How to start managing your debt

Tips to hep you take control of your finances.

One of the main financial goals for Australian families is reducing their debt, which is no surprise given Australia’s household debt ranked second in the world behind Switzerland. 

If you’re ready to take control of your debt, we have put together some simple steps to get you started. 

Know the details of all your debts and make a list

It can be a little confronting to list out all your debts, but it’s an important step to get the full picture of what you owe and what it’s costing you. 

Contact all your lenders and find out the following:

  • Your current balance
  • Payment due date
  • Minimum payment 
  • Interest rate.

Make sure you contact every finance company you have an account with, including “buy now, pay later” providers. Even though these aren’t traditional loans, it still counts as debt and there’s a strict payment plan you need to stick to otherwise you could be hit with late payment fees. 

Create a budget

It’s important to also know what you earn and spend so you can find any funds for additional repayments. Check out our article on the best budgeting apps to get started. 

Pay your debts on time 

If you pay your debts on time you’ll avoid extra fees and charges that may be incurred when you make a late payment. 

Make use of the list you made earlier to schedule reminders in your calendar of when your repayments are due. If possible, set up automatic payments for every debt so you don’t have to worry about being late. 


Get help if you can’t meet your repayments 

If you are having trouble making repayments reach out to your lender and talk to them about your options. The sooner you do this the quicker you can get help to take control of the situation. 

You can access resources such as the National Debt Helpline, which is a free service to all Australians struggling to pay their debt. 

You should not have to pay for these services so never agree to pay fees for financial counselling, to get advice about debt or fixing your credit file. 

Choose a debt reduction strategy 

If you can afford to make extra repayments you will need to consider what strategy you will apply to paying off your debts. 

One of the most common methods is making additional repayments to the debts that have the highest interest rates first. 

Using this method can help reduce the overall cost of your debt, as you are reducing your interest bill. 

The downside that can happen is if the debt with the highest rate also has the largest balance it can feel like it takes longer to make progress and discourage you from sticking to the strategy. 

The other most popular method is the “snowball” method, which gets you to start by paying your smallest debts first. 

This helps get some quick wins on the board and starts to give you that sense of accomplishment as you knock down each debt quickly. 

The drawback is that you may be paying more interest overall if the focus isn’t on the high interest debts. 

Stay motivated and remember the bigger picture

As with any lofty goal it is all about progress, not perfection. 

You may not get it right every month and unexpected bills may pop up, which delay your debt reduction efforts. It’s important you don’t get derailed by setbacks and focus on picking back up the regular payments as soon as you can. 

Make sure you’re not creating more debt as you try to pay off your existing debt, continuing to use your credit cards for frivolous spending or taking on new loans which will make your debt problem worse, not better. 

The journey to being free from debt can be a long one so it’s important to strike balance to ensure that you enjoy life along the way. Make sure what you choose to splurge your money on won’t set you back too far and avoid going into debt for it.

Finally, remember why you’re paying off your debt. Was it for a more secure financial future? Do you need more money for the kids’ schooling? A more comfortable retirement?

Keep the bigger picture in mind and be kind to yourself along the way. 

Our team at RACQ is ready to help If you’re experiencing hardship, please don’t hesitate to call us on 13 1905 to see how we can help. We look at every individual member’s needs to determine how we can best help them, so don’t be afraid to give our team a call and ask. 

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.