Top strategies for tackling debt


Dealing with debt is something most adult Australians will have to face at some point in their lives. In 2022, CEIC reported that Australian household debt had reached almost $3 billion (over US$1.9billion), with average household debt coming in at just over $300,000.

Keeping debt under control can be achieved with little stress for individuals who take their financial health seriously and stick to sensible debt management plans. In many cases, good debt will often result in a person being in a stronger financial position than before taking on the debt.

However, if you need help to keep on top of your debt commitments or have run into financial hardship, digging yourself out of debt can seem impossible. That is why we’ve put together this guide on managing debt and getting yourself back into a secure financial position as quickly as possible.

Let’s get to the following commonly asked questions:

  • How does debt accumulate?
  • How should I handle credit card debt?
  • Why should I track my monthly outgoings?
  • What is the debt snowball method?
  • What is the debt avalanche method?

Q1. How does debt accumulate?

Debt will usually accumulate in one of two ways.   

The first is due to a person’s frivolous and uncontrolled spending habits, often through using credit card debt and ‘buy now, pay later’ (BNPL) payment models. It could also result from student loans, consumer credit, equity in your home, mortgage loans, personal loan, and so on.

The total amount owed each month quickly exceeds what a person can comfortably afford, failing to stick to repayment plans and debt accumulation.

Sometimes, however, personal circumstances can change. Job loss, health issues, and other unexpected events can make previously comfortable debt settlements trickier to navigate and can come about without much warning. In these situations, a person can look to debt management programs to help consolidate debt until they are back on an even footing.

Whichever way debt occurs, it is vital to develop a payment strategy before things spiral out of control.

Q2. How should I handle credit card debt?

Credit cards are a great source of personal finance, though, as with any form of debt, it needs to be handled sensibly. 

As a base expectation, you should plan to pay the minimum monthly payment by your pre-arranged deadlines. If you want to pay off debt faster and clear your credit card balance, you will need to find more disposable income to facilitate these monthly expenses.

If you have bad credit, it is often prudent to try and stick to the minimum payments for longer. Consistent repayments will often reflect well on your credit score and can go some way to achieving credit repair. A stronger credit score will enable you to arrange more favourable loans with lower interest rates in the future.

If you want a credit card to help with some of your monthly purchases or improve your credit score, check out our credit card comparison tool to find the best deal for you and your circumstances.

Q3. Why should I track my monthly outgoings?

One way to save money is to keep track of your monthly expenditure. This is also one of the best strategies to help pay off your debt faster.

Once you have a monthly list of the amount you spend in a given month and what this money is spent on, you can consciously decide to adjust your outgoings and financial priorities. There may be some luxuries you can go without for a short time. You might be able to slim down your food shopping bill. 

This extra money saved can then go toward getting out of debt if you switch your focus to paying more on your repayments per month. This strategy might require a period of sacrifice in terms of luxuries, but the long-term gains can be substantial.

Q4. What is the debt snowball method?

The debt snowball method is a repayment strategy to help you quickly repay your debt. 

It involves listing your debt commitments from smallest to largest, regardless of interest rates. Then, when the time comes to pay your instalments, you commit to paying the minimum balance on all debts except for your smallest commitment.

With your smallest debt, you will use any disposable money to pay it off as quickly as possible. Once it has gone, you won’t have to think about it again, and the sum used to pay off the smallest debt can be snowballed into the second smallest debt.

The strategy is psychologically appealing because it is more likely to reward dedicated debt consolidation and repayment with small, regular successes whenever a debt is settled. These wins will often help keep an individual motivated to pay off the debt as quickly as possible.

Q5. What is the debt avalanche method?

This debt strategy works conversely to the snowball method, focusing on those more significant debt commitments with the highest interest rates first. The goal, in this instance, is to pay off the largest debts first so you can eliminate the high-interest payments, paying less in total.

While certain aspects of the strategy are shared with the snowball method, it can be disheartening if any extra money you have goes into paying off a debt you will not settle in the immediate future. Because of this, it is perhaps not the best strategy for those on lower incomes.

In summary

When tackling debt, it’s crucial to establish a debt repayment strategy that helps you focus on paying off your loans without breaking your monthly budget. 

Consider consolidating your debt, utilise budgeting tools, and try to keep some money in an emergency fund or a savings account so you can access it should you need to pay any debt fast. If you do all of this, you’ll see significant improvements to your financial situation and be out of debt before you know it.

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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.

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