5 Simple Ways to Settle Your Debt and Save Money
There are some simple things you can do to manage your debt levels. With a little attention and discipline, you’d be surprised just how simple it is to achieve mastery over your finances.
- Know your debt
To get a good picture of your overall financial situation, you first need to know exactly what your debt is.
Debts could include personal loans, overdraft amounts, credit card balances and mortgages. And it is not just the debts you owe to financial institutions or professional lenders. Maybe you have a personal debt to a family member?
Make a list of all your debts and their value, and this will provide you with the total amount of your debt.
You will need to know this when you match your debts and your everyday expenses against your income later on when you do a budget.
- Look for savings on your high interest debts
Having a good ‘big picture’ view of your debts will enable you to identify and make decisions about which debts are unserviceable, which could be reduced or eliminated and where savings could be made.
For example, if you have an overdraft facility with a lower interest rate charge than you are currently paying on your credit card balance, it may be possible to pay down the credit card from your overdraft.
Alternatively, you could get a new credit card that offers low or zero interest for a set period as an introductory offer. Then you could roll all the debt you have on your other cards into the new credit card and save yourself some high interest charges.
You may also be able to ‘refinance’ your higher interest debt (on credit cards) by taking out a lower interest personal loan.
None of these measures will make the debt go away but it will save you some money in the long run.
The key here is to have the discipline to ensure you make the repayments and also that you close the old credit card accounts.
- Make a budget
Until you know how much you are spending and what you are spending your hard-earned wages on, you will not be able to take control of your personal finances. Making and sticking to a budget is a really effective way to financial freedom.
Keeping a record of your expenses helps you understand how much you are spending relevant to your income, and where your money is going. Draw up a list of all your expenses (including credit card charges and interest charges), categorizing the expenses and then matching that against your income. You will be able to see where you are spending too much, or wasting money, and where some savings could be made.
When working out your budget, make sure that you are not spending all that you earn. This means that you may have to cut the budget allocation (and therefore your spending) on one or more categories.
Once you have made your budget, sticking to it will let you manage your spending and your debt. You should check your expenditure against your budget each month to ensure that you are on track.
- Pay bills when they are due
Once you have drawn up your budget, you’ll know when the bills are coming in and approximately how much they will be. For example, you know that your rent payment is a certain amount each fortnight and you know approximately what your electricity charges are each quarter and when the bill is due.
Some companies will charge interest on overdue amounts, while others will charge you a fixed penalty amount for late payments.
One way to save yourself money is to pay your bills by the due date to avoid penalties for late payments. Some companies will even give you a small discount if you pay the bill on time.
It is also worth know that late payments can sometimes affect your credit rating, making it difficult to get finance in the future for a planned purpose.
- Set up automatic debits from your accounts for over the minimum payments
This applies to all loans and especially credit card debt where interest rates are high. Pay as much as you can afford in any given month, above the minimum payment. Having your budget will help you to know how much extra you can afford to pay. Paying extra will help you reduce your debt faster and save you money on interest charges.
An easy way to do this is by setting up a regular automatic payment through your bank. Making these payments weekly or fortnightly instead of monthly can also save you a fair chunk of interest.
Finally, if you have taken steps 1 to 5 and you think your debts are beyond your control, or you simply want to save yourself money on debt repayments, you should seek help from the professionals.
Settle Debt provides thousands of Australians with advice about the best way to pay back debts and save money in the process.
Don’t put it off – deal with it today and you could save yourself thousands.