Money

How to pay off debt faster

Knowing you have options can make a big difference.
You can pay off debt in many different ways when you know what you owe and how it fits with your budget.Getty

If you want to pay off debt, you’re not alone.

The average household debt in Australia is around $261,492, according to data from the Australian Bureau of Statistics. With the cost of living crisis, it’s likely this figure has also increased.

In fact, a report from credit bureau Equifax in April 2024 found some Australians were reaching for credit to help cover rising costs.

“We’ve seen a significant uplift in credit card demand, with many Australians reaching out for unsecured credit to alleviate cost of living pressures,” Kevin James, Equifax General Manager Advisory and Solutions says in a statement.

The data also showed more people were struggling to pay off personal loans, with an increase in loan payments more than 30 days past their due date.

“Taken together, these trends across credit cards and personal loans paint a picture of growing financial strain for consumers,” Kevin says.

The good news is that paying off debt can help reduce financial pressure by helping you save on account fees and interest charges. It also means one less payment (or more) that you need to factor into your budget.

With that in mind, here are 5 strategies that can help you pay off debt faster.

Knowing how much money you have coming and going out can help you plan how to pay off debt.

1. Make a budget

When you know how much money you’re regularly earning and spending, you’ll have a clearer sense of how much debt you need to pay off. So a budget can be a valuable part of your plan.

There are plenty of budget planners online, including a free one on the Moneysmart website. You can also use a trusty spreadsheet and create your own.

You can also make changes to your budget to focus on paying off the debt.

As well as paying the minimum amount required for each one, you could consider making higher repayments on the smallest debt first so it’s paid off faster. This is known as the “snowball debt method” because the amount of debt you pay off builds over time.

An alternative is to prioritise paying off the debt with the highest interest rate (or fees) first. This can help you save on additional costs, although you may not see progress as quickly.

2. Consider debt consolidation

If you have a few credit cards, personal loans or even buy now pay later balances, moving them to a single account can make it easier to manage.

For starters, it means you’ll only need to make one regular repayment (instead of many). It can also help you save on fees, interest and other account costs.

You can consolidate most debts by taking out a personal loan. Another option is a balance transfer credit card, although the type of debt you can consolidate is typically limited to other credit cards (or sometimes personal loans).

Refinancing your home loan can help you save on interest and pay off debt faster.

3. Refinance your home loan

Home loan interest rates and fees vary a lot between lenders. So, if you’re paying off a property, refinancing your mortgage can help you save on interest charges and get lower repayments.

As an example, if you had $500,000 and 25 years left on a mortgage with a 7.5% interest rate, you could save $319 a month on your repayments by refinancing to a mortgage with a 6.5% interest rate.

This is based on calculations using the mortgage calculator on the government’s Moneysmart website. Depending on when you refinance, you could find lower interest rates than the ones in this example, too.

So, it pays to shop around and check your interest rate.

This is especially true if you have a fixed rate mortgage that’s come to an end, as the interest rate applied afterwards might not be very competitive.

“… Refinancing has been a key driver of mortgage demand as consumers who were reaching the end of their fixed rate period sought out better deals.”

Kevin James, Equifax General Manager Advisory and Solutions

4. Contact your bank or lender

If you’re worried about making the required repayments, contact your lender straight away. They can talk to you about financial hardship arrangements and other options to help pay off the debt.

As the Australian Banking Association states on its website: “Banks want to help their customers, especially if they’re experiencing financial difficulties.”

Depending on your circumstances and the bank, the options include:

  • Payment plans
  • Payment deferrals
  • Waived fees and charges
  • Interest deferrals
  • Restructuring the loans

It’s also worth being aware that financial hardship arrangements don’t affect your credit score (unlike late payments or defaults).

5. Get financial support

You can speak to a financial counsellor for free by calling the National Debt Helpline on 1800 007 007. This service is available between 8:30am and 4:30pm, Monday to Friday.

There’s also a live chat on the website from 9am-5pm on weekdays, or you can send a message. The website also has plenty of other resources that can help you understand your rights and deal with the debts.

*This article contains general advice only and may not be suitable for your circumstances. Make sure you seek financial advice appropriate to your individual circumstances before making decisions. 

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