At some stage in life, most of us hit a point of worrying about money and feeling like we’re drowning in debt. And debt is secretly a bit cheeky – it sneaks up on you and before you know, it’s jumping out in front of you and scaring the daylights out of you.
Many have a mortgage or rent to pay, utility bills that keep rolling in each month, car repayments and credit cards. This is all pretty standard and for the most part, doable.
But life happens, and situations change.
You may change or lose a job, utility tariffs increase, interest rates rise, you add children into the mix, you have unexpected medical bills – so many things can change your circumstances in an instant.
So, if you’ve hit a point where you’re finding debt a little overwhelming, let’s explore some things you can try to reduce your debt and get back on top of things.
Work out a budget to suit your current situation
You don’t have to be a massive fan of maths and finance to work out a budget. When you start recording your spending habits, you’ll see gaps where you can tighten those purse strings. Start by honestly recording everything you spent money on in a day, a week and the month.
And this means EVERYTHING – the morning coffees on the way to work, the sneaky chocolate bars at the servo, the cheap toy your kid begs for at the supermarket…
Make sure you’re including what you’re paying in rent or a mortgage, on bills (average these over the month), on petrol, on car repayments, on meals eaten out, on shopping, on kid’s sports lessons, on school items, on work lunches, on Netflix etc.
Then add it all up for the month and compare it to your monthly income. How much do you have left – if anything at all?
Once you’ve got this information in front of you, you’ll be able to see if there are little items you can cut back on. And if it’s bad enough, you may consider cutting back on some ‘luxury items’ like Foxtel or Netflix (sorry!).
Consolidate all your smaller debts into one loan
You may not realise, but banks are continually coming up with new loan products with better rates to stay competitive and win more customers – it’s a business to them. Money-savvy types are onto this and refinance every couple of years to reduce their loans faster with better interest rates. Seriously – if a bank wants to keep you, they’ll do what they can!
If you’ve got a few smaller debts, you’ll be paying interest on each loan. That’s money you’re forking out for nothing. The best thing you can do is consolidate these debts into one loan.
If you’ve done your budget, you’ll have an idea of how much you’re already paying on these loans each month (include your credit card repayments here). When you apply for a consolidation loan, you’ll need to know the payout figures on each, so you know how much you’ll need to borrow. You can find this out from the company you’ve got the loan through. Add this all up, and that’s the amount you’ll need for your consolidated loan.
What you’ll achieve is lower monthly repayments. However, the loan term may be extended beyond your original loan finishing dates.
Apply for bankruptcy
Despite the stigma this has for many, bankruptcy is not a dirty word!
Yes, it’s usually the last-ditch effort as most people will try everything to avoid filing for bankruptcy, but it’s certainly a valid option you can consider.
For some people, it’s a way to end the debt collection phone calls and give them some peace of mind. Although bankruptcy will stay on your credit report for three years and one day, you can use this time to rebuild your savings record and start paying for items you need with cash rather than taking out loans.
It’s highly recommended that you talk to a financial expert before taking this step and if they believe this is your best option, they can direct you to a specialist who can help.
Recovering from debt overwhelm is doable
The one biggest factor in reducing debt overwhelm is YOU! Are you ready to commit to changing your budget and spending habits which may mean giving up some luxuries for a little while (don’t worry, it won’t be forever)? Can you spend the time needed to look into consolidating loans and possibly cutting up credit cards once you’ve done it?
One thing’s for sure though; once you start getting on top of your debt, you’ll stop stressing over every dollar and start feeling like you may even be able to save for things like holidays. You can do it!
About Lauren Smith
With nearly a decade of personal insolvency experience up her sleeves, Lauren is a Consultant at Aravanis, one of Australia’s largest registered bankruptcy trustee firms
Aravanis is an award-winning bankruptcy firm offering free bankruptcy-related information that’s specific to your individual situation.
If you’re looking for a more comprehensive outline of bankruptcy see article, what is bankruptcy, or call 1300 369 108.
