Many Australians are in debt and find it stressful, difficult and frustrating. So when you finally decide to buckle down and get out of debt, you want to do it quickly! Unfortunately, there is no quick fix for financial hardship – it takes time, commitment and hard work. But there are some things you can do straight away to get out of debt fast!
1. Stop Borrowing Money
When faced with a bill you can’t afford, it is tempting to use a credit card or a payday loan to buy yourself some time, literally. But the only thing you are buying is more debt. A new loan might help you pay an overdue bill. However, you will still need to find the money to repay the loan, plus interest and fees.
If you are trying to get out of debt fast and need to pay an overdue bill, ring the creditor and request an extension or a hardship arrangement. You may be able to extend your due date or pay off smaller amounts over time. By working with your creditors, you can avoid a default on your credit file and you aren’t taking on additional debt.
2. Find Your Debt
Many people who are struggling with financial hardship may have completely lost track of their debt. They don’t know how much they owe, who their creditors are, what their repayments are or if their debt has been sold to a collection agency. It is impossible to repay your debt if you don’t know it exists.
To get out of debt fast, go through your online banking, any bills you receive in the post and your emails. Keep track of each debt by writing them all down on a piece of paper with some key information – like how much you owe, how much your repayments are and the frequency.
3. Prioritise Your Debts
Now you know what debts you have, you can create a repayment plan to get out of debt fast. Some debts will need to be paid more urgently than others. For example, you might have a credit card charging interest at 21% per annum. Perhaps, you have a secured loan, such as a mortgage or vehicle loan which if you fall too far behind, you could be at risk of having it repossessed.
Go through your debts and prioritise repayment of them accordingly. Debts with high interest or security should take higher priority. Low or no interest debts should be lower on your priority list. You could even try the debt snowball method.
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4. Cut Back on Expenses
Are you paying for an unnecessary streaming service? A gym membership? A subscription? Are you a spontaneous shopper? Do you write a grocery list? Do you have an expensive hobby? You need to look for areas in your life where you can temporarily cut back on spending to catch up with your debt.
If that means switching off a streaming service or writing an ‘essentials only’ grocery list when you go shopping then do it! The money you save can go directly towards your debts, helping you pay them off sooner. You may also consider selling good quality items you no longer use, like coffee machines or treadmills. These changes don't have to be permanent, but will help you get out of debt fast!
5. Make a Repayment Plan
Hopefully, now you know exactly what debts you owe, how urgently they need to be repaid and have a little more money in the bank to help make the repayments. The next step is to pay off your debt. A good way to do this is the Debt Avalanche Method.
Debt Avalanche Method
The Debt Avalanche Method focuses on minimising the total interest paid over time by targeting debts with the highest interest rates first. You pay the minimum repayments on all your debts except for the one with the highest interest rate, where you focus the bulk of your extra money. Once that debt is fully repaid, you move on to the next highest-interest debt, and so on.
This method is especially effective for saving money on interest, although it may take longer to see significant progress if the highest-interest debts have larger balances.
Let’s look at an example.
After reviewing your debts, you discover you have 2 credit cards and 2 personal loans. By cutting back on your expenses, you free up an additional $80 per week to put toward your debts on top of your minimum repayments. Here’s how it works:
| Debt | Interest Rate | Balance | Min. Repayment | New Repayments | |||
| Wk 1-30 | Wk 31-37 | Wk 38-42 | Wk 43-58 | ||||
| Credit Card 1 | 21% | $6,000 | $120 | $200 | $0 | $0 | $0 |
| Credit Card 2 | 19% | $5,000 | $100 | $100 | $300 | $0 | $0 |
| Personal Loan 1 | 13% | $10,000 | $200 | $200 | $200 | $500 | $0 |
| Personal Loan 2 | 9% | $25,000 | $300 | $300 | $300 | $300 | $800 |
As each debt is paid off, the funds you were using for it are added to the payments for the next debt, accelerating the repayment process.
Why Use the Debt Avalanche Method
- Save on Interest: By tackling high-interest debts first, you pay less in total over the life of your debts.
- Efficient Repayment: This method works well for those who are financially disciplined and motivated by long-term savings.
In this example, paying only the minimum repayments would take 83 weeks to clear the debts. By using the Debt Avalanche Method, you can pay them off in 58 weeks while saving a significant amount on interest.
Enough is Enough!
If you follow these 5 steps to get out of debt fast but find yourself falling deeper into financial trouble, there are other options to consider. You could explore an Informal Debt Agreement or a Part IX (9) Debt Agreement to reduce your debt, pause interest, and ease the pressure from creditors.
If you’d like to discuss these options, call one of our Customer Success Specialists on 1800 534 534. We’ve helped thousands of Australians take back control of their finances and are here to guide you in the right direction.
For more information on budgeting and how it can help get your finances back on track, check out our budgeting page.
