Five tips for paying off debt and taking charge of your money
After an expensive holiday period, we often want to get off to a good start with our finances but it is hard to know where to start.
Small changes to your everyday finances, such as reducing the limit on your credit card, setting up dedicated bank accounts for different expenses and cancelling unused subscriptions, can all go a long way in getting you off on the right foot.
Here are five tips to pay off your debt and save:
1. Get disciplined by setting up four bank accounts
Set up low-fee accounts for your bills, then savings, a splurge account for holidays and fun, and finally an everyday account.
Figure out how much should be allocated to each, then automate regular transfers from your pay cycle. If you get a pay rise, update the automatic transfer limits to have the increase spread across your accounts.
2. Get proactive about reducing expenses or increasing your income
If you are struggling to pay bills at the end of each month, or not meeting your savings goals, you can reduce your spending by cancelling memberships you are not using (such as the gym, local clubs, etc.), finding better deals across your bills or switching loans to lower interest rates.
You can also increase your income by asking for a pay rise, taking advantage of the gig economy and moonlighting as an Uber driver, or offering your services on Airtasker.
These are just a few ideas to get you proactive about managing your finances better.
3. Reduce the limit on your credit cards
For some of us, the danger of having a $10,000 limit on our credit card means that we automatically count that $10,000 as part of our everyday spending money.
Take control by reducing the limit on your card to an amount you can pay off confidently every month.
4. Hide your savings
If you are able to easily access your savings, it is difficult to have the willpower not to touch them.
Work out what you need to do to protect your finances so you aren't constantly drawing down on your savings with your card or through internet banking. Think about choosing a savings account that penalises you for withdrawing money - for instance, some accounts do not pay interest in any month when you make a withdrawal.
5. Make payments towards high-interest debt first
Prioritise clearing high-interest debts quickly - these are usually credit card debts.
The interest on some debts can be reduced temporarily if you, for instance, transfer your credit card debt to a 12-month zero-interest card or fix your mortgage interest rate. These actions will enable you to prioritise paying down other debts first.