How to get out of debt and stay out
Being a debt collection agency, we often receive queries asking for advice as to how one can get themselves out of debt. It’s not always easy and sometimes, paying off debts can take years.
Fortunately, there are some very simple steps you can take to get out of debt and ideally stay out of debt.
Write a Budget
Speaking of committing to the cause, it can also be a huge help to actually take the time to write out a budget for your monthly expenses.
This is one of those things that everyone knows they are supposed to do, but taking the next step and actually doing it can be the difference between getting out of debt and continuing to struggle indefinitely.
One tool you can create and use is a “bare-bones” budget. With this strategy, you’ll cut your expenses as low as they can go and live on as little as possible for as long as you can.
A bare-bones budget will look different for everyone, but it should be devoid of any “extras” like going out to eat, ordering food delivery, cable television, getting paid drivers or impulse spending. While you’re living on a strict budget, you should be able to pay considerably more toward your debts.
Remember, bare-bones budgets are only meant to be temporary. Once you’re out of debt — or a lot closer to your goal — you can start adding discretionary spending back into your monthly plan.
Give priority to interest-bearing debt
When writing your budget and listing all your outstanding debts, work out which of those debts are incurring further fees and interest, such as credit cards and loans. Put them at the top of your list. Everything else can wait.
Talk to your Debt Collector
Don’t be afraid of approaching your creditors and debt collectors and talking to them. They are there to help you. They can help you avoid a much worse scenario, such as bankruptcy or even court action, simply by picking up the phone and talking to them. Most debt collectors are there to work with you, not against you. They are after a win-win scenario, so call them and ask them about the best way to pay off your debt. You may be surprised how helpful they can be. It will also pay to check in with them to advise them of what your plan is, so they don’t escalate the matter to court action, which can happen very quickly, so keep up the dialogue with your debt collectors.
With a budget in place, you will have a fairly solid idea of what your expenses are going to be each month. And thanks to modern technology, you will be able to automate payments for most of those expenses and completely remove yourself from the process.
Pay more than the minimum payment
Whether you’re carrying credit card debt, personal loans, or student loans, one of the best ways to pay them down sooner is to make more than the minimum monthly payment. Doing so will not only help you save on interest throughout the life of your loan, but it will also speed up the payoff process. To avoid any headaches, make sure your loan doesn’t charge any prepayment penalties before you get started.
Find ways to make extra income
You may be able to pick up a casual job on top of your full-time job. Have a think about contract work that can be done in your own time, such as consulting, taxi-driving, support work, hospitality work, or farm work.
Another great way to expedite the process of getting out of debt is to start your own business. It can be as simple as making your own pot plants and selling them online. You can generate some additional income that can be directly allocated to reducing your debts.
Consolidate to Lower Interest Rates
Money is very cheap at the moment so it’s a great time to go to your bank/lender and ask for a cheaper rate. Avoid using debt consolidators or “debt relief” companies. They exist to make money out of you, that is all. Plus you won’t learn to stand on your own two feet if it happens again. Go straight to your bank or lender and sort it out with them directly. It might make sense to consolidate all of your outstanding debts into one single loan at a lower interest rate. This can often save you a pile of money in reduced interest payments and put you on the fast track towards debt-free living.
Don’t be afraid to ask for Help
No matter what type of debt you’re in — whether it’s credit card debt, student loan debt, car loans, or something else — it’s important to know there is a way out. It may not happen overnight, but a debt-free future could be yours if you create a plan — and stick with it long enough. Remember, you don’t have to do it alone.
Here in Australia, you can contact the National Debt Helpline on 1800 007 007 for free and confidential advice from professional financial counsellors. The hotline is open from 9.30 am to 4.30 pm, Monday to Friday
You can also visit the National Debt Helpline website for step-by-step guides explaining how to fix common debt problems. The helpline exists due to funding from both the federal government’s Department of Social Services and the state governments of Victoria and NSW. There is also some really helpful information on the ACCC website here:
In the ACCC website, you will see a link to Financial Counselling Australia. To speak with a Financial Counsellor, call 1800 007 007. There are also more tools and resources available online on the National Debt Helpline website.
Struggling to pay off debt and increase credit scores can be a frustrating process, but there is no reason that you can’t work through the process and find success on the other side of it. All you have to do is get started, and sooner is always going to be better.