Blog 7 steps to achieve a debt-free life

7 steps to achieve a debt-free life

31 August 2020
7 steps to achieve a debt-free life

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If the word ‘debt’ makes you nervous, it’s probably time to start thinking more seriously about getting on top of your finances.

We’ve got a few tips to help you take control of your debt and pay it off sooner.

Strategies to get out of debt:

1. Make extra repayments

The longer you take to repay your loan, the more interest you pay, which means the more debt you’ll accrue. But you can become debt-free faster if you take some steps to start chipping away at your mortgage or your car loan.

If you’re not struggling to keep up with your compulsory loan repayments, it may be time to think about making extra voluntary repayments to get rid of your debt faster. Try having a play around with a mortgage calculator or car loan calculator so you can see for yourself how even a slight increase in your repayments could shave years off your mortgage. Even making weekly repayments rather than monthly ones can make a big difference.

Not all loans allow you to make extra repayments, but if yours does it can be an extremely effective way to pay off your loan faster. You may want to consider refinancing if your loan doesn’t allow extra repayments.

2. Look at your debt and savings goals

Actually adding up how much debt you owe can be pretty daunting but the days of burying your head in the sand are over. Take a deep breath and write down all your debts - who you owe, how much you owe, and the rate of interest you’re paying. Now you want to prioritise paying off the debts that have the highest interest rate. Credit cards and car loans typically have much higher interest rates than home loans, so you may want to prioritise paying these off first.

Now you can focus on your savings goals. Short term goals such as saving up for a holiday or new furniture can be achieved relatively quickly, while long term goals such as saving for a house will take much longer.

Try and balance these goals and be realistic about how quickly you can afford to save up for them. Consider your net income (after-tax) and any fixed costs you may have such as mortgage repayments or insurance, to work out how long it will take you to reach your savings goals.

Write down your goals and display them somewhere you will always see them - like the fridge or the bathroom mirror - so you’re motivated to achieve them.

3. Dramatically reduce your expenses

Whether it’s ordering takeaway via Uber Eats or wasting your money on in-app purchases, we all have something we spend too much money on. If you’re serious about getting out of debt quickly, you’ll need to knuckle down and cut out all your non-essential spending.

If you’re not sure where you’re spending your money but somehow your bank account always reaches zero before payday, go through your bank statements and see where your money is going. You may have subscriptions that you’re not even aware of sucking up all your money.

4. Pay your home loan off faster through a lower rate

The lower your interest rate, the less you’ll pay. With interest rates on home loans so low these days, there’s really no excuse to still be paying over 5% p.a. anymore.

Let’s take a look at a quick example. Say you borrow $400,000 to buy a home and get a mortgage with an interest rate of 4.25% p.a. over 30 years. Using our mortgage repayment calculator, your monthly repayments would be $1,967

But if you switched to a home loan with an interest rate of 1.99% p.a. your monthly repayments would drop to $1,476. That’s a difference of $491 or $5,892 a year!

We’ve recently launched a Smart Booster Home Loan with a 1.99% p.a. one year discount introductory variable rate (2.47% p.a. comparison rate*). Make the switch and use this time to ramp up extra repayments so you can pay off your mortgage faster.

5. Consider a different loan product

If you have an investment property, you may want to consider taking out a loan product that will give you the most savings.

Our Smart Booster Investor Bundle offers a discounted 1.99% p.a. interest rate (2.71% p.a comparison rate*) for the first year on interest-only repayments, before reverting to a higher ongoing rate of 2.74% p.a. 

To be eligible for the loan, you must also get an owner-occupied loan from loans.com.au, with owner-occupied rates starting at 1.99% p.a. By bundling your home loan and your investment loan together, you could maximise your investment and start saving thousands on both your investment property and your own home.

6. Buy a quality used car rather than a new one

You drive your new car out of the dealership parking lot and boom! It’s potentially lost about 10% or more of its value right then and there.

Brand new vehicles depreciate the fastest. On average, new cars depreciate about 25% by the end of the first year. Rather than buying a brand new car, you could save roughly 20% to 30% by buying a used car that’s a year old.

After the first year, new cars depreciate by around 17.5% so you could save even more money if you don’t mind buying an even older vehicle.

7. Decrease your car running costs by going green

If you’re serious about saving cash, you could decrease your car running costs by considering a fuel-efficient car. They’re cheaper to run in the long run plus you’ll also be doing your bit for the environment.

Take out a green car loan with loans.com.au with a low 3.97% p.a. interest rate to match.

Apply now