6 ways you can manage your debt

Managing my finances

The contents provided on this page are for informational purposes only and do not constitute financial advice. Consider your personal circumstances and objectives before making any financial decisions.

Debt can be a useful tool for achieving financial goals, such as buying a home or starting a business. However, when not managed properly, debt can become difficult to manage.

Understanding these 6 simple practices won’t guarantee that you avoid unmanageable debt completely, but could help you when it comes to managing your debt.

1. Budget

Not many people like to hear the “B” word but it could be one of the most effective ways to avoid falling into unmanageable debt. Sometimes, the other hard part once a budget is created is to actually stick to it!

A budget plan should include all of your income and expenses, including rent or mortgage, utilities, food, transportation, and entertainment.

By creating a budget, you will be able to see where your money is going and make adjustments as needed, helping you to avoid overspending and manage your debt.

2. Pay off your credit card balance in full every month

Consider paying off your full balance every month like a boss! This practice might not only help you save money, but could also help improve your credit score by demonstrating responsible credit usage.

Furthermore, by paying your balance in full, you are avoiding the accumulation of debt, which can have long-term financial consequences.

Additionally, many credit cards offer rewards and benefits to cardholders who pay their balances in full and on time, so not only are you managing your finances wisely, you are also taking advantage of perks that come with using your card responsibly.

These good habits might help you with other financial decisions, like if you are on the search for a loan.

3. Set financial goals

Failing to plan is planning to fail….or so the saying goes.

Another way to avoid falling into unmanageable debt is to set financial goals for yourself. These goals can be short-term, such as saving for a vacation or a down payment on a car, or long-term, like saving for retirement or paying off your student loans.

Setting financial goals could help give you a clear direction of your finances and the motivation to save and invest. It could also help you avoid impulsive spending or develop a plan to avoid taking on more debt than you can afford.

4. Consolidate your debts

Seeing all your debts in one place is a strategy that could help you avoid getting into too much hot water with your debt. Taking out a single loan to pay off multiple outstanding debts, such as car loans, credit card balances, personal loans, student loans or medical bills is one way you might consider consolidating your debts. This could also reduce the total amount of interest you pay back. Taking out another urgent loan could be daunting, but here is why it could be beneficial in some instances.

By consolidating your debt, you can reorganise your repayments by having just ONE payment to make each month. That means having only ONE balance to focus on paying down, rather than multiple.

Additionally, the new loan may have a lower interest rate than the individual debts, which could help you to save money on interest over time.

When consolidating debt, it's important to be aware of the terms of the loan, such as the interest rate and fees, and to make sure that it will be beneficial for your financial situation. It's also important to keep in mind that consolidating your debt might not change your spending habits; it just transfers the debt from multiple sources to one, so it's important to have a plan for how to avoid accumulating debt again in the future.

5. Shop around for the best rates

When it comes to loans, don’t just settle! You could avoid falling into a debt hole, save money, and score a great deal at the same time.

New artificial intelligence (AI) technology could help you find the best loan for you by analysing your financial situation and matching you with the best options. Loan Options is one platform that could help you find the right loan for you by using this technology.

Loan Options is Australia’s first AI-powered loan comparison platform. Using data-driven proprietary technology to pre-approve you with the most competitive loans from over 60+ banks and lenders tailored to your individual circumstances. Find out more by visiting the Loan Options website.

6. Be vigilant

Before entering into a financial agreement make sure you read the fineprint to avoid predatory lending practices, which generally involves lending someone more money than they can afford to reasonably repay.

Here are some key signs to pay attention to and look out for!

High-interest rates: Predatory lenders often charge higher interest rates, which could make it difficult for borrowers to repay their loans.
Hidden fees: Some predatory lenders may charge hidden fees, such as upfront or monthly fees, application fees, or prepayment penalties.
Unclear terms: Predatory lenders may use complex language or not clearly explain the terms of the loan, which can make it difficult for borrowers to understand the costs and risks associated with the loan.
Pressure to borrow: Predatory lenders may use high-pressure tactics to convince borrowers to take out loans, such as calling multiple times a day or making unsolicited offers.

See this comparison of Beforepay with payday loans for an example of how some of these features might impact the total fees and charges that you pay.

By understanding these practices, you could make informed decisions about your financial future and steer clear of predators out there!

There are also avenues of support if you are experiencing financial difficulties. You can contact financial counselling services or debt management organisations like the National Debt Helpline and other services listed here to help with a plan. A financial advisor can also help get you back on track.

Remember, it's important to be realistic about your financial situation and your ability to repay any debt you take on. With a little planning and discipline, you could start managing your debt better and achieving your financial goals.

This article was provided by Loan Options, Australia's first AI-powered loan comparison platform.

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