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Whether it’s the aftermath of a big trip overseas, an unexpected emergency or you’ve just spent a little more than planned, there are many ways you can find yourself in debt. You may have just the one debt or a few, but either way it can feel overwhelming when you’re not on top of your money. So, what are some ways to get back ahead? 

Sit down with a pen and paper, plus information about each of your debts and work out:

  • How much debt are you in? If you have more than one debt, write down how much you owe on each (e.g. credit cards, store cards or loans etc.) and add it up. Make a note of when repayments are due for each and how much, plus the interest rate on each type of debt.
  • How much do you earn? Next, look at your income sources, such as your salary and allowances. A budget planner can help here.
  • Where does your money go? Try and write all of your expenses down for a week. You’ll soon see where you spend your money and where you may be able to cut back. If you need some help, here are some tips to help you save

You should now have a good picture of your finances and be able to see how much money you can put towards paying off your debt, and how long it will take. Next, put a plan in place to pay back your debt – here are three common methods. 

Option 1: Consolidate your debt

If you have multiple debts, rolling them into one personal loan and using that loan to pay off each of your debts can help relieve the burden and make budgeting easier.  You’ll then only have to make one repayment and often the interest rates on a personal loan are more competitive than credit cards or store cards.  Learn more about the benefits of consolidating your debt with a personal loan.

Option 2: Pay off the biggest debt first

If you want to tackle your debts one-by-one, start with the one that’s the largest and with the highest interest rate. Financially, it makes sense to pay off this debt first because it’s going to save you money over time. How to make it work:

  1. Order your debts from the highest amount/interest rate to the lowest amount/interest rate.
  2. Make the minimum payment on each debt per payment date.
  3. Use any extra cash you have available to pay off more of your debt with the highest interest rate.
  4. Continue until all the debts are paid off, replacing the debt with the highest interest rate as debts are cleared.

Option 3: Pay off the smallest debt first

For some people it’s not the amount of debt they have, it’s the number of debts. This means it may benefit for you to pay off the smallest debts first to consolidate the money owed and simplify the number of repayments you’re making. While this may not be the most efficient method from a purely financial perspective, it can be an easier way to escape the debt cycle because your progress will be more visible. How to make it work:

  1. Order your debts from smallest to largest in terms of money owed.
  2. Make the minimum payment on each debt per payment date.
  3. Use any extra cash you have available to pay off more of your smallest debt.
  4. Continue until all the debts are paid off, replacing the smallest debt as each is cleared.

What will work for you?

Once you have a target and strategy in mind, set points along the way and celebrate milestones. This may be getting your overall debt down to a certain figure or reducing the number of debts you have in total. To help keep yourself motivated, visit our Academy of Saving for tips on budgeting, saving money and cutting back on your spending.  

Don’t forget, if you’re a CommBank customer and experiencing difficulty making your loan or credit card repayments, get in touch with our Customer Assist Team

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