1. Create a Budget
The main reason people avoid creating a household budget is because they are scared of what it may reveal. But running away from something has never been a solution. A budget shows you how much you spend, against how much you earn. If you are spending more than you are earning, then the only way to continue that lifestyle is to borrow. Look carefully at the things you are spending on and see if any of them can be reduced or even dispensed with altogether. A balanced budget means no more debt.
2. Remember things break down
A lot of credit is used to replace or fix large items that break down e.g. car, refrigerator, heating system. Nothing lasts forever, so put aside a small amount each week for repairs and replacements. When the need arises, you may not have enough for the whole cost but half of the cost means only half as much debt.
3. Constantly shop around
We are creatures of habit. Many of stick with the same telco, utilities and insurance companies because we can’t be bothered changing. The companies love that. Once a year, sit down and compare what you are paying for these services, compared to the prices that competitors are offering. You could save hundreds of dollars a year.
4. Reduce your savings account
This might sound weird but if you have a savings account as well as debt, you are much better off transferring money from your savings to your credit card/loan. That’s because the interest that is accruing on the debt is far greater than the interest you are receiving for your savings.
5. Consolidate debt
Some people have various debts in different places – multiple cards and multiple loans. There are finance companies, including banks, who will sit down with you and consolidate all the debts into one, with a simple payment system that is less than you were paying before. And not all credit cards are the same. Interest rates vary widely. Shop around and if you see a card that has a lower rate, look into transferring your current liabilities into that card. Sometimes you even get interest free periods when you transfer from one to another.
6. Pay more than required
The required monthly payment on a credit card, mortgage or loan covers the interest and a little bit more. Sticking to the required amount means it takes ages to pay off the principal. If you can get into the habit of paying off a little more than necessary, the principal will be reduced further and the debt will be paid off much sooner.
7. Garage sale
Look around your house and see if you have items that you no longer use but which still have some value. Then organise a garage sale or put them on eBay, Gumtree or a similar site, and use the money to pay off debt. You won’t miss the items … or the debt.
Give these tips a go. You’ve got nothing to lose – except your debt.