There's a real benefit to tackling your debt before the festive season launches. Clean up your finances now, and there's less chance of being left with a nasty credit card hangover come New Year.
Tally up how much you owe
A list is a great way to avoid overspending when you shop for Christmas presents. In the same way, making a list of how much you owe is a sensible way to approach debt reduction. Without an overall picture, it’s hard to understand the size and urgency of the problem.
Choose a strategy
Your list should include the type of debt, total owed, interest rate and minimum monthly payment. Armed with this information, you can decide on a strategy. Either focus on paying off the highest interest rate first or choose the debt snowball method. The snowball effect advocates that you pay off the small balances first to give yourself a sense of achievement that will keep you working towards paying off the more substantial debts. Also, keep in mind that not paying secured debts like a mortgage and car loan could expose you to the risk of having your asset repossessed.
Change your spending habits
When you shop for Christmas gifts and groceries, do you use the same tried and tested shops and routines? Now’s the time to shake off old habits. You won’t get out of debt if you keep spending the way you always have. Look at your daily routine and work out where there might be opportunities to save. Ideas include: buying groceries in bulk, a weekly grocery shop to avert the temptation of convenience food, avoiding brand name products, BYO coffee, comparing prices and avoiding impulse buying.
Use your credit cards wisely
While you’re paying off your debt, stop using all your credit cards. Use whatever method you need to put an end to credit card reliance, whether locking them in a safe or cutting them up. Switch to a debit card or BPay. Removing the temptation of credit will help develop the discipline of making purchases only when there are funds in your bank account.
Consolidate your debt
Speak to your Yellow Brick Road mortgage broker about what options might be available for debt consolidation. Combining multiple high-interest rate debts into a single low-interest loan may, for some people, make repayments easier to manage. You’ll also have the convenience of one payment and a reduction in the total interest you’ll pay over the life of the debt. This strategy is particularly useful for credit card debt, as they often have high-interest rates.
Create a realistic budget
Putting together a budget might seem daunting, but it’s well worth the time and effort. Not only will it give you an idea of how much spending power you have over the festive season. But it will also alert you to ways you’re wasting money. Maybe you already have a budget, but it’s too lenient? To get your debt under control, reduce or eliminate discretionary spending (wants) for a period to free up funds for your debts. Perhaps live life frugally for November, knowing you’re likely to have far more temptations in December!
Compare and save
Whether it’s your electricity, mobile or mortgage, make sure you’re getting a good deal. Negotiate with your current provider or compare prices and switch providers to save money. The less you pay for these bills, the more money available to divert to debts.
Work with a financial planner
Sometimes you need a fresh pair of eyes to help put your debts into perspective and work out a smart plan for paying them off. An accredited Yellow Brick Road financial advisor can work with you to develop a personalised plan for managing your debt and creating wealth opportunities.