New year, new you! New Year’s Eve is a time for people to reflect on the year that has been and set some goals and resolutions for the year to come. Whether it’s to eat healthier, exercise more, get a better job or get out of debt.
Unfortunately, many New Year’s resolutions don’t last much longer than Valentine’s Day, but with this guide, your Debt Free New Year’s Resolution can be planned, in place and achieved in 2017!
Know your Situation
You might realise you are in debt, but do you know exactly what your debts are? Do you know who your debts are with, what your balance is and how much your repayments are? We speak to hundreds of Aussies each day who are struggling with their finances, but they aren’t really sure on the specifics.
You can’t expect to pay off your debts without knowing exactly what they are. In our set-and-forget society, people often enter into debt, set up a direct debit and then completely forget it’s even there.
Your first task to getting out of debt in 2017 is to go and find your debt. You need to know the name of the financial institution it is owed to, what your minimum repayments are, how frequently the debt needs to be paid and a current balance.
A good place to start finding this debt is with your internet banking. Go through the last few months of transactions and write down any direct debits coming out. You can also request a FREE copy of your credit file from www.mycreditfile.com.au. There is also a paid option, but the free version will get your credit file to you within 10 business days while a paid version will be emailed to you immediately.
Make a plan
Now you know your debt, you need to come up with a plan to make sure you will always have enough money to cover your debts. We’ve all been in a position where we suddenly have more money than we thought, only to splurge just days before a huge bill arrives in our inbox.
You don’t need to keep track of every dollar you are spending, but by writing your debt repayments down in a calendar, you will never be surprised by a debt again. Transfer the information from your debt finding mission to a calendar and then calculate how much money you need to set aside each week in order to pay these debts when they fall due.
Pick a Method
If you want to be more aggressive with paying off your debts, there are different methods you can try to pay it off early. One of the most popular is the debt snowball method. You can read more about it here, but basically you contribute more money towards one debt while paying the minimum repayments on the others. Once the first debt is repaid, you put all the money you were paying on that debt towards the next debt, plus its minimum repayment. Eventually, your debt repayment amount accumulates and you end up paying off all your debts sooner than expected.
If you have a mortgage, you might be able to use the equity in your home to consolidate your debts. Stand-alone debt consolidation loans are incredibly difficult to come by as the bank is hesitant to lend you money you are already struggling to repay. However, if you can refinance your mortgage to include your debts you will end up with one repayment at a very low interest rate. If you have spoken to your current mortgage lender about refinancing and they have indicated that you aren’t eligible for a new loan, don’t give up hope. There are lenders out there who specialise in finding mortgage refinance loans for the purpose of debt consolidation, such as Positive Solutions Finance.
Debt Relief Options
If you are struggling to pay off your debts and you can’t draw on the equity in a mortgage, you might need to consider a debt relief option to get out of debt in 2017. In Australia, there is a government legislated agreement called a Part 9 Debt Agreement. If you are eligible, a Part 9 Debt Agreement will freeze the interest and fees on your debts and allow you to reduce the amount you repay to your creditors. You often end up only repaying 60c to each dollar you owe. This leaves you with one reduced repayment over 5 years.
A Debt Agreement is Part 9 of the Bankruptcy Act, hence its name so if you enter a Debt Agreement it will be marked on your credit file for 5 years. However it doesn’t come with the strict list of regulations and obligations bankruptcy has and it will allow you to keep your assets, such as your car and home as long as you maintain the repayments.
If you would like to see if you are eligible for a Part 9 Debt Agreement, call us on 1800 00 3328 or fill in an online enquiry form and we will call you back.