So you've got debt? Well, the good news is you're not alone. A lot of Aussies have debt. In 2016, the country’s total personal debt totalled around $2 trillion with the average Australian household owing $250,000. Suffice to say, debt is a bugger to pay off. It can also be a sensitive topic to discuss, and many people find it easier to brush it under the rug instead of actively working to fight it off.
If you’re in a debt slump and struggling to make payments, there are two super simple debt-tackling strategies that you should know about. Get your pen out (you're gonna want to write this down).
Ready? Hit play below. Let's rock this!
If you owe multiple debts, this strategy involves starting with the smallest balance first while paying the minimum amount on larger debts. Once the smallest debt is paid off, you move onto the next biggest, and so on, until your debt is completely paid down.
It's called snowball or sometimes even domino-ing your debt because it's all about building momentum.
Start by making a list of all your debts in order from smallest balance to largest. Next, you must commit to pay the minimum amount on every debt no matter what. This will ensure that you keep making progress across the board and don’t get bogged down. Now attack your smallest debt with everything you’ve got. You might consider taking on a side hustle to earn additional income – but the idea is to focus all your energy on the smallest debt until it is completely paid off. Then move onto your next smallest debt. Keep going until all your debts are paid off.
Yes. So although you will pay more interest in the long term you also get more wins upfront. So if you hate the long game, like quick wins and are looking to just dip your toes into to the debt repayment game instead of going all in, this is for you.
This method is all about smashing down high interest debts first.
Make a list of your debts in order of interest rate from highest to lowest. Start paying off your highest-interest debt first, while making minimum payments on the rest of your debt until it's all paid off. This method is awesome if you’re able to make substantial payments while still having enough money for your daily living expenses.
This method takes a certain amount of discipline to be effective because you won't get the quick win satisfaction of the snowball method but you will save a tonne of 'cashola' on interest over the long term so you can party hard when you're debt free faster.
So perhaps you're like channelling Daft punk and looking for something Harder, Better, Faster, Stronger?
Well If you want to simplify your debt payments, you may want to consider a debt consolidation loan. This will let you roll everything into a single repayment with a flat interest rate.
Or if you're just looking for help figuring out how to budget your money so you can pay down debt without being a full hermit - well you can use the Henry 5 second budget!
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