If making a dent in your debt and getting your finances under control is on your list of things to do, here are some tips from the experts at Bridges Financial Services to help you get started.
Be realistic about your budget
Don’t make the mistake of being too ambitious about how you tackle your debt. Review your spending for the last couple of months to get an idea of where you can cut back. Then set out a weekly budget to guide your spending. This will give you an idea of how much you have left over to put toward paying off your debts.
Know which debts you should tackle first
It makes sense to focus on paying down higher interest debts, such as credit cards. It’s also worth considering whether you can consolidate higher interest debts into a lower interest loan. This can not only save on interest payments, but also simplify your situation and give you a greater sense of control.
Make use of interest free periods on credit cards
One common strategy is to combine a credit card that has a long interest-free period (say 55 days), with a redraw-style home loan that allows you to access the extra payments you’ve made. With this technique, all income is paid into the home loan to help reduce daily interest charges, while all spending is made using the credit card. Just before the interest free period expires, you pay off the credit card from the home loan account to avoid credit card interest.
But using this technique requires lots of discipline and budgeting, so get advice on how to make this method work for you.
Keep an eye out for low interest special offers
Many financial institutions offer an incentive to customers who transfer their credit card debt to them (often called a ‘balance transfer’). The incentive often comes in the form of a 0% interest period offer for 6 or 12 months or more. During that time you would still make regular repayments on the amount you owe, but you wouldn’t be charged any interest on the debt you transferred to your new financial institution.
These offers can help you reduce what you owe, but only if you are able to pay off the debt within the special 0% offer period and avoid extra spending on the new card. Be sure to check for any conditions that come with the offer before you commit, such as balance transfer fees, annual fees or monthly fees.
Don’t be afraid to seek help from your lender
If you’re having real difficulty managing your debts, due to income dips or emergency spending, discuss your situation with your lender as soon as you can. There may be options available to help you through a tight spot.
Remember, not all debt is bad
Debt may sometimes seem like a dirty word. But if used properly, it can be a valuable tool in helping you invest in your future and achieve your lifestyle goals. The key is to fit it in to a healthy overall financial plan.
Tackling your debt is not only good for your finances in the short term - it can also give you a greater feeling of control and independence. And importantly, it can contribute to improving your credit score and your longer term financial wellbeing.
If you need a little extra help with a plan to tackle your debt, CUA partners with Bridges to offer members expert advice on their finances. Your first consultation with a Bridges financial planner is complimentary and obligation free.Book a consultation
Bridges Financial Services Pty Ltd (Bridges). ABN 60 003 474 977. ASX Participant. AFSL 240837. This is general advice only and has been prepared without taking into account your particular objectives, financial situation and needs. Before making an investment decision based on this information, you should assess your own circumstances or consult a financial planner or a registered tax agent. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. Part of the IOOF group. In referring customers to Bridges, CUA does not accept responsibility for any acts, omissions or advice of Bridges and its authorised representatives.