Debt is something we are all familiar with. Don’t you agree?
What’s more disturbing is that Australian households have become quite used to accumulating debt over the years.
According to the Australian Bureau of Statistics 2013 report, the total household debt was standing at $1.38 million which is a record high.
The average US household story is also no different. Recent surveys suggest that an average US family carries more than $5,000 in the form of credit card debts and it’s not just people with bad financial habits who get into trouble.
In some cases, medical emergency or sudden loss of employment are to blame for financial hardships.
However, this shouldn’t stop you from trying to get out of debt. An important thing to note here is that things start getting complicated when you don’t have
Your only source of finance when you lack emergency funds is your credit card and this doesn’t help you one bit.
How to Get Out of Debt Once and For All
Have You Assessed the Damage?
When financial hardships strike or your financial situation is out of whack for any reason, you have three options to get out of debt.
- You can start earning more
- You can start spending less
- You can start earning more and at the same time, spend less
If you haven’t already decided how to get out of debt, it’s time you have a closer look at how much money you owe, how much money you can repay and more importantly, at what rate.
Perhaps the biggest mistake people do is that they don’t face the numbers. Remember, if getting out of debt is your first priority, you should get a clear idea about your financial situation.
This includes putting everything on the table including:
- Your credit cards
- Your personal loans
- Your car insurance and other consumer loans
Before you start thinking about using your retirement savings or cutting down on all expenses blindly, you need to get to the root of the problem. What financial habits got you to this place?
Australian consumer debts as stated earlier have continued to increase over the years and as of 2016, total personal debt in Australia is about $2 trillion and every household owes around $250,000.
The most common sources of debt include:
- Mortgages – 56.3%
- Investor debt – 36.5%
- Personal debt – 3.1%
- Student debt – 2.1%
- Credit card debt – 1.9%
Check out this video to understand "Debt" more:
How to Get Out of Credit Card Debt
Getting your first credit card is exciting. After all, you will be able to enjoy some fantastic benefits such as reward points even cash back.
Well, your credit card can be the first step to creating a secure financial future, but what if you don’t know how to manage money?
Sadly many people use their credit cards without giving a second thought to payments.
And, by the time they realize they can’t repay the balance, it’s too late. Missing your credit card payment leads to
Credit card debt is common and it’s never good, but you can always get out of it.
In fact, if your credit card debt is too much to handle, all you need to do is follow these three steps and become credit card debt free.
1. Leave your credit card at home
If the plastic card is in your wallet, you will be tempted to use it, so just take it out and forget about it.
It is also seen that leaving this shiny plastic card at home can help you avoid impulse purchases and you can keep your credit card balance from increasing. Just think about it.
It’s easy to tell yourself “my card is at home and I don’t have money to spend.”
2. Don’t apply for more credit cards
If you’ve maxed out on one credit card, the last thing you should do is apply for another credit card.
Paying credit with another credit card is risky and more importantly, it would cost you more in interest charges and bigger monthly payments.
Remember that the only way to get out of debt is to stop accumulating it in the first place.
Stop depending on credit cards and start living on cash to cut down your expenses and make credit card payments.
3. Set up a flexible payment schedule
One of the biggest mistakes people make when trying to get rid of credit card debt is to make payments they cannot afford. Ideally credit card payments should be added to your monthly budget as a fixed expense and you should have enough cash to live on for the rest of the month.
How to Get Out of Debt and Stay Out for Good
Whether you owe money for personal loans, or credit cards, making debt repayment your top priority can help save you big bucks.
To get out of debt, you need to make your payments as quickly as possible and change your bad financial habits.
What should you do to get out of debt?
1. Start selling your junk
No matter how much you try, your home will have loads of unwanted items such as furniture, books, clothes, crockery, toys, appliances, unused gift cards and the list goes on.
A simple way to make more money is to start selling these unwanted items.
You can list items for sale on online classifieds such as craigslist or even organize a traditional garage sale.
Remember, while you might not get full value for your items, but the cash you earn can be used to make extra payments and help you put your financial situation back on track.
2. Consider 0% APR Credit Card
You can kill your credit card debt faster by transferring as much amount as you can to a 0% APR credit card.
In this case, every dollar you pay will be used to reduce your principal balance.
However, you should try to repay your debt before the 0% interest clause expires.
After all, the last thing you want to happen is to get stuck with higher interest rates again.
3. Put Extra Cash to Good Use
Did you get a bonus at work?
Will be making some real good sales? Whatever forms your extra cash takes; you can use it to repay your debt.
Surprisingly using bonuses and extra cash to kick-start your debt repayment schedule requires no effort.
Depending on how much money you owe, it might be necessary to eventually start changing your financial habits.
4. Personal loans to consolidate credit card debt
Interest rates on a personal loan are usually less than what you are required to pay on a credit card.
So you can simplify matters and save more money in the long run by moving all your debts on one account and making relevant monthly payments.
5. Make a budget and follow it
Once your debt is under control, it’s time to think about how you can avoid this problem.
Take a step back and decide your short-term and long-term financial goals.
You can set up automatic savings transfer and cut down on unnecessary expenses to avoid debt getting over your head.
Conclusion – Adapt to Your New Lifestyle
Now that you have started on your repayment plan to get out of debt, you should learn new financial behaviors that will support your efforts.
Also, don’t forget to track your spending and look for ways to cut down expenses.