How to Eliminate Bad Debt: A Comprehensive Guide
Whether it's tackling overdue bills or preparing for holiday expenses, let's explore effective strategies to eliminate bad debt and start the new year on a stronger financial footing.
Prioritise necessary expenses like groceries and utilities. Consider using budgeting apps to track and reduce spending.
Review Regular Expenses
Regularly assess your subscriptions and recurring charges. Could you be saving on insurance, and utility services?
Understanding Your Debt
Awareness is key to overcoming debt. Spend time to List Your Debts: Write down every debt, including credit cards and any buy-now-pay-later plans. Note the balance and interest rates to see where you stand.
Prioritise High-Interest Debt
Focus on paying down debts with the highest interest rates to reduce overall costs. When the first debt is cleared then snowball the repayment onto the next debt.
Effective Credit Card Management
Reducing credit card debt is pivotal - Optimize Payments:
Aim to pay more than the minimum to escape the cycle of endless interest.
Consider Credit Card Balance Transfers
Many lenders offer credit card balance transfers with a range of rates and offer periods.
The credit card balance is transferred from your existing credit card to a new card at a lower (or even zero) interest rate for a set period to provide ‘interest breathing space’ to help you pay off your debt quicker.
To ensure a credit card balance transfer works for YOU, it is essential to know the terms and conditions of the card and be disciplined with repayments.
What should you know?
MOST importantly, cut up your old card(s) so you are not tempted to rack up even more debt while paying down the original debt!
Most lenders will allow you to close your credit card accounts while you continue making repayments to bring your balance down.
You can actually close them with the bank and just continue bringing the balance down.
Poor financial habits and/or multiple credit enquiries may negatively impact your credit score – even if the enquiry didn’t proceed to an application.
This could influence your ability to be approved for a home loan in the future!
Pay Your Debts At A Lower Rate Through Debt Consolidation
You may consider consolidating all your debts (credit card balances, personal loans, car loans etc) into one loan with a much lower interest rate to potentially reduce your monthly repayments.
If you are a homeowner, your home loan usually has the lowest interest rate. Choosing the most suitable option for you should involve creating a budget, being honest about your self-control when it comes to spending and repayments, and sourcing the most suitable option to clear your debts.
Give us a call today and let us help you set good finance and money management techniques to get you through the festive season and into the future.
