What to Do If You're Up to Your Neck in Debt

It sometimes appears as if Australians are a nation of debtors. It's not difficult for individuals to rack up a considerable amount of debt during everyday life, as there are lines of credit, low-interest credit cards and zero percent balance transfers everywhere. With bank rates at their lowest for decades, there is certainly a temptation to buy everything on credit and think about the consequences later. This can lead to difficulties in later life, though, so when it comes to your financial planning and your debt load, what is the best way forward?

Do This First

Looking at this from the bigger picture perspective, it's crucial to focus on lifestyle changes first. When you can change your behaviour pattern you're less likely to run into difficulties in the future, before you even think about focusing on specific tactics. Understand exactly where you get your money from and where it goes to and itemise all of your costs on a daily, weekly and monthly basis to start off with. All you need is a simple spreadsheet to do this properly, although there are a number of different software packages to help you.

Specific Methods to Try 

It's likely that you have a number of different debts with varying balances and you may wonder how you should deal with those. You may have a variety of interest rates and payment due dates and it can all get very confusing.

To start off with, try and consolidate all of your due dates into one, so that you don't risk missing a payment again and incurring additional charges and to make it easier to manage everything.

Begin by paying off the smallest debts first, so that you can get some traction. It's good to completely cross one debt off a long list and it can make you feel better about yourself.

Next, have a look at the larger debts and focus on the one with the highest interest rate. You need to pay this down as quickly as possible, before moving on to the next one in line and so on.

Should You Consolidate?

Some people think that if they consolidate all their debts, then they will be much better off. Certainly, having to deal with fewer individual accounts can be beneficial, but while you may get a lower monthly rate, you may have to settle for a much longer loan term. This will invariably mean that you pay more in the long run, so think about this carefully.

Don't Fall Back

Finally, as difficult as it may be to do so, get a pair of scissors and cut the store, debit or credit cards that you paid off in half. This will help you avoid the temptation to use them and start getting back into trouble again.

Taking the Next Step

Once you've got your credit issues in check, have a word with a qualified financial planner to start being more proactive about your economic future.