The trouble with that is that all the interest you’re paying stops you getting ahead financially. It’s hard to save for a house, or even do the things you dream of, if you’re paying hundreds of dollars a year in personal debt interest costs.
You can break the cycle. Others have done it. Little by little they have worked off their debt and no longer waste money on interest payments.
If you want to kill your debt faster, do as many of these steps as you can:
1. Stop spending
It’s as simple as that. If you want to pay off your debt you need to both stop spending and start making repayments. If you need some help to get started, here are some ways to save money.
2. Cut ‘em up – credit cards
If you struggle with credit card debt, then one sure-fire way to make sure that you stop building up credit card debt is to cut those cards up (or at least take them out of your wallet on a day to day basis). Then when your spending money is gone you can’t be tempted to blow your budget. Of course if you use your credit card responsibly and don’t carry an ongoing a debt, takig drastic measures isn’t called for.
3. Plan and budget
Get a spending plan (AKA budget). If you know you’re only allowed to spend $150 on groceries for a week, for example, and you use a spending tracker, you can stay within your limits and have money left over to pay down debt. Give our online budget calculator a try.
4. Decide what to pay off first
The most logical thing to do is pay off the highest interest debts first, as they’re growing the fastest. However it can make psychological sense to pay the smallest debts first because of the mental boost you get by wiping them.
5. Consider debt consolidation
Debt consolidation isn’t a magic wand. But some people find it helpful to sweep all of their debt into one loan. This is called debt consolidation. If you’re lucky, you can find a lower interest rate. But beware of setup fees. They can make debt consolidation expensive.
6. Trick yourself
Every dollar counts. So find sneaky ways to squeeze extra dollars to pay down debt out of your daily living. That could be by rounding up all purchases to the nearest dollar and paying that small change down on your debt.
7. Retrain your brain
I joke that we need brain transplants to get out of debt. You can retrain your brain to think differently. Just as you learned to spend money, you can learn to not spend. Read books or websites and try out tips from those writers.
8. Bank your pay rise
Beware of “lifestyle creep”. Most humans simply spend more when they get a pay rise. Why not plan to spend 20 per cent of your raise and use the remaining 80 per cent to pay down debt. And if you get a bonus, do the same.
9. Get a second job
Could you get a second job? It might be something as simple as babysitting, which could pay $30 or more in an evening. Do that once or twice a week and your debts will start reducing more dramatically. Or could you rent a room in your house on Airbnb?
10. Treat yourself
Make sure you build in treats to your debt reduction plan. If you make an extra $60 a week babysitting, window cleaning or whatever, perhaps allow yourself a cake and a coffee, or another small treat that makes you happy. Building in bigger treats for when you reach certain milestones.
11. Move houses or downsize
If your rent is too expensive then think about downsizing. Move somewhere cheaper or rent the spare bedroom to a flatmate. This is not something we often think about, but Aussies often chew off far more house than they can really afford.
Finally, the good news is that you can do it. Anyone can! You may want the money, right now, but from time to time we need to be saved from ourselves.