by Jeff Shute04.09.20

Debt is a scary weight to have on your shoulders, and it can seem especially heavy as you step into a new financial year and have had to face your debt demons head on. If it’s that you have a tax debt, or that your tax return refund is going to have to be absorbed by your debts, it can be a sobering experience. In saying that, there are ways to reduce or eliminate your debt in a simple and sustainable way. From personal debt to small business debt, these tips will help navigate you to a healthier financial position. 

How to reduce debt?

1. Organise your finances

This might seem obvious. You’d be surprised, though, at how many of our clients come to us with very little knowledge about the specifics of what they spend and what they owe. This includes being unaware that their incomings are less than their outgoings. Call it the ‘head in the sand’ approach. A good start is to simply write it all down (or put it in an app, a spreadsheet, whatever format you want). Peruse  your mail and emails to ensure you don’t miss anything and be very honest and transparent with yourself about what is owed, and what your incomings are.

2. Review your finances

Once you have a clearer understanding of your finances, it’s time to review what your daily, weekly and monthly expenses are and pare them against what your incoming wage is. Then work out if the remainder can be applied to your debt repayments. You may need to adjust and minimise your expenses in order to do this. Once you have worked out a feasible repayment allocation of your funds, contact your creditors immediately to set up payment plans. Try and focus on the most ‘in the red’ debts first to avoid getting into any legal hot water. 

3. Create an easy-to-use budget

Budgeting is the first step to ensuring you not only reduce or clear your debts, but also so you don’t find yourself drowning in debt all over again. You can contact one of our experts on the best way to organise your finances so that you can live and pay off your debt sustainably. There are also some great budgeting apps for basic organisation of expenses that are easy to use and access (just be mindful of in-app purchases; added expenditures shouldn’t be high on the priority list right now!). 

4. Eliminate unnecessary expenses

Go into your app subscriptions and unsubscribe to all apps you don’t use or need. You’d be surprised how easily they eat into the funds that could be allocated to paying debts. Reconsider your streaming subscriptions and any other ‘extra’ you pay for. This doesn’t mean you need to eliminate everything you enjoy, it’s just about tweaking it to smarter choices. Have just one streaming service, for example (or use free-to-air on-demand until your debts are paid). Can you use your car less? Can you find a cheaper gym (or renegotiate your membership)? Work through your life with a fine tooth comb and separate what you need and what you can adjust from any unnecessary expenses.

5. Find ways to grow your income stream

Earning more is a sure fire way to have more funds to pay off debt. It doesn’t mean working yourself into the ground, it’s just about investigating ways you might be able to make some extra money on the side, at least until your debts are paid off. From online positions to night work, there are many options that can work around conventional work hours and offer very reasonable and surprising remuneration.

6. Seek professional assistance

When in debt doubt, contact a professional. Being weighed down by debt can be an overwhelming experience and it’s completely understandable to not know where to start. Shaw Gidley has a host of incredibly skilled financial experts who will be able to work you through your debts and how to navigate to a much healthier financial position.

7. Pay more than minimum repayments

If you’re able, try to pay off more than the minimum amount requires for debts such as loans and credit cards that are constantly accruing interest. You might find yourself on an infinite payment trap if you’re only covering interest amounts and never denting the debt itself.

8. Consolidate your loans

While this doesn’t necessarily help to pay your debts any faster (after all, you’re getting into debt to pay debt), it does help immensely for organisation of debt. By consolidating your loans you are able to use the new loan to pay off your creditors (and avoid venturing into legal action territory), and have just one clear payment path in place. It can also help with having a lower interest rate over all, and some breathing space to get everything in order. 

9. Cut your credit cards

A tried and true method to stop using your card is to not have it on hand. Of course, there’s always the hazard of saving credit card details on your devices or PayPal, so eliminate card prompts and delete from your third party payment accounts. 

10. Don’t get into debt to save you from debt

Ok, so we have suggested a loan consolidation, but that is as far as it should go. Getting more credit cards or, worse, pay-day credit schemes, is only going to sink you further into unmanageable debt due to extortionate interest rates and high penalty rates for defaulted payments. 

Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.