Many Australians are in debt and find it stressful, difficult and frustrating. So when you finally decide to buckle down and get out of debt, you want to do it quickly! Unfortunately, there is no quick fix for financial hardship – it takes time, commitment and hard work. But there are some things you can do straight away to get out of debt fast!
1. Stop Borrowing Money
When faced with a bill you can’t afford, it is tempting to use a credit card or a payday loan to buy yourself some time, literally. But the only thing you are buying is more debt. A new loan might help you pay an overdue bill. However, you will still need to find the money to repay the loan, plus interest and fees.
If you are trying to get out of debt fast and need to pay an overdue bill, ring the creditor and request an extension or a hardship arrangement. You may be able to extend your due date or pay off smaller amounts over time. By working with your creditors, you can avoid a default on your credit file and you aren’t taking on additional debt.
2. Find Your Debt
Many people who are struggling with financial hardship may have completely lost track of their debt. They don’t know how much they owe, who their creditors are, what their repayments are or if their debt has been sold to a collection agency. It is impossible to repay your debt if you don’t know it exists.
To get out of debt fast, go through your online banking, any bills you receive in the post and your emails. Keep track of each debt by writing them all down on a piece of paper with some key information – like how much you owe, how much your repayments are and the frequency. Download our budgeting booklet for DIY guide.
3. Prioritise Your Debts
Now you know what debts you have, you can create a repayment plan to get out of debt fast. Some debts will need to be paid more urgently than others. For example, you might have a credit card charging interest at 21% per annum. Perhaps, you have a secured loan, such as a mortgage or vehicle loan which if you fall too far behind, you could be at risk of having it repossessed.
Go through your debts and prioritise repayment of them accordingly. Debts with high interest or security should take higher priority. Low or no interest debts should be lower on your priority list. You could even try the debt snowball method.
4. Cut Back on Expenses
Are you paying for Foxtel? A gym membership? A subscription? Are you a spontaneous shopper? Do you write a grocery list? Do you have an expensive hobby? You need to look for areas in your life where you can temporarily cut back on spending to catch up with your debt.
If that means switching off Foxtel or writing an ‘essentials only’ grocery list when you go shopping then do it! The money you save can go directly towards your debts, helping you pay them off sooner. You may also consider selling good quality items you no longer use, like coffee machines or treadmills. These changes don't have to be permanent, but will help you get out of debt fast!
5. Make a Repayment Plan
Hopefully, now you know exactly what debts you owe, how urgently they need to be repaid and have a little more money in the bank to help make the repayments. The next step is to pay off your debt. A good way to do this is Dave Ramsey's Snowball Method. Basically, you pay the minimum repayments on all your debts except for your most urgent – where you focus the bulk of your money. Then once that debt has been repaid you put the funds towards the next most urgent. As you pay off each debt, you have more and more money to put towards the next debt.
For example, by following these 5 steps, you may discover you have 2 credit cards and 2 personal loans. After cutting back on your expenses you have found an extra $80 a week in your budget. You can put this towards your debts in addition to the minimum weekly repayments. Below is a table showing you how:
As each debt is paid off, you continue to increase the amount you pay towards your other debts while maintaining the minimum repayment on each. By simply paying the minimum repayments on each debt it would take you 83 weeks to pay off these debts. By using the Debt Snowball Method, you pay them off in 58 weeks.
Enough is Enough!
If you follow these 5 steps to get out of debt fast and find you are getting deeper and deeper into debt, there are other things you can try. If you have equity in your mortgage you may be able to Refinance or Consolidate your debt. You could look at an Informal Debt Agreement or a Part 9 Debt Agreement to reduce your debt amounts further, pause interest and get the creditors off your back. If you want to discuss your options with an experienced Debt Negotiator, call Debt Rescue on 1800 003 328. We have helped thousands of Australian's out of debt have the knowledge and experience to point you in the right direction.
For more information on budgeting and how it can help get your finances back on track, check out our budgeting page.