Owing money or falling behind on repayments can be stressful. The good news is there are steps you can take to get out of debt — and stay out of debt.
If you're having trouble making repayments, there is help available. Contact your lender and talk to them about applying for financial hardship.
If you're in crisis and struggling to make ends meet, see urgent help with money.
1. Know what you owe
The first step to tackle your debts is to get a clear picture of what you owe.
Make a list of all your debts, showing:
- how much each debt is
- the minimum monthly repayment (if any)
Include credit cards, loan repayments, unpaid bills, fines and any other money you owe.
Then add up all the debts to see how much you owe in total. It may feel scary at first, but remind yourself that you're taking charge of your money. And that's a good thing.
2. Don't rush into anything
If what you owe feels like a lot, you may be tempted by a quick-fix solution, such as:
- taking out a payday loan
- increasing your credit card limit or doing a balance transfer
- getting a consolidated loan
- signing up to a debt agreement
Before you jump into anything, talk to a free, confidential financial counsellor. They can explain your options and help you make a plan.
3. Work out what you can afford to pay
The next step is to work out how much you can afford to pay towards your debt.
Compare money in and money out
The easiest way to do this is to do a budget.
List all the money you have coming in each month (income), such as salary or benefits. Then list all the money going out (debts and expenses), for things like food, rent or mortgage, credit cards, electricity, phone and transport.
Tally these up, then compare money in and money out.
Make savings or cuts
If you have more money going out than coming in — or if your expenses are higher than you'd like them to be — it's time to make some choices. Think about what are:
- 'needs' (can't do without)
- 'wants' (could do without, at least for a while)
Identify some expenses that you can cut. Be realistic — don't make it impossible to stick to.
Work out your 'debt money'
When you've made the cuts, subtract money going out from money coming in. The amount left over is how much you can pay towards your debt each month. This is your 'debt money'.
4. Start small and snowball your payments
Now you've got your 'debt money' sorted, you're ready to get rolling on your repayments.
The quickest — and most motivating — way to get out of debt is the snowball method. You start small, and pay off your debts one by one. This is great for paying off credit card or personal loan debt.
Here's how it works:
- Prioritise your debts — list them in order from smallest to largest.
- Pay the minimum — using your 'debt money', pay the minimum amount due on all debts each month.
- Pay off the smallest debt first — use the rest of your debt money to pay off as much more as you can on the smallest debt each month, until you clear it.
- Celebrate and repeat — when you've paid off that debt, reward yourself by doing something you enjoy. This will inspire you to keep going. Then move on to paying off the next smallest debt, and so on.
If you're finding it hard to pay a big bill, contact your service provider. Ask if you can get an extension or pay in instalments.
5. Start a savings habit
When you've got your debt under control, keep the momentum going. Set yourself a goal and start saving. Making this a habit will help you avoid money problems in future.
- Save for an emergency fund to build a safety net for unexpected expenses.
- Open a savings account to start putting a little bit aside.
Then think about how to grow your money to achieve a goal, such as buying a car, paying for education or saving for a house deposit.