How to get rid of your consumer debt - fast!

We live in an instant-gratification, consumer driven culture. The access that people have to consumer debt is exponentially increasing, and we are all guilty of buying something when we’ve had a bad day just for that hit of dopamine.

Unfortunately, with consumer debt being on the rise, it has led to an increase in stress on Australian households. The appearance of services such as Afterpay, ZipPay and OpenPay have meant that more people than ever before have access to consumer debt.

I’ve got a lot of consumer debt, how do I manage it? 

The buy now, pay later programs like AfterPay and Credit Cards are good systems to use if you just need to make ends meet, and can be very useful if used correctly. However, if you know that you have an ongoing problem with these products then the best thing to do is just stop using them. Pay out your remaining AfterPay payments and close your account, or leave your credit card at home. That way you can clear your remaining debts and won’t be tempted to spend money you don’t have on things you don’t need.

The satisfaction for saving up for a purchase means that you will appreciate the purchase more, and won’t just rack up the consumer debt on mindless purchases. 

Bottom line here is to stay away from debt you can’t control.

Budgeting that works for you

While the word budget may make you cringe, a well prepared budget that factors in bills as well as discretionary spending, going out, and fun purchases will make you feel much more in control of your finances. You will be spending your own money, and you will place higher value on the money that you do spend as you have a limited amount until your next wages payment hits your bank account.

Have an emergency fund

An emergency fund is an extra savings account that has money that you only use for emergencies. It is for the worst case scenario - you lose your job and you need to pay rent. Luckily, you have some extra money saved away for exactly this situation.

Emergency funds can be used if an unexpected, unavoidable bill comes up. What if the motor in your car stops working and you have to get it fixed, or your bathroom floods and you have to get the plumber in on a weekend. What do you do? You breathe a little easier and know you can pay the bill when they hand it to you.

Emergency funds look different for each person, but a good rule of thumb is to have a few months worth of your wages in an account for a rainy day. You can have this in a savings account, or you could have it invested in liquid assets, or a mix of both. Usually people stay away from investing their emergency funds as there are tax implications of selling investments, especially if you need to do it quickly without any planning time.

How to get yourself out of debt

So you’ve stopped spending unnecessarily and looked at your budget. Now what? You’ve still got consumer debt that is hanging over your head that needs to be repaid.

There are a few ways to approach paying off your debt, however the first place to start is to develop a list of all the debt you currently hold. It might look something like this:

There are a few options when it comes to the method in which you pay down your consumer debt:

• Pay your smallest debts down first - get some runs on the board and clear your smallest debts first. Then funnel the amount you were repaying on that debt into the next debt and so forth until all the debts are paid. Once you see the smaller debts being cleared, it will motivate you to keep going and pay down those bigger debts.
• Pay your highest interest debt off first - if you want to save yourself some interest, concentrate your additional repayments on the debt with the highest rate of interest. 

Note that these methods still require you to make the minimum repayments on all your debts, while paying additional amounts to pay down the debts that you have accumulated.

Review your spending and reduce unnecessary expenditure

Have a look at what you’ve been spending your money on over the past 3 months. Usually your internet banking app or website will allow you to filter your spending and pick up trends on where you spend your money.

Are you someone that buys a coffee on the way to work every day? Maybe start making your coffee at home, or just wait to have a coffee at work if they provide it. Put that extra $25 a week towards paying off one of your debts! Do you go out for brunch every weekend? Maybe suggest that you and your friends go for a walk and get a coffee instead. You’re getting some exercise, and you’ll save money as you’re not getting food out. This can all go towards reducing your debt.

Do you have a crazy expensive gym membership, or subscribe to a streaming service that you no longer use? Check what subscriptions you pay monthly and try to split these expenses with a friend, or try cancelling or pausing the membership until you get your debt under control. Put that extra cash towards paying off your debt faster.

Consolidate your debts

Do you have multiple credit cards with different organisations? You can consolidate your credit card debt into one larger debt. This will reduce the amount of minimum monthly repayments you need to keep track of, and you’ll be able to reduce the amount of stress and anxiety that goes with having multiple debts with multiple minimum payments to keep track of.

Increase your income

The more income you have, the quicker you will be able to pay off your debts. There are a few different ways that you could supplement your main source of income.

Try picking up some extra shifts at work, working overtime, or starting that side hustle that you’ve been putting off. The extra work you put in now might be a minor inconvenience, but it could mean that you’ll be able to pay off your consumer debt much faster than if you just reduced your current levels of spending alone.

Remember, you’ve got this!

We can all collectively agree that being in consumer debt is a horrible experience. You’re stressed and anxious about your financial position, and you might seek out a new purchase to make yourself feel better. Being in this self-perpetuating cycle is hard to break out of, so good on you for taking the step to read this post and start getting your debt under control!

If you need any extra help in getting your consumer debt under control once and for all, reach out to your financial advisor or bank and they may help you organise and consolidate your debts and help you feel more in control. The biggest thing to remember is that you are not alone, there is always someone you can reach out to for help. 

The information in this blog post contains general information and does not take into account your personal objectives, financial situation or needs. Please speak to a qualified financial advisor if you require specific financial advice.

Kate Bradley - Money Coach

Kate Bradley has over 10 years of experience as a small business accountant and financial advisor. Kate brings her significant experience advising on the financial aspects of small business to the BMH team, with a particular focus on the optimisation of systems, budgeting, profitability and cash flow management.

Kate is extremely passionate about financial literacy on both a business and personal level and strives to empower individuals to take hold of their own financial freedom through education and development. Connect on LinkedIn.