Debt can seem like an overwhelming topic to discuss, especially if you’re not sure how to pay it off any faster than you already are. It may seem easy to just simply ignore your debt, however suffering through the consequences of this are far worse than taking the opportunity to deal with your debt appropriately.

Did you know?

6 out of 10 (61%) of working Australians are in debt, outside of their home loans.1 

Commonly, many Australians feel too embarrassed or anxious to talk about their debt. If this is you, it’s important that you know there is nothing to be embarrassed about! There are solutions that can help you manage your debt and help you feel more at ease about the topic.

The most important thing is learning how you can pay your debts faster. This article will shed light on 5 helpful tips on how to pay off your debts quicker. 

First, we will identify what distinguishes “good” and “bad” debt:

Good Debt vs. Bad Debt: A Definition

Good debt is usually identified as money you may have borrowed for building your wealth or increasing your income over time. This could include a student loan used to acquire a degree or a business loan to create another income opportunity. It could also refer to obtaining a mortgage, which allows you to own a property to source income from later in life. Basically, good debt is anything that is improving your financial future.  

Bad debts reflect those that do little to no improvement for your financial outcome. They are usually seen as loans or outstanding balances that can no longer be recovered. This can include credit card debts, AfterPay and ZipPay-type debts, and personal debts. 

How to Pay Your Debts Faster

If you become too overwhelmed paying your debts, here are some helpful strategies that may alleviate some stress and assist you in paying off your debts quicker:

Step 1: Understand How Much You Owe

Everything begins with having a clear idea of how much you owe. The best way to do this is usually to start by creating a list. 

By taking note of all types of debt you owe and how much the minimum repayments are, you can organise your debt reduction strategy. This can seem overwhelming but should provide you with clarity and clear direction. 

Step 2: Determine Which Debt Payment is Top Priority

Indeed, every debt is important to be paid off. Unfortunately, you can only do so much. The key to a realistic way to pay off debts is learning which one to prioritise. 

Based on your list, it’s important to identify which among them should be urgently paid off. This usually depends on the importance, interest rate, or which ones you cannot lose. 

Step 3: Budget Your Money and Pay Down Your Debts as Much As Possible

Pay what you can afford. You can do that by creating a budget. Take note of how much income you receive every month. Coming from that, subtract your monthly expenses and make sure to include the debts in this calculation. Using a budget calculator may be able to simplify this process for you. 

When you think you don’t have enough money to pay off your monthly minimum requirements, it can be valuable to look for ways you can reduce your monthly expenses. However, it’s important to be careful not to over budget and stick only to what is possible. 

If you can afford to pay more than the minimum, consider doing so as it can help speed up the payment process. But, be realistic with yourself and don’t try to set goals you know are unachievable. 

Step 4: Ask for a Lower Interest Rate or Consolidate

Asking your loan provider to refinance with a lower interest rate is possible, especially if you pay your bills on time. The lower rates can help you manage your available finances better. 

Instead of paying bad debts separately and with different interest rates, why not consolidate all of them into one. That way, you only have to pay for one loan at one interest rate at a time. If the interest rates and fees on the new loan are lower, you’ll be saving money and should be able to pay off your debts faster!

Step 5: Seek the Help of a Financial Planner

Seeking the help of a personal financial advisor can help you choose the best decision. They can supply you with the consequences and advances that each action would produce. They can also help develop a tailored plan that would successfully get you out of your debt.

Learn more wealth-building strategies and other financial advice from Leo Wealth before you retire. 

We seek to provide expert financial planning and advice to people on the Central Coast. We help identify achievable outcomes and help clients implement solutions to financial problems. Book an appointment with us!

References

1. https://newsroom.ing.com.au/debt-fret-australians-too-embarrassed-to-talk-about-18-billion-debt/