If your current level of debt is preventing you from achieving some of your goals, the following tips can help you reduce your debts faster. Reducing your debts can make a huge difference to your lifestyle and your finances. When you have less debts you can free up the money for other purposes. This will help improve your financial position.
1. Re-assess your budget
You should try to assess your budget to see whether or not you can pay off your debts or loans faster. You may need to make a few sacrifices, such as giving up buying a daily coffee if you are serious about paying them off. You may decide to do this only for a period of time such as six months to make it seem easier to begin with. However you may be so inspired once you see the impact on your finances that you continue for a longer period.
When you work out how you are spending your money, you can make an assessment as to where there may be opportunities to spend less, purchase the same product or service for a better price and where you have no choice but to spend more.
Simple changes such as not purchasing that monthly magazine for $9.95, adds up to $119.40 over the course of the year. While this may not seem much, every saving helps move you to the goal of reducing your debt. If you simply can’t give up the mag, why not consider sharing with a friend. It is likely that your friends purchase the same magazines as you and this helps reduce the cost. Another option you may not have considered is to see if your local library stocks the magazine, you may be able to read the latest magazine in the library or borrow past copies.
If you regularly go out to dinner with friends, why not consider having them over to your place. The various courses can be delegated to different guests and this can change every time you meet up. You may decide to just meet up for coffee and dessert, my favourite part of the meal.
Budgeting is not about stripping away all your fun, otherwise it is not sustainable. It is about being more mindful of where your money is being spent and whether over the long term this will meet your goals and objectives. If you would like further tips, refer to Top 10 tips for budgeting.
2. Pay off your high interest debts first
You should pay off high interest debts such as credit card debts first, since these are the loans that cost you more money in terms of interest than any other loans. You should prioritise the debt repayments according to whichever debt has the highest interest rate. If you are have a high interest loan that you cannot pay off quickly then consider repaying it with a loan of with a lower interest rate, this will help you save money on interest.
3. Make lump sum and extra payments on your loans
The easiest and the fastest way to repay a loan is by making as many additional repayments as you can. This could mean paying an extra $20 each month from savings made from reviewing your budget.
Any tax returns and gift amounts that you may receive could be used to pay down your loans. As this are extra funds received (and you may not have been expecting), you will not miss them and they have the potential to improve your financial situation.
4. Get on top of your credit card loans
If you are not fully repaying your credit card loans each month, then you could be paying as much as 25 percent interest on the outstanding balance.
If you cannot afford to repay your credit card loans in full every month or have trouble repaying them, then you may consider doing a balance transfer to another provider that has a lower interest rate. This will save you money in terms of interest payments. You should try and maintain the same level of payments (which you had under the higher interest rate) in order to pay down the balance faster. You may consider cutting up the card once the debt is paid off if you are not able to resist spending. After all the idea is to reduce your debt and reduce the stress it causes you.
You must have a good credit record in order to implement this option. If you do not have a good credit record, you are probably going to applying to lenders that have either the equivalent interest rate or higher interest rate. Please remember that every loan or credit card you apply for is recorded (whether you accept the offer of not) on your credit record. If you have to many entries it may have an impact on your ability to borrow in the future.
5. Refinance your debt
If you do not have too many debts to take care of, then concentrate on getting rid of one or two of the loans you have. Switching loans could attract fees on loan payouts.
6. Consolidate your debts
The consolidation of debts involves taking out one loan to pay out the others. It can make it easier to manage your loans, when you roll a number of debts you may have into one.
7. Make fortnightly home loan payments
Paying on a fortnightly basis will take off hundreds and thousands of dollars off in terms of interest over the life of your home loan.
Using a 100 percent offset account is also another way to effectively manage your loans. Deposit your salary into the account and any money is deducted from your debt balance before the interest is calculated.
9. Use your EFTPOS Card
Instead of your credit card, make use of your EFTPOS card. Since credit cards involve fees for money withdrawal, it would not be a wise decision to use them.
10. Interest-free loans
If you decide to take up the offer of a local retail shop for an interest free loan, please check the terms and conditions . These types of loans may be interest free for the period of the loan (say 2 years) but is you do not pay off in this set time frame you potentially could be charged interest dating back to the beginning of the contract. If possible, delay the purchase and save for the item your require. If this is not possible, at least save part of the cost of the purchase and only borrow the required amount. This will reduce the loan and make payments (and the interest payable) more reasonable.
Balance transfer on credit cards
In order to attract new clients some banks offer zero interest on the transfer of credit card balances for a set period of time say 6 months. This may be attractive if you are able to get ahead by paying down your credit card faster (as you are not paying interest), but check what the terms and conditions in relation to this offer are. Also, check what the interest rate will revert to once the interest free period ends. How are new purchases treated and what interest rates will you be paying on these items. It may be helpful, but if you decide to go ahead with this option maybe one of the best things you could possibly do is commit to no new purchases on the credit card while you aim to pay it down. This option will only be available to those with a good credit history.