Declutter debt in 5 steps

There are lots of things that we as Australians should be proud of …… a beautiful country, an enviable lifestyle and our cricket team is not too shabby either! However, one thing that’s not to be celebrated is the report that Australians have the highest level of personal debt in the world.

According to the Reserve Bank of Australia, our household debt to income is just under 200%. And in a study conducted by Canstar, outside of our home or investment property loan, the average personal debt for Australians is $48,809.

Having high personal debt impacts us financially of course; but the impact on our health and sense of wellbeing also cannot be discounted. 

Here are some ways you can declutter your debt.

1. Take stock of your financial position

The first thing to do is get a very clear and accurate picture of how you’re placed financially. 

Make a list of all your debts, such as: 

  • mortgage
  • credit cards
  • education (school tuition, HECS)
  • car repayments
  • personal loans

Now make a list of your everyday expenses to see what you’re spending money on:

  • housing
  • energy and utilities
  • food
  • phone and internet
  • clothing and footwear
  • transport
  • health services
  • insurance
  • education and childcare 
  • leisure and entertainment

2. Set some ‘debt’ goals

Decluttering debt is not as difficult as it sounds – it’s all about setting a few goals and making some changes to your everyday spending.

Setting aside your mortgage, look at the other remaining items on your list of debts. Re-order these debts by which one you’d like to pay off first (it could be because it’s the highest amount, or the highest interest, or even the easiest to pay off). Ok, so now you’ve got something to work towards.

Concentrate on eliminating in full that first debt you’ve identified. Then, go to the next item on the list, focusing on paying it off until it’s cleared. As you clear debt, you’ll have more to put onto other debts, so it’s a snowball effect.

3. Budgeting is everything

The key to eliminating debt is all down to budgeting. Creating a new streamlined budget helps you take back control of your money.

Use our budget worksheet to get started.

However, there’s no point re-jigging your budget if you don’t stick to it – set limits for your expenses so you can allocate more to put towards your debts.

4. Take control of your spending

We have so much technology at our fingertips, so why not put it to good use? There are lots of budgeting and finance apps out there that can really help you keep on top of your spending.

Stick to a budget and always think about your long-term financial goals – every time you are spending money on things you don’t need, you’re diverting money that you could be using to eliminate debt.

5. Other things you can do to declutter debt 

Cut down on your everyday expenses wherever you can

Take a look again at that list of ‘everyday expenses’ you made and identify where you can make savings. Shop around to find the best price for energy, utilities, insurance and phone – even your mortgage! – it could save you thousands!  

Look into debt consolidation

Debt consolidation can make it easier to manage your repayments (plus it has the psychological benefit of there being only one debt to service). With interest rates currently at historically low levels, investigate whether it’s worth refinancing your home loan and absorbing your other debts into your new home loan. You could end up paying the same amount (or possibly less) each month! If you haven’t refinanced your home loan in a while, chances are you could save a considerable amount by doing this. Just be sure to do your research and shop around to compare.

Learn to live on a budget 

Those debts aren’t going to pay themselves off, so you’re going to have to make some sacrifices. In your everyday expenses, identify what are ‘needs’ versus ‘wants’. Cut back drastically on the ‘wants’ or cut them out altogether for a few months.

Avoid impulse buying – become a ‘delayed gratification’ guru! 

Change the way you think about money – instead of it being the means to buy more stuff, think of it as the means to liberate you from debt! Embrace a delayed gratification mindset and try the ‘30 day rule’ – if you see something you want, don’t purchase it – instead, wait for 30 days. After that time, think about whether your need to have this item is as strong as it was 30 days ago (chances are, it’s not). 

Get financial advice

Financial advice is not just for the wealthy or for those who are about to retire – our financial planners are here to help you every step of the way through your financial journey.

Call Member Services on 1800 757 607 with any questions or to make an appointment with one of our planners.

The information on this page has been issued by Maritime Financial Services Pty Limited (MFS). It contains general information that doesn’t take into account your individual objectives, financial situation or needs. It’s important to consider how appropriate this general information is in relation to your situation before making an investment decision. We recommend that you seek financial advice before making any decisions regarding your super or investments. The information on this page is current at the time of publishing.