Managing debts

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5 GOLDEN RULES FOR MANAGING DEBT:

1. Tally up your debts

List all of your debts so you know where you stand.

Before you can start tackling your debts, you need to have a clear picture of how much you owe in total, and what each debt is.

Start now and review your overall financial position.

Asset stocktake calculator

2. Get urgent help if you need it

Free help is available if you need it.

If your debts are out of control or you are really struggling to make ends meet, it's important to act quickly. Here are some places you can go for free help and guidance.

  • Financial counselling - A free service offered by community organisations, community legal centres and some government agencies that can help you solve your money problems. 
  • Free legal advice - If you are in debt and have legal problems, community legal centres and Legal Aid agencies offer free legal advice in every state and territory. 
  • Urgent money help - If you are in financial crisis there are services that can help you.

Our section on trouble with debt has tips on how to approach your credit provider to ask for hardship assistance.

3. Set a budget

Make your budget realistic. If it isn't, you won't stick to it.

Setting up a budget is the only way to make stay on top of your finances by making sure your money goes where you want it to. It's not about depriving yourself - it's about being in control. 

Our budget planner is a great way to start being in control of your finances.

Budget planner

Once your budget is set, you'll see how much money you have left over.  Work out how much of this you can afford to put towards extra repayments to clear your debts. If you're not happy with how much is left over, check your budget to see whether there are some areas where you can cut back on spending.

4. Prioritise your debts

Continue to pay at least the minimum repayment on all your debts.

With a clear idea of how much you owe on each debt, and how much money you can set aside as extra repayments, you need to work out which debts you're going to pay off first. Depending on how much and what type of debt you have, there could be a couple of options open to you.

You could start by:

  • paying off the debt with the highest interest rate first; or
  • paying off the smallest debt first (so you feel a sense of achievement).

See making repayments for more details on how to prioritise different types of debts.

Regardless of what you focus on first, make sure you continue to make at least the minimum repayments on all of your debts to avoid any late payment or default fees.

Make it automatic

A great way to stick to your plan of paying off each debt is to set up an automatic payment from your bank account. Arrange for your extra repayments to go directly to your loan or credit card each time you are paid. This way, you won't forget to make the extra payments, or be tempted to skip it.

Then, as you pay off each debt, cancel that automatic payment and create a new one to transfer the extra money to the debt that is your next highest priority. Remember to continue making the monthly repayment on each debt at the same time.

Close each account as your debt is paid off

If you are paying off credit cards, remember to close the account once you've paid it off.  See  how to cancel a credit card to make sure you do this properly.

5. Consider refinancing or debt consolidation

It may sound like a good idea to pay someone to fix your credit problems or roll all your loans into one loan. But, before you do this, consider if this really is the best option for you or if there are other ways you could go, to get help for free - for example from a financial counsellor

Consolidating or refinancing loans can work for some people if it means they pay less in fees and interest. For others, it may only be a short-term fix, especially if they can't meet the repayments on the new loan. Visit our webpage to find out more about consolidating and refinancing debts.

Video about debt.

Video: Nicole escapes the debt cycle

Nicole shares her tips on how she used our tools to plan for a brighter financial future.

Nicole uses:

Transcript: Nicole escapes the debt cycle

When it comes to getting on top of debt, the most important thing is to get started. Assess your situation and consider the options that will work best for you. If you are struggling with debt, act quickly and seek help.


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Last updated: 25 Jan 2017