Top tips for getting out of debt
The end of the year and beginning of the year are common times for debt to creep up on us. Christmas gift purchases, summer holidays, socialising and for families, those back to school expenses can all add up. When debt gets out of control, it can sometimes take a lot longer than you expect to get things back on track.
We wanted to give you some tips on budgeting, paying back debt faster and making sure your financial position is in shape for the New Year. If your New Year’s resolutions include saving for a big-ticket item such as a car, holiday or home renovation, then the sooner you get your finances sorted, the better.
What are the benefits of getting out of debt?
Having financial debt is stressful. Worrying about how to afford your next rent payment, or grocery bill can cause high levels of anxiety and can become a daily worry. Taking actions to reduce debt and improve your financial security can be very satisfying, and can be an instant fix to that anxiety that’s been bringing you down for a while. What’s more, reducing debt has a positive effect on your credit score, which is useful in the future if you do want to take on planned debt such as a car loan, home loan or a credit card.
Improved financial security tends to bring financial freedom. Imagine spending more money on the things you want to purchase, without feelings of guilt or shame. Financial freedom allows you to start planning for the future too. You’ll be able to start saving for larger ticket items that are important to you. It might be that car, a long-awaited family holiday or home improvements and upgrades. Having a debt consolidation strategy is the first step to getting out of debt and on your way to financial freedom.
7 top tips for getting out of debt
1. Know how much you owe
It sounds simple doesn’t it, but often people don’t understand their level of debt. If they have multiple lines of credit and have their head in the sand about the reality of their situation, they often don’t understand the total value of what they owe.
First things first. Make a list of all the money you owe, and who to, from the largest debt owing, to the least amount. Make sure you include car and home loans, credit card debt, personal debt and personal loans, and cash loans from friends and family members too.
Getting everything down on paper in an organised way can give you a clear view of the problem you need to solve. Adding the interest rates you’re paying for each debt item, and when you need to pay these debts by, can also add clarity to the bigger debt picture.
2. Consolidate your debt
Have you ever thought about debt consolidation? Debt consolidation is the process of bringing all the money you owe under one lender, one interest rate, and one fixed repayment term. Consolidating your debt can simplify your debt, and make your repayments much simpler.
Simplifying payments also means reducing other types of fees such as late payment fees and charges. It can be difficult to keep track of multiple payment dates when you have multiple repayments to make.
Restructuring your debt can also reduce the number of different weekly or fortnightly repayments which can be a real help to keep on top of your debt. Once you have a single loan and repayment amount, budgeting suddenly becomes a whole lot easier, and less stressful.
With one fixed interest rate, rather than multiple rates across multiple loans, your payments are more predictable, which again helps with your budgeting.
When you choose a debt consolidation loan with Nectar you can decide whether you repay your new consolidated loan weekly, fortnightly or monthly. You may want to arrange the timing around the time you get paid, but remember that more frequent repayments will reduce your loan faster.
At Nectar, you can borrow between $1,000 – $20,000 unsecured (so there is no expectation of needing to secure your loan with an asset).
3. Spend less
Budgeting means making a financial plan and sticking to it. Understanding your income, expenses and deciding how to use any surplus cash. For some people, budgeting and understanding their extra available cash means they can repay debt faster. For others, budgeting means making financial goals and using that additional income to reach those goals.
There is no harm in getting additional help to support you making a budget. A quick Google search will help you find online tools and calculators to make your budget, or there are free community budgeting services, or paid financial advisors that can help you too.
Budgeting often means spending less money. What luxuries are you currently buying that you could cut down on? Giving up your ritual takeaway coffee each morning and not buying your lunch can add up week to week, and each month. Simply swapping these items for a cup of instant coffee when you get to work, and cooking a little extra dinner so you can take leftovers for lunch, are all helpful ways to save a little extra. Other ways to look at cutting costs are to review your insurance and utilities such as phone and power bills, and see if you can get a better deal elsewhere.
It’s important to remember, these changes are short term, not long term. The sooner you get out of debt, the sooner you can get back to your favourite brands and rituals. Who knows, you might like having a little extra money in your pocket and never look back!
4. Buy a second hand car, instead of buying new
Buying a car is a big decision. Once you’ve decided what model, make and colour you want, sometimes the next decision for people is how to finance it. When buying a car is a necessity, even when you’re struggling to pay off debt (sometimes it’s the only way to get to your job, or your family may rely on it), there are options for you.
Forget buying new, and look at second-hand options instead. Also consider your ongoing running costs. Switching from your gas guzzler to a more fuel-efficient car, and pricing out second-hand electric vehicles are all great steps towards lowering your overall motor vehicle expenses. Check out our handy guide on buying a second hand car for more tips and tricks.
5. Consider a secondary source of income
A secondary source of income doesn’t necessarily mean getting a second job. If you have things you no longer need lying around your home or garage, you might be surprised how much you could make by selling them on Trade Me or Facebook Marketplace. Selling furniture, homeware, household appliances and quality used clothing can all add up, and free up space at home too!
Of course a second job could be a valid option if you’re serious about getting out of debt fast. Taking on additional responsibilities at your main job to top up your income is one way of doing this, or think about turning a hobby into a side hustle at the weekends. Even being a paid extra pair of hands for friends and family is a way to top up your income and help you pay off your debt faster.
It’s worth mentioning that when it comes to adding a second source of income, you’ll need to make sure you follow the appropriate tax guidelines to ensure you don’t get stung with a big income tax bill later on. It’s also wise to be wary of multi-level marketing companies and ‘get rich quick’ schemes as these are risky and may leave you more in debt than before.
6. Increasing your payments
Your minimum repayments are just that – the bare minimum you need to repay. By increasing your repayment amount, even slightly, can really make a difference to reducing your debt faster. It works in two ways – by reducing the term, or lifetime, of your loan and reducing the total amount of interest you’ll be charged.
If you’re lucky enough to come into some extra cash, such as a tax refund, bonus at work, or an inheritance, this could be a great opportunity to tackle that debt.
Nectar makes a point of not charging early repayment fees, but check with your lenders first that this won’t be a problem.
7. Ask for professional help if you need it
Smaller debt levels can usually be managed reasonably well, and repaid in a timely manner. If you’re struggling with repayments for larger debt amounts or multiple debts and lines of credit, there is plenty of professional advice out there if you need it.
From talking to a financial adviser, or using a free service such as Money Talks, people experiencing financial difficulties, hardship or debt levels that are difficult to manage have a variety of options to help them.
With so many ways to help you get out of debt, it’s good to remember, it doesn’t have to be a stressful situation either. Taking control of your debt, and making steps to manage it can be hugely rewarding and empowering. And once you’re out of debt, you’ll have financial freedom that you won’t want to give up anytime soon!
Getting started with Nectar
If you’re keen to consolidate your debt, find out how much you can borrow today. Get started with Nectar for an instant quote and rates. Borrow better, faster today!
*Nectar’s lending criteria and responsible lending checks apply.