Most people have experienced a time in their lives where mounting debt gets them down and it becomes very hard to see the light at the end of the tunnel. Whether you have an existing debt agreement or any type of debt, the quickest way to chip away at the balance, and eventually break the debt cycle, is to commit to regular repayments. This article covers everything you need to know about making debt repayments, so you can take control of your finances once and for all!

Why Keep Up with Repayments?

The obvious reason why you should keep up with your repayments is because the sooner you pay back the money you owe, the sooner you will be out of debt and the less interest you will pay. As you already know, the more money you owe, the more interest you will pay on your loan. When you miss a repayment, the loan balance will start to grow as a result of late fees and extra interest! What a nightmare!

Figuring Out How Much Debt You Owe 

The first step to getting on top of your debt repayments, is to get a clear idea of who you owe money to, and how much you owe. If you aren’t sure, the first place to start is by checking your email account and having a good look at your bank statement. List all off your outstanding debts and detail:

• Who is the debt owed to?
• How much money you owe (the debt amount)?
• What is the minimum repayment amount expected by the lender?

Doing this in a spreadsheet is usually the easiest way to keep track of and add up all of your debts. Be sure to account for every dollar you owe. This list could include credit cards, store cards, personal loans, payday loans, cash advances, buy-now-pay-later loans (such as AfterPay or Zip), outstanding bills and accounts (such as electricity, gas, water, internet, phone bills etc.), fines, legal fees, medical fees, court-ordered amounts, tax debts, Centrelink/Child Support debts, outstanding rent, and money owed to friends/relatives. Whilst it might be challenging and even triggering for some people to tally up their total debt sum, this really is the first step in taking control of a bad financial situation.  

If you need to check with a lender how much you owe, we strongly recommend getting everything in writing. When you do email your lender/s, make sure to refer to the debt as an “alleged debt” rather than calling it a “debt” to avoid acknowledgement. This is especially important if you are looking to dispute a debt! Be sure to check out our article about how to dispute a debt with the step-by-step process to follow which can help ensure you don’t make any potentially costly mistakes! 

Figuring Out How Much You Can Pay

Next, you will need to crunch your budget! Again, in an excel spreadsheet, list your income and expenses, and calculate your disposable income. At this point, categorise your expenses into “needs” and “wants” to identify areas where you can cut out or cut down on unnecessary expenses. This being said, it is important to leave a small financial buffer – you never know when you’re going to need it. If at this point, it is not physically possible to for you repay your debts, you may be legally classified as insolvent. If you are insolvent – or if it is going to take you longer than 3 years to repay your debt - it’s best to seek help from a professional debt consultancy such as Credit Counsellors who can assess your financial situation to help you find a suitable debt solution. 

Which Debts Should I Pay Off First?

If you do have sufficient disposable income, which debt should you start with? If, for example, you have multiple credit card debts, you should aim to make the minimum repayments on all cards. With any extra money you have, use the following strategies:

• Stop Growing Your Debt: Another great tip is to stop using your credit cards, cut them up so you can’t use them and deactivate your online credit card auto-fill details (where your computer remembers your credit card details and automatically fills them into online forms for you) or PayPal. If you must, keep one card with a low limit (even better if you can get an interest free card and only use it in serious emergencies.
• Snowball Method: Pay off the smallest debt first. This works because it will give you an awesome sense of achievement once you pay off your first debt, and once you free up that amount, it will give you the motivation to keep going and smash out the next smallest debt. Keep going until you’ve paid everything off!
• Avalanche Method: Pay off the debt with the highest interest rate first. As higher interest debt will accrue the fastest, throwing all of your excess cash at this debt will help you rid yourself of this debt the fastest. This method will save you the most interest, but it takes the longest to get results. If you’re patient, 

Why make extra repayments?

If you are fortunate enough to be able to afford to make extra payments on any loan, the debt will decrease much faster. Check out this Extra Repayment Savings Calculator which will help to give you an idea of just how much time and money you could save by paying down your debts faster.

If you’re finding it hard to pay off your credit card or other debts, keep up with bills and expenses, and you need further support then get in contact with us to speak to one of our Debt Advisors. We can speak to you about all of the options available and step you through the process of creating a plan and getting yourself out of debt, getting on top of the interest and living life without financial stress. Place an enquiry for one of our team to call you back during business hours or call 1300 003 328 from 8:30 am to 5:30 pm, Monday to Friday.