Do you struggle to get your debt under control? With the average credit card debt at $3,258 per card and the average mortgage size at $609,789, it's no wonder Australians struggle with debt repayment.
Which debt should you focus on paying first? Then, follow our tips for paying debt faster.
Let's get to the following commonly asked questions:
In Australia, the national average debt for most households is $46,000. Millennials have the highest amount of debt at around $56,800.
Building wealth, retirement planning, and saving money might seem impossible when you have multiple debts. Moreover, the cost of living might plunge people on low incomes into further financial hardship.
However, it isn't the end of the world. Fortunately, several debt strategies help you pay off debt faster.
Note: It's vital to emergency savings in case you struggle to repay debts in future.
If you can afford to pay more than the minimum monthly amount, you will pay off debts fast and reduce money worries. Debt repayment plans consider which types of debt you should pay first.
Important: Set up a direct payment from your bank account to ensure you always pay on time and avoid high-interest penalties.
Tackling your smallest debt first is the easiest way to begin a debt repayment strategy. The debt snowball method means you must make the minimum payments for all your debts and pay any extra cash to your smallest loan.
For instance, let's say you have an auto loan of $30,000, a personal loan of $5,000, and a credit card debt of $1,000. You would pay off credit card debt first.
Your home mortgage is your most considerable debt, and you should continue to pay minimums toward your monthly payments.
The debt avalanche method requires putting extra money towards the highest-interest debt.
Look at the following example:
You would pay off your credit first, then focus on your student loan, car loan, and mortgage.
Avalanche methods are an effective debt reduction strategy. With the lower interest rate debts left, you should pay less money overall.
If your debts don't overwhelm you, but you wish to apply for a home loan, you may want to boost your credit score. As mortgage lenders consider credit reports, you should pay the outstanding balance on debts that affect your credit score.
For instance, ensure your credit utilisation is under 30%, and you don't miss any payments.
Everyone's personal finance is different. If these repayment plans don't suit your needs, consider making your own plan. Prioritise your payments as you see fit or take a balanced approach to the three strategies we've mentioned.
For instance, you might not want to focus on debts that get you tax deductions for the interest you pay, such as a home equity loan for house improvements.
However, if you choose to structure your debt payoffs, make sure you pay the minimum on all loans and seek financial advice.
The best way to pay down debt at once is to consolidate debt. A debt consolidation loan repays all your existing debt and restructures your debt into one monthly, streamlined repayment to make things more straightforward.
They may also offer debt relief if you negotiate a lower interest rate.
Important: Use a debt consolidation calculator to calculate whether you will save money with a debt consolidation loan.
It's not always clear which debt you should repay first. Different debt management plans suggest paying the smallest loan or the highest-interest debt first. However, the way you pay off debt depends on your situation.
Real estate loans are enormous sums and tend to have lower rates. Unless you want to pay off your mortgage quickly, it makes financial sense to leave that debt until last. Use loan calculators to determine which loan you should repay first.
With so many debt management strategies, it's hard to know which solution is the smartest choice.
Avoid high-interest debts, like payday loans, to help you meet repayments. Generally speaking, taking on more debt when you're struggling to repay your current loans is a bad idea.
If you're facing financial hardship, consider speaking to a financial professional about managing debt and debt settlement.
Consider refinancing your mortgage or other loans to pay off your debt quickly. Use a mortgage calculator to determine whether better loan rates will help your financial situation.
Moreover, a credit card balance transfer to a rewards or low-interest credit card may help.
There are many strategies for paying your debt quickly. However, the best way to repay loans depends on your priorities.
Whether you get rid of the smallest debt first or tackle high-interest payments, the most important thing is to make your minimum repayments and avoid incurring further debt. Soon, you'll be financially independent and can put all your extra cash into a savings account.
If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!
Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.