Living with bad debt is stressful for thousands of Australians and making ends meet has become a huge challenge and constant struggle.
After all the essential costs such as food, accommodation, clothing and power and then bill payments on top of that, there is often nothing left.
It’s common in this instance for people to resort to using credit cards and so the vicious cycle of debt begins. Unfortunately, when it comes to debt, there is no quick fix.
It’s one thing to get out of debt but it’s a different thing to stay out of debt. But what is “bad” debt and what is “good” debt?
“Bad” debt is consumer debt where there is no capital growth. An example of bad debt is if you use a credit card pay for a holiday – there is no investment value. On the other hand, “good” debt is a debt that ultimately delivers capital growth and the best example of this is a mortgage – as property tends to appreciate over the long term.
Here are my top 5 tips to get out of “bad” debt and more importantly, stay out of debt and in control of your finances.
1. Stop Digging A Hole For Yourself
When you’re in a hole, the first thing you should do is stop digging. No one has ever become debt free by getting more debt. This is easier said than done especially when people are used to reaching for the credit card when they find themselves short. The internet is full of companies that offer a fast and easy solution but, more often than not their solution relates to another bad debt. If you want to stay in debt, simply swap it for different bad debt. Everybody wants an easy solution, however when it comes to money and debt, the easy/fast solution can often cost you more in the end. Cutting up the credit cards takes courage and determination, but nothing worthwhile comes easy.
2. Make a Budget
If you keep to a budget or a money plan, your financial goals will be met faster. It’s important to be realistic and honest when you devise a budget. Underestimating your living expenses will only serve to create a false outcome. Before you allocate any expenses to your budget, you should keep a diary of your expenses for a month. In doing this you will be amazed at what you spend and it will highlight potential arrears where savings can be had. Don’t forget to incorporate savings into your budget because it is vital that there are cash reserves for all those unexpected costs that life sometimes presents.
3. Sell Unwanted Assets
Those things that were useful once upon a time which are now collecting dust and occupying space should be sold. Once sold, you can use the cash to pay down bad debt. That old baby bouncer, that second fridge or TV you never use, can all be converted into valuable cash to pay debt. These days, selling unwanted assets has never been easier with online classifieds in abundance.
4. Earn More
At first this may sound easier said than done but you would be amazed at what you can do to earn more. Why not consider completing some online surveys, or become a mystery shopper. Perhaps the local bar needs a hand or maybe you can do some bookwork. Earning more turbo charges your ability to settle debt allows you to meet your financial goals. Taking on a second job doesn’t have to be forever, but it can be a great way to get out of debt.
5. Ask for guidance
If you need assistance, don’t be ashamed to ask. There are trained professionals ready and willing to provide you free support and all you need to do is ask. Sometimes it takes a person who is not so close to the situation to chart the way forward and encourage you along. If you do decide to engage a professional make sure that they are licenced and impartial. You should be wary of those companies that only offer one service, because generally they have a tendency to recommend only that course of action and none other.
If you follow these tips, set some realistic financial goals for yourself and stay focused and disciplined, becoming debt free is a realistic and achievable prospect. Once debt free, you will be able to enjoy the feeling of financial freedom and the ability to pay your expenses more comfortably and confidently, opening up doors to wealth creation.