The beginning of each year is a great time to reassess how your personal finances are going and to set goals for where you want to be. The Christmas period is an expensive time for us all and often brings undone all the year’s budgeting hard work.
It is easy to borrow money these days. Whether it be with a credit card or a quick on the spot personal loan, it’s important to make sure you’re doing it for the right reason. Getting new debts to pay off old ones is a sure sign things are getting away from you. The new year brings with it a sense of purpose to once and for all pay back what you owe. Depending on what debts you have, there are a number of strategies to help get this done. Below are a few simple but effective ones.
- Pay the highest interest card first: Paying the highest interest card first allows you to save the most money i.e. paying less interest overall.
- Pay the smallest balance first: Allocating as much as you can to paying off the smallest debt first helps you mentally feel like you are making progress. Then work on paying off the next smallest, and so on.
- Pay more than the minimum: Paying off the minimum each month on your credit card isn’t going to get you far. To really get ahead with your credit card debt, it’s important to pay over and above what the minimum is.
- Look at a balance transfer: Banks are very competitive these days and you can often transfer your debt to another card, with an interest free period. Freezing the interest means the money being towards repayments is reducing your debt, rather than repaying interest.
- Chop them up once they’re paid off: If you don’t need them, get rid of them. The temptation to use credit instead of savings is often too much for some. Getting rid of them is an easy way to avoid the temptation.
Personal & Car Loans
- Combine them all into one consolidation loan: Repaying debts is a mental game. Having multiple loans to repay feels a bit overwhelming at times. Putting them all into one helps with the financial pressure and can often have smaller repayments.
- Pay off more than the minimum: Similar to credit cards, the more you pay, the more goes towards repaying the debt.
- Shop around and compare: As previously said, banks are very competitive these days. Rates and fees are always changing so there is always the chance money can be saved by switching. Even asking your current bank about changes never hurts.
- Fixed v Variable: There are advantages and disadvantages in doing both. Using a mix is often a good way to get in front of your repayments.
- Set goals: Setting yourself goals each year, for example paying an extra $5,000, helps with the problem of feeling like you’re not getting anywhere. Giving yourself mini goals helps with the sense of achievement and can lead to progress with your long term debts.
- Talk to a broker: The hardest part of knowing what to do often prevent us from doing anything. Talking to a professional who can do the bulk of the above for you helps with getting the process started.
Talking to someone about your personal debts is an important start to paying them off. A Financial Planner can help with strategies for becoming debt free and probably most importantly, can help you maintain discipline throughout the year to stay debt free. It’s easy to say that you can do it yourself, but there’s always something that comes up. Adjustments always need to be made, and so having someone to guide you through changes in the year is vital to sticking to your plans.
General Advice disclaimer – Any advice contained in this webpage is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Financial Services & Credit Guide v10.12d to find out more about our financial advice services.