Get out of debt – 6 tips on how to do it

We’ve put together some practical tips to help face the growing economic challenges of 2023 with a healthy mindset.

Having a plan for your money means you’ve got the best chance of looking after yourself and your family by spending (and saving) wisely.

1. Ensure that you’re not spending more than you earn

It may seem obvious but ensure that your income can cover all your expenses and debt repayments. Many people who approach Way Forward for assistance have landed in financial trouble for this simple reason: they’ve spent more money than they earn, sometimes without realising.

We suggest creating a budget and reviewing it annually. Make it simple: list all your expenses over the year. If you need help with this process, check out our budget tool. This might include rent, food, petrol, utility bills, local government charges, car registration, insurance and entertainment.

Considering the rise in the cost of living over the past 12 months, it’s important to be honest with yourself about how much you’re truly spending rather than what you hope you spend.

If you’re supporting a family and your kids are still younger, there is a chance you’ll have school fees, stationery and uniform costs along with expenses associated with extracurricular activities. Whether your children attend public or private school, including this in your budget it important.

Think about how you managed those unexpected items. What funds did you draw upon? Some people like setting up a separate account as a buffer to fund those unplanned expenses.

You can check out our handy budget tool on the Way Forward website or the Moneysmart website.

If your income isn’t covering your expenses, you need to re-evaluate where you can cut back. If you are struggling to pay off your debts, it may also be worth getting in touch with your bank to talk about a hardship arrangement.

 2. Spend time reflecting

As you’re putting together a budget it can help to write down reflections on your approach to spending over the past 12 months.

Some questions to ask yourself could include:

• When did you find it difficult to stick to a budget? What was sitting behind that difficulty?
• What were my unexpected expenses last year?
• What was something I did well? Can I back it up this year?
• What were the hard decisions I needed to make? When should I have made them?
• What might you be willing to change?
• Can I reevaluate my needs versus wants?

3. Use savings rather than relying on BNPL or credit cards

Starting the year with a debt hangover can be crippling. Adopt a thrifty approach to spending to help reach your spending goals.

Avoid using Buy Now Pay Later (BNPL) to make purchases. Using BNPL is still ‘borrowing’ money that eventually needs to be paid off.  If you’re then using income to pay down on credit cards, this means less money to see you through the year. Even worse, if you then need to take on more credit to pay off credit, you could end up in financial hardship.

Aside from BNPL, most short-term credit options have surprisingly big interest rates, which means you could end up spending the next few years paying off interest and repayments.

Spending according to your budget (and what you have saved up) means that you’ll feel better about the whole experience and start the new year with a clear head and fewer debts.

4. If you’re in financial trouble, seek help early. There is no shame in asking for help right now.

As cost-of-living pressures increase, people who are already struggling might find themselves quickly falling into serious trouble. If this happens, it is important to seek assistance as soon as possible. One sign of difficulty is if your BNPL and debt repayments become too large to cover with your current income.

If this is happening to you, start a conversation with us, your bank, or a financial counsellor as soon as possible. There is no shame in asking for help.

Way Forward has assisted a wide range of people. Even people with a decent income can get into trouble with their debts. It’s better to address it before it’s too late.

5. Come up with a plan to get out of debt and take charge of your finances

Having a plan and then putting it into action are two different things. It’s critical to be proactive with your spending decisions. Making conscious choices about what you want to do with your money is important.

Don’t fall for the upsell, they can be tempting but you might need to be prepared to go with good enough, not top of the line. Having a disciplined approach to spending means being aware of the increased cost of everything – it’s important to factor this in when making decisions.

Knowing that the best time to be accountable for a purchasing decision is at the time that you’ve made it rather than putting it off and hoping that it’ll work itself out later. Feeling good about your decisions minimises buyer regret – flipping to a positive mindset and making intentional purchases can be a valuable way to stay on top of your finances.

6. Sleep well at night

Having someone listen to you carefully to understand your situation can make it easier to sleep. Knowing that there’s someone on your side can take the pressure off.