How to manage your debt

Debt is part of everyday life and relates to any money you might owe, be it for a phone bill or a mortgage. Learning to stay up to date with your debts and your cashflow is an important part of sound financial management and can help you when times feel tough.

Here are 5 steps for managing your debts and cashflow.

1. Know the total

Take the time to map out all your debts including credit cards, loans and other credit providers like your phone, utilities companies and even public transport auto-charges. List the name of the creditor, the total debt amount, monthly payments, any interest rates that might apply and the due dates of payments. This helps you keep track of all your debts and payments.

2. Check your cashflow

Your cashflow includes income you might have from your job, investments or even a rental return. Tally all your sources of income and typical dates for receipt. This will show what times might be best for you to make debt payments so you can be sure you have money in your account. The next step is looking at any living expenses you have outside of debts. For example, healthcare, leisure, clothing, groceries. This should let you know whether you are living within your means or not.

If your debts and expenses nearly match or surpass your cashflow, it’s time to reassess what you are doing and see whether you can make some changes: either earn more or spend less.

3. Set a clear budget

Consider which expenses you might be able to change and set yourself a budget to cover this. Your budget will include your debts and cashflow, but ideally, also include a small amount set aside for emergencies (and not those of the new outfit variety). Adjusting your expenses to free up money to pay your debts might be as simple as a few less takeaway meals and fewer cab trips. Or if it’s more difficult to free up money to pay your debts because you’ve already cut your expenses to the essentials, you should still consider writing a budget noting clearly what you can afford to pay and timings for this. Breaking down your debts into smaller blocks for repayment might be part of this.

4. Prioritise your debts

Work out which debts are going to be most important to pay first. This will depend on your situation. You might prioritise repaying a debt that has a high interest rate on it to reduce the total costs at the end, such as credit card debt. Or your priority might be related to a particular service or utility, like your phone bill. Ideally, you should be making at least the minimum repayments on your debts to avoid extra charges – but where possible, repay in full or as much as you can comfortably afford to reduce interest charges on your debt. At this stage, you might also set auto-payments so you don’t forget a bill deadline.

5. Seek help

Asking for help can make a big difference. If you are managing your debts comfortably, speaking to a financial adviser might help you with planning for future goals and options for investments. If you are struggling, a financial counsellor can help you with budgeting as well as repayment plans for paying debt – you can find free help by calling the National Debt Helpline on 1800 007 007 or visiting Financial Counselling Australia. It may also be useful to speak to your creditors about your struggles and whether they can assist you. For example, the issuer of your credit card may be able to help you work out a more manageable repayment plan.

Next: How debt can help you build long-term wealth

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This information has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL & ACL 233714 (Westpac) and is current as at 24 October 2017. BT Advisers are representatives of Westpac.

The information in this article is general information only. It does not constitute any recommendation or financial product advice. It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Before acting on it, you should seek independent financial and tax advice about its appropriateness to your objectives, financial situation and needs.

This information may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. ©BT Financial Group 2017