For many Queenslanders, becoming debt free can seem out of reach but it’s certainly not an impossible goal.
According to ASIC’s MoneySmart website Australians owe around $32 billion1 on credit cards, and close to 30 per cent of Australians2 say they find dealing with money stressful and overwhelming. But considering the Reserve Bank of Australia’s cash rate is at a record low of 2 per cent, it’s a great time to tackle personal debt and in turn, build up confidence.
Record low-interest rates are an opportunity to pay off your loans quicker – as long as you don’t reduce your repayments and don’t take on more debt. And when it comes to household debt, there are three types – good, bad and necessary.
Good debt refers to those such as tertiary education costs and investments, bad debt includes credit card debt and necessary debt is home and car loans. Knowing how to pay them off is crucial to clearing the debt.
Typically the interest rate you’re paying on credit cards and other personal loans will be greater than the percentage you’re earning from your investments. By prioritising paying off your debts, you’ll be in a better financial position.
Your checklist to reducing debt
Where does your money go? List all of your current debts along with their corresponding interest rates, remaining balances and payment dates. This will give you an overall picture of your current debt situation. Our online finance tool Money Map can also help see your overall financial picture as it lets you see all your bank account, loan and super information in one place therefore making it easier to manage your money.
What are your high interest debts? If you’re able to make extra payments, focus on your debts with higher interest rates first.
Are you being realistic? When you’re planning your budget strategy, plan for the worst case scenario. If you need to work out a payment plan to chip away at your debts, make sure you have sufficient cash flow to meet the repayment schedule. You may be penalised if you have to renegotiate another payment plan.
How can you save more? Put aside a small amount each week to help cover you in case there’s an unexpected incident. This will help you avoid falling behind on payments and racking up any excess interest and charges.
Want to see how you’re travelling with debt? Take a look at our debt reduction calculator. You’ll be able to work out how long it might take to pay of your existing debts, as well as the interest you’ll pay on each loan. You can also experiment by paying off loans with higher interest rates first, paying a few extra dollars on some loans, or any other combination you can think of.
There are lots of tools available online that can help you with managing your debts. Visit the MoneySmart website to see what can help you.
If you’re still struggling to control your spending and manage your debts, and you need to have a chat, help is available. A financial adviser can provide you with the advice you need to get back on track. So why not have a conversation with an adviser from QInvest today?
1. ASIC Moneysmart website, accessed on 14 March 2016
2. Source: ASIC Key Finding Report 464: Australian Financial Attitudes and Behaviour Tracker, Wave 3: March – August 2015