If you are one of the many Australians caught in a debt cycle it may seem impossible to break free and finally gain control over your finances. However, there are steps that can be taken, and with some commitment, you can break free from the debt cycle. Here we show you how.
1. Recognise you are in a debt cycle
The first step is to recognise and accept you are in a debt cycle. If you are spending beyond your means, using loans and credit cards to do so and constantly borrowing money to repay debt, then you are most certainly caught in a debt cycle.
2. Understand how you got into a debt cycle
In general, a debt cycle begins with one fundamental issue: spending more money than you have. It is helpful to understand what motivates you to spend money – are you buying things you “want” rather than “need”? Are you rewarding yourself with new purchases even though you don’t need it and cannot afford it? Are you a “buy now pay later” consumer? By understanding what triggers you to spend you can better manage those triggers.
3. Commit to change
It is tough, but the only way to break free from the debt cycle is to make a 100% commitment to change your spending habits. Having a “why” can be a powerful motivator too, it can help to focus on a long term goal such as buying a home or going on a holiday.
4. Cut down spending
It’s time to get serious about saving money and cut out all spending on non-essential items. Make a list of everything you buy and then decide what you need and don’t need – you may be surprised by how much money you can save on a weekly basis. Stop using your credit cards, and only use cash where possible.
5. Start paying off your debt
With the savings you have obtained in step 4, you can now start paying off your debt. If you have multiple debts, a simple strategy often referred to as the snowball effect, works as follows;
- Set all debt repayments to their minimum required level,
- Choose the debt with the highest interest rate to focus on and direct any surplus savings toward that.
- As each debt is paid out, direct it’s repayments and surplus savings to the next one.
Over time, you will find that maintaining your current spending levels is easy and watching your debt decrease is a great incentive.
Do you need help to escape the debt cycle? Contact us at Hunter Lending Solutions to arrange a confidential chat.