Debt management tips no matter what age
Our top 4 tips are:
- Avoid lifestyle creep: Resist the urge to increase your spending just because you got a pay rise. Make a plan for this extra money, increase your home loan repayments, start a rainy day fund, pay off high-interest debt or set up a savings account.
- Taking on high-interest debt: Avoid credit card debt, the most efficient way to use a credit card if you do have one is to pay off the balance in full each month. Paying only the minimum on your debts prolongs repayment and increases the total interest paid.
- Ignoring your budget: Not knowing where your money is going can lead to getting into debt. Not having a budget can encourage you to overspend and accumulate unnecessary debt.
- Not building up a rainy day fund: Without an emergency fund, unexpected expenses can force you to rely on credit and getting into debt. Start small and build up your rainy day fund until you can cover 3 months worth of expenses.
Three effective methods to repay or reduce debt
Taking control of your debt is crucial for financial stability. When you manage your debt effectively, you reduce stress and free up resources for other financial goals.
- Snowball method: This strategy involves paying off your smallest debts first while making minimum payments on larger ones. As each small debt is paid off, you roll the amount you were paying into the next smallest debt.
- Avalanche method: Pay off debts with the highest interest rates first while making minimum payments on others. This approach minimises the amount of interest you pay overtime.
- Debt consolidation: Combine your smaller multiple debts into a single loan with a lower interest rate over a short time frame (like credit card debts or higher purchases). This simplifies your payments and can reduce the total interest paid.
By understanding and utilising these debt repayment methods, you can take control of your financial future and work towards a debt-free life. Each method has its advantages and is suited to different financial situations, so choose talk to one of our advisers to see what method would work for you.
This information is of a general nature and is not intended as personalised financial advice. RIVAL Wealth is a Financial Advice Provider (FAP) licenced by the Financial Markets Authority to provide financial advice. Our disclosure document is located at rivalwealth.co.nz or a written copy is available on request
