Managing debt is all about sorting your debt, understanding your debt and making some priorities to pay off those debts.
The bets way to start is by sitting down with a financial planner and doing a stock take of your debt. Take away the emotion, lay it all out and have a full understanding of what it is you are paying.
Debt can be divided into good debt, bad debt and rubbish debt.
Good debt is usually an investment debt – something growing in value to make your retirement more comfortable.
Bad debt – this includes your mortgage for your home because you pay 100% for it and there is nothing back from the ATO by way of tax minimisation or credit.
Rubbish debt – think personal loans, credit cards and payday loans.
“Plan your attack with good financial advice – understand what debt fits in to what category and make a plan to get rid of it.“
Start planning with a small debt – maybe you have a credit card or a small personal loan. Make a plan to pay that off first and create some momentum to inspire you to get rid of the next one. Like rubbish, when you put it in the bin, it’s gone. It’s a good feeling to clear a debt.
Always negotiate with providers as well, to understand of you can change what you pay and when. Most organisations want you to repay the debt and if it takes a bit longer but they see the payments being made, they can be a bit more lenient when cash flow is a challenge.
It is not always advisable to consolidate debt and think about credit applications and the effect they can have on your ability to gain credit down the track. Know that each application is stored on a file and if one or two providers have declined you a credit application, you may be seen as high risk.
A financial planner can help you to sort the debt in to the right pile and work with you to create a pathway to clear the debt.
We strongly recommend you seek out financial advice from a trusted and qualified financial professional who will be able to devise a debt management strategy tailored to your unique needs so that you can feel confident about easing your debt burden and freeing up cash flow to enjoy your life a little more.