insufficient income and struggling to pay for everyday living expenses, existing defaults on your credit file, and being ineligible to borrow more money, because of your financial situation. If you are currently in this position, call us to help figure out your debt options and find an alternative to bankruptcy.
11. Get Out Of Debt - Early Access to your Super
We recommend this ONLY as a measure of last resort. If all else fails, you may be able take out part of your retirement savings and use it to pay off your current debts. This, of course, is risky to your financial future, and the Australian Tax Office has strict rules whereby you can only access your super in very limited circumstances. You may be liable to pay penalty fees and taxes, which could make the entire ordeal difficult and expensive, but if you feel like you don't have any more options and you're tired of the debt, check out the ATO’s website to see if you are eligible for an early withdrawal of super.
We hope that we've adequately answered your burning question: "How can I get out of debt”? Carrying debt for years and not being able to get out of it, is a terrible feeling that unfortunately many of us experience at some point in life. If you have any more questions about ways to get out of debt or are in need of a free and confidential debt consultation, do not hesitate to get in touch. Our Credit Counsellors are here to help you figure out the options you have for paying off your debt - whether that be debt consolidation, debt negotiation, debt agreements, a personal insolvency agreement or bankruptcy! We will guide you in the right direction.