Did you stretch your resources over Christmas and find yourself still struggling to recover? You're not alone.
According to a 2020 survey by Finder, more than 1 in 3 Australians will have entered the New Year with Christmas debt, and most of this was racked up on credit cards. For some, this debt won't be repaid by the time next Christmas rolls around, continuing the vicious cycle.
If you're already struggling to keep on top of debt repayments and other financial commitments, this extra burden could make life more difficult. That's why it can be helpful to take stock of your situation and find ways to get out of debt faster.
Here are 5 financial habits that could help you get back on track in 2020.
1. Make a New Budget
Budgeting is the first step to turning around your finances. Taking a little time to calculate your income and outgoings can be well worth it, especially if it helps you identify unnecessary expenses that are draining your resources.
The more detailed your budget, the more useful it will be as a guide to living within your means. It should include all sources of income and all known monthly expenses such as groceries, utilities, transport, and loan and credit card repayments. Anything left over can be set aside for savings or paying off your debt.
Budgets are a handy guide, but they're not set in stone. If you're already following a budget, it's recommended that you recalculate it every so often to check that it reflects your current situation, especially if your circumstances change.
2. Cancel Unused Subscriptions
Today, there are all sorts of subscription services that make life more convenient, but they're also great at chipping away at your budget every month. If you're looking for ways to cut your living costs, cancelling subscriptions you don't use or don't need is the best place to start – and that doesn't always mean missing out.
Can't afford that gym membership? No problem, running in the park is free, and it's cheaper to visit the pool – or swim in the ocean.
Can't afford all those streaming services? Share a subscription with friends or family and split the cost.
3. Check Your Credit Score
When was the last time you reviewed your credit report? If the answer is never, or a long time ago, this quick (and free) activity could have a big impact on your finances.
Your credit report is what lenders see when you apply for a personal loan, credit card, or other line of credit.
If it doesn't look good – if you've missed payments or defaulted on a loan – they might refuse to give you credit or charge a high rate of interest.
If it looks positive – you show that you can manage debt and make repayments on time – you're more likely to be treated favourably.
Mistakes happen with credit reporting, and if your credit report contains inaccurate information, this could harm your loan applications even if you don't know about it. Reviewing your credit report gives you the chance to report and correct these errors, as well as giving you a clear picture of what banks see.
4. Prioritise Your Debt
Are you paying off multiple debts? If so, a little organising could make a big difference to the amount you pay overall. While it's important that you meet your minimum repayments every month, paying a little more towards certain debts can help to clear the table faster (if you can afford it).
Aiming to pay off the debt with the highest interest rate first will mean you spend less on interest payments in the long run. Alternatively, you might prefer to pay off smaller debts first to simplify your finances faster.
5. Consolidate Debt
Another option if you have multiple debts is to roll them into a single debt consolidation loan. This new loan can absorb your old personal loans, credit cards, and some other types of debt so you'll only have one payment to make each month, to a single lender, with a single interest rate.
Debt consolidation isn't the right choice for everyone, but if you're struggling to keep on top of your existing debt and want more certainty, it can help simplify your finances and could be the first step towards financial freedom.
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