Has your indulgent Christmas left you with a January debt hangover? Don’t despair. Now is the time to get your finances in order, and it won’t be as hard as you think. If you’re truly committed to fixing your festive splurge, you should be able to pull yourself out of any murky waters.
1. Assess your position
Over 40 per cent of Australians don’t know the interest rates on their financial product according to the National Savings and Debt Barometer (NSDB), and over 20 per cent don’t know their total debts. It’s time to get informed – and stay informed – by tracking your future expenditure.
Begin your assessment by compiling a list of your resources and assets, such as your salary and any investments. Next create a list detailing your regular monetary obligations. Doing this will give you a clear overview of your finances, allowing you to accurately identify how much you’re “bringing in” each month and what expenses you can realistically afford.
2. Mitigate your debts
Stop spending! It really is as simple as that. Of course you need to pay your bills, but discretionary spending should be reined in. According to the NSDB, a third of us are reluctant to budget, but it’s necessary if you want to regain control of your finances.
Begin by calculating your monthly income – a process you have hopefully already completed during your financial assessment. Populate a spreadsheet with all your monthly expenses, separating your needs from the wants. For now the wants must be set aside! After allocating the funds for your monthly necessities (such as rent and bills), look to see what you can be cutting down on, such as pay TV, dining out and takeaway coffees.
3. Prioritise your repayments
If you are juggling several repayments each month, the best thing you can do is choose which debts are high priority. For most, this will be the debt with the highest amount owed, such as a mortgage. Orchestrate your budget to allow you to pay this one first, every month.
Consider budgeting for additional debt repayments each month. By making extra repayments on your home loan, mortgage or personal loans, you will not only be able to pay off your debt quicker, but also reduce the amount of total interest you pay back.
4. Quick fixes
If you have credit card debt you’re struggling to pay, consider a zero interest balance transfer card. These let you transfer your existing credit card balance to a new one, with low or even no interest to pay for a certain period. That should buy you enough time to get everything in order.
5. Boost your income
If your incomings fall far short of your outgoings – even after budgeting – and you can’t meet debt payments or even pay your basic expenses, you may need to earn extra money to offset your expenses. Think outside of the box – try renting out your car spot, selling things on eBay, or turning a profit on running basic errands with Airtasker. Just a couple of months of extra earnings could be enough to help you get on top of the situation.
One in six Australians are uncomfortable with their ability to repay debt according to the NSDB. The good news is that people who are financially comfortable report higher levels of happiness and health than those with money stress, so being debt free is definitely a goal worth striving for. If you’re still struggling, consider talking to an advisor. This could be your bank, an accountant, a financial advisor or even an informed family member or friend.