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Worried about debt? These strategies may help


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Although money might be a driving force in our lives, it can also be the source of many woes, which can affect our wellbeing! That’s why it is critical for many of us to be in command of your financial affairs and debt before they spiral out of control.

However, as the cost of living rises, Australians are compensating by taking out personal loans and using credit cards.

While long-term debt associated with home loans can result in a more valuable asset, short-term debt usually comes with higher interest rates. It can therefore result in a debt trap, which can cause stress and other health problems.

For those reasons, it’s good to be mindful of all your debts and manage them by taking small, but useful steps to reduce or repay them.

Here are a few strategies to pay down debt. Remember, what works for one person, may not work for another and you can always get advice from a free financial counsellor about your situation (numbers at the bottom of this article).

Strategies to reduce debt

The popular debt snowball method sees small debts targeted first. Like a snowball growing bigger and bigger, you work up to the larger debts. Someone following this strategy would list all of their debt balances (from highest to lowest) and pay the minimum dues on each one, except the last entry on your list, which should be the smallest debt. Next, they would allocate as much money as possible to pay the smallest debt and, once it’s paid off, they would start working their way up the ladder.

Alternatively, the debt avalanche strategy focuses on the higher interest rates rather than the amount of each debt. One opting for this approach would categorise debts according to the interest rates: highest to lowest. Then, they would pay the minimum dues on all of them, whilst directing any extra money towards repaying the one at the top of the list. As soon as that is paid off, they’d move down the ladder to the next highest interest debt.

Another strategy targeted at cutting the stress of juggling multiple loans is to consolidate debts into one monthly payment. This can also reduce the interest payable. One way to achieve this is to take out a personal loan from a bank or credit union; however, it’s always important to shop around for the lender offering the lowest interest rate. Remember that consolidating debts will not solve the root issues! Hence, whilst one easy-to-manage loan may certainly lower the monthly repayments, this strategy requires diligence in order to not accumulate more debt.

Sometimes people struggling with multiple credit cards consider a balance transfer card. While personal loans typically combine several larger sums, balance transfers roll high-interest credit cards to a new credit card that usually offers a promotional period of zero interest for a set period of time. If credit card debt is paid off during the promotional period, it may not attract interest; but if it’s not paid off, the card holder could end up paying a higher interest rate than the original debt!

My rule of thumb is to live within my means and not spend more money than I make. Nevertheless, when you find yourself in strife, I always find it’s good to save money and stress by taking control of your debt before it gets out of hand.

Help is available

Most importantly, if you are under any financial stress, do not hesitate to reach out to others. Besides family and friends, there are several institutions offering free and confidential services, including:

  • Mob Strong Debt Helpline(1800 808 488) – a free legal advice service about money matters for First Nations Peoples.
  • National Debt Helpline (1800 007 007) providing free and confidential financial services that can assess your situation and offer advice.

This article does not constitute personal financial advice.

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