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Owing money or falling behind on repayments can be stressful. The good news is there are steps you can take to get out of debt.
Understand what you owe
The first step is to get a clear picture of what you owe. Make a list of all your debts, showing:
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the balance
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the current interest rate
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the fees you pay, including any penalties for paying off your loan early
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the remaining term (or when it's due)
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your current monthly repayment
Include buy now pay later, credit cards, loan repayments, unpaid bills, fines and any other money you owe.
Add the amounts together so you can see your total debt. This step can feel confronting, but it helps you take control.
Free help with money problems
If it feels like you owe a lot, you may be tempted by a quick-fix solution. Like taking out a small amount credit contact (payday loan) or increasing your credit card limit.
Before you jump into anything, there are free services available to help you. You can:
Talk to a free financial counsellor. They can explain your options and help you make a plan to get your finances back on track. This is a free and confidential service. You can contact the National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm. Or live chat, Monday to Friday, 9:00am to 8:00pm.
Access free debt management support. You may be able to access free support to help you manage your debts. Way Forward is a not-for-profit organisation that helps people experiencing long-term financial hardship by putting in place affordable debt management plans. You can contact Way Forward on 1300 045 502 Monday to Friday, 9:00am to 7:00pm.
Work out what you can afford to pay
The next step is to look at your income and expenses to work out how much you can afford to pay towards your debts.
Compare money in and money out
The easiest way to do this is to do a budget.
List all the money:
- coming in (income) – such as salary, pension or benefit payments
- going out (debts and expenses) – like food, rent or mortgage, buy now pay later, credit card, electricity, gas, phone, transport
Add these up, then compare money in and money out. Read our tips on how to track your spending.
Look for ways to cut costs
Do you have more money going out than coming in? Or are your expenses higher than you'd like them to be? If so, it's time to make some choices.
What are:
- needs – can't do without
- wants – could do without, at least for a while
Find some expenses that you can cut. Be realistic – don't make it impossible to stick to.
Visit our cost of living hub for practical help with Moneysmart’s tools, calculators and tips. There are suggestions and links to help you cut expenses, manage your budget and find support. For quick ways to cut back on spending, see simple ways to save money.
Work out how much you can repay
When you've made your spending cuts, subtract money going out from money coming in.
The amount left over is how much you can pay towards your debt each month. This is your 'debt money'.
Which debts and bills to pay first
Some payments need attention first because missing them can cause bigger problems.
Higher priorities include:
- rent or mortgage payments
- council rates and body corporate fees
- electricity, gas, water and phone
- car repayments if you rely on your car for work or essential travel
Use your debt amount to plan how you will pay these first. If you cannot pay a bill on time, contact the provider and ask for an extension or instalment plan. Most major providers offer financial hardship support.
Try setting calendar reminders for when your priority payments are next due.
The National Debt Helpline has a step-by-step guide to help you to prioritise your debts.
Choose a debt repayment plan that works for you
Once your priority bills are covered, you can focus on paying down your debts. Ways you could tackle this are:
Tackle your debts one by one
List your debts. Then:
- pay the minimum on all debts
- put extra money toward the debt with the highest costs (fees and interest rate)
- repeat until debts are cleared.
This method saves more on interest over time.
Debt consolidation
This is where you roll several debts (like credit cards, personal loans, buy now pay later, store cards) into one new loan. You then make one regular repayment to one lender. Before you decide to do this, understand what the pros and cons are so you can decide whether you would actually save money over the long term.
Learn more about the pros and cons of debt consolidation.
The important thing is to choose the method that you can stick with.
Build a savings habit
When you've got your debt under control, keep the momentum going. Saving regularly will help you avoid money problems in future.
To start:
- Save for an emergency fund to build a safety net for unexpected expenses.
- Open a savings account to start putting a little bit aside.
Then think about how to grow your money to achieve a goal. Such as buying a car, paying for education, or saving for a house deposit.
If you're in crisis and struggling to make ends meet, there are services to help with food, bills, housing, and emotional support. See urgent help with money.