If you’re in trouble with debt, there are a few things you can do to get out of the red.
Itemise your debts
If they are spiralling out of control, the first step should be to cut back your expenses. Compile a list of all your debts and expenses and see how they compare with your income, including your salary and any income from savings accounts or investments. Look at your outstanding balance, the interest rate on your cards and your minimum monthly repayments to work out your total debt.
You should then reassess your budget and work out what changes you need to make. It might be the case that you need to find better deals for your utilities or higher interest rates for your savings or, unfortunately, cut back on splurge items.
How do you work out the order of importance in tackling your debts? List each in order of interest rate, from highest to lowest, and then by balance size if two have the same rate.
Create a cash buffer
Have a small portion of your income transferred to a savings account every payday. It’s important to have a stash of cash on hand to be able to pay at least your minimum repayments. A high-interest savings account would be perfect.
If you’re not doing so already, you should definitely arrange for your credit card payments to be automatically deducted from your everyday account.
Pop all your due dates into your calendar (tactile or electronic) to remind you to check that you’ve got enough in your account to make the repayment. If not, you’ll have to organise for it to be made from the emergency fund.
Switch to a low-rate credit card
It is much friendlier to your pocket than a standard rate version. Look for a card that has low fees as well as a low rate. You can easily compare $0 annual fee credit cards online using the Money magazine website.
These cards might be short on bells and whistles but if your income isn’t stable and you’re relying on the card for cash flow the low interest rate will be better for you than the rate on a standard card. You’re more likely to get a low rate outside the big four banks.
In February Canstar data showed that customer-owned banks, which include building societies, credit unions and mutuals, were on average 5.7% lower than the big four.
If you’ve got debt on multiple cards or are looking for a way to pay down your debt faster, consider making a balance transfer to a card with a 0% purchase rate.
These cards are often fixed for a number of months so that you have more time to reduce your debts. When comparing balance transfer offers, consider what the rate reverts to once the promotion period has ended, as well as the annual fee.
Don’t raise your limit
While it might be tempting to take up an offer to increase your credit limit, you may live to regret it if you can’t meet your repayments.
Before you apply, consider if you really need it.