Jul 17, 2017

It is easy to tackle an overdue bill when you have spare cash. You can pat yourself on the back for being responsible.

But if you're dealing with a number of debts, you need a plan. Throwing yourself into the endeavor without a plan can land you back into the same hole you started out in. 

How can you successfully manage your debt? The following information can help. 

How Deep Is Your Debt? 

If you are in major debt, don't wait a moment longer. Take immediate action.

If your debt is small, you may feel that it's no use worrying about. But remember that any debt should be treated as serious because of its potential to quickly get out of control. Don't wait until the debt grows or it is joined by a number of other similar debts. Even if you owe just a small amount, these tips can help you stay on top of it. 

Once you know where you stand with your debts, you'll be able to design a scheme to help you efficiently whittle it away. Before tackling debt, you need to know two things: 

  • How much you owe 

  • How much you can afford to pay, and the frequency of payments 

realistic budget is extremely helpful in this regard. When you know exactly how much money you'll have left over after paying for monthly necessities, you'll have a better idea of how quickly you can pay off your debt. 

Rashly dumping a lot of money into a debt in the hope of paying it off quick could cause you to come up short in other areas, so planning a budgeis essential. 

Prioritise Your Debts 

Figure out which debts are the most urgent. Some people like to get rid of the smaller debts first, just to get them off the table, so to speak. But the method that saves you more money is likely to be the tactic of putting more towards the larger debt(s) with higher interest rates. 

At the very least, make regular minimum repayments a priority every month. This will save you from getting into further debt and will give you the best chance of maintaining a good relationship with the company or person you are paying back - a solid commitment with a scheduled plan to pay means a lot. 

Keep Saving 

If you're in debt, there's a good chance you don't have much in savings. If you did, you wouldn't be in debt! Or, perhaps you've already used up your savings paying off debt. 

Regardless of how little it may seem, it's still smart to keep depositing something in your savings account even as you struggle to pay off debt. Those few dollars will add up. Treat your savings account as a set-it-and-forget-it kind of thing. 

In the event of an emergency, you will have at least something there to draw from instead of going further into debt. 

Adjust Your Behaviour 

When dealing with debt, don't focus exclusively on the numbers. If your spending behaviours don't change, then those numbers will always disappoint you. Look for ways to cut out unnecessary expenses and even to save on the necessary ones. Work out a realistic budget. Reassess your priorities and standard of living.  

Yes, it may be hard to make some sacrifices in the short-term. But it will make it easier to get out of debt now and avoid harmful spending patterns later.

Watch Out For Debt Traps! 

As you either make progress in chipping away at debt or find yourself getting more desperate for a solution, you may be tempted by some dangerous lures. 

Clearing up one debt feels good. But that doesn't give you license to rack up some more. Cancel excess accounts once you clear the debt so that you don't get back into the mess. 

Debt consolidation does work for some people. It's ideal for making timely repayments and reducing fees. But it isn't a cure for just anyone's debt problem. You have to be ready to meet specific qualifications for a debt consolidation plan to work. Otherwise, you could just end up with. . . you guessed it – more debt. 

No matter what your lender or credit card company says, don't accept an offer to increase your credit limit! It's an optical illusion that makes you think you haven't used that much of your available credit. But in reality, it only opens you up to spending more than you need to. 

Seek professional advice

This blog covers only the basics. It is crucial to seek the advice of a professional financial adviser, who can work through the detail, identify the problems, set you up with a plan and help keep you accountable.

It's also important to know that you're not alone. Many people have struggled with debt, but with support and good advice have gone on to prosper!  

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your appointment.

Written by Ben Calder, Private Client Adviser at Calder Wealth Management.