These steps to managing debt may help if you’re in financial difficulty…


Living expenses and Australian household debt levels are already at a record level and rising. With wages flat and many of us feeling the pinch, it’s surprising that we still waste $4.3 billion per year on credit card interest.

Following a few tips for managing debt can either help you stay out of trouble or, if you are already in some financial difficulty, help you to start turning things around.

There are often limited options to reduce living expenses so we need to manage debt better to relieve the financial pressure we’re feeling.

Debts are easy to neglect because it means paying for things we’ve already used. This is usually less appealing than spending our money on living expenses for present enjoyment.

But there is a range of options available to you to help tackle debt. The below six steps to managing debt will be particularly useful if you are still in control of your debt but are worried that things could get out of control.

In this follow-up post, we discuss how to deal with out-of-control debt, where you are struggling to meet minimum repayments or debts are growing.

If you’re meeting your payments on time but struggling to get the debts down due to interest, keep reading!

Tips for managing debt: summary  

Congratulations on realising that managing your debts makes good sense!

Like many Australians, you might need a little extra help to pay them down – and you want to do something about it before your debt spirals out of control.

The following six steps to managing debt will help you get on top of your finances and relieve some of the stress you may be feeling:

  1. Total up all your debts
  2. Pay debts with the highest interest rates first
  3. Pay by direct debit
  4. Go on an “interest holiday”
  5. Consolidate your debts
  6. Work out a monthly “debt-first” budget you can stick to

1. Total up all your debts 

If you haven’t already done so, total up your debts with the respective interest rates, and work out your repayment amounts.

You can then calculate how long it will take you to pay down your debts if you maintain the status quo.

2. Pay debts with the highest interest rates first 

Sounds simple right? But if you haven’t done step one, you may not actually realise which debts have the highest interest rates.  You may just be making minimum repayments across all debts or focussing on those that debt collectors are calling you about.

Typically, credit card debt and short-term loans have the highest interest rates and these can increase steeply if you default.

Bear in mind that some advisors recommend you pay your smallest debt first. While this may be more expensive in the long run, if you need a ‘quick win’ to boost confidence and reduce your number of payments, it may work for you.

3. Pay by direct debit 

Removing the thought out of paying your debts helps you budget: that’s why direct debits may be your greatest ally in managing your debt.

When all you have left for your living expenses is the amount after direct debits have been paid, it forces you to budget. And if you’re tempted to spend the credit card payments you’ve just made – do yourself a favour and cut the card up.

4. Go on an ‘interest holiday’ 

You can seek a ‘holiday’ from your interest payments in two ways:

  • Apply for ‘hardship assistance’ by way of an interest-free period from your current credit card provider; or
  • Do a credit card balance transfer: credit card providers regularly offer 0% interest on balance transfers for up to 12 months – every dollar you pay towards your debt is then reducing it, helping you pay it down much quicker.

5. Consolidate your debts 

Stop, consolidate and listen!

Consolidating credit card debt into a personal or home loan may be the way forward. It can help in a number of ways: the overall interest rate may be lowered and the repayments reduced to be more affordable. A single monthly payment is also sometimes easier for people to manage.

6. Work out a monthly “debt-first” budget you can stick to 

While this last one is good in theory, it can be the hardest in practice.

Our tip to make this easier is to work out your essential living expenses, decide a realistic timeframe to pay off your debts, pay your debt first, and live on the rest.

By doing this, you will prioritise the financial outcomes you want to achieve without having to consciously decide to spend less e.g., when you’re out shopping.

If you’ve already tried all of the above and find that your debts are still not coming down, you may need a little more assistance with managing your debt. Take a look at this article, which provides some tips for when your debts are out of control.

If you need further help right now, get in touch with us through the live chat window on our website or contact our helpful team for a FREE 15-minute consultation.




Posted on 15-01-18 in Debt management.