If you’re looking to build healthy money habits this year then taking control of any debts you currently have can be a smart first step.

Unfortunately, accumulating debts can be much easier than paying them off. However, if you want to work to becoming debt-free, these tips can help you build a workable plan. Combined with some hard work and perseverance, you’ll have the tools you need to take charge of your debt in 2021.


1. Work out where you stand

Before you can plot your route to being debt-free, you need to know exactly where you stand right now. A great place to start is by opening an Excel spreadsheet or grabbing a pen and paper and listing all of your debts, including amounts, providers, minimum monthly repayments, and interest rates.

While this might not be your idea of a fun way to spend an evening, it’s an essential first step on your journey to being debt-free. Seeing everything in one place will help you understand the scale of the task ahead of you and mean that you can build a realistic and achievable plan to get there.


2. Understand your spending habits

Now that you know exactly how much debt you have, it’s a good time to work out how to repay it.

The easiest way to do this is to create a detailed budget based on your actual spending habits, including all your income and expenses.

Jump into your online banking portal and take a look at where your money is going, then use Qudos’ budget planner calculator to do the heavy lifting for you.* The calculator has fields for each type of expense, including quarterly expenses like rates and annual expenses like car rego, etc.

Once you’ve added your income and expenses into the calculator, you’ll be able to see the difference between the two. Understanding this will ensure you can see how much money is available to go towards paying off your debts, or highlight expenses that could be reduced to make living within your means and repaying debt easier.


3. Make a realistic, workable repayment plan

After following the first two steps of the plan, you should now understand the total size of the debt and how much you can contribute to paying it off.

Now it’s time to consider creating a plan to pay off the debt in regular, manageable amounts.

The first step here is to take the total annual surplus figure generated by the calculator and divide it by the number of pay cycles you have in a year (12 if you’re paid monthly, 52 if you’re paid weekly, etc).

This amount will be the starting point for building your repayment plan as you decide how much of each pay cheque you can realistically contribute to paying off your debts.


4. Make it easy

Repaying debt doesn’t need to be a difficult task. With a few tweaks to your behaviour, you can make it easier on yourself and increase your chances of success.

First, consider trying automating your debt repayments to happen on the day you’re paid using online banking and you won’t even notice the money going out after a while.

Secondly, when making repayments it can be a good idea to start with your highest interest debt and focus on paying it off first. Repaying these quickly can save you more in the long run.

Lastly, it’s a good idea to set an amount aside each month to enjoy yourself and build this into your budget. You’re only human and allowing yourself to spend on a treat guilt-free will make sticking to the rest of your budget much easier.


5. Consider rolling your debts into one

If you’ve got multiple debts with different providers then it can be difficult to manage them separately. You may have several repayment dates, multiple interest rates, and loan terms that differ between providers. A debt consolidation loan may help simplify your debts by rolling them into a single loan, with one low-interest rate and one simple repayment date to remember.

Repaying debt can be difficult, but the hardest part is often just getting started. The benefits of being debt-free, however, can mean that you can contribute more of your earnings to building a better life for yourself, rather than just paying off interest. Whether you want to build better habits to save towards buying a new home, travelling the world, or securing a comfortable retirement, keeping the end goal in sight can help you stay motivated throughout your debt repayment journey.


Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557 AFSL/Australian Credit Licence 238 305. The information in this article is of a general nature and has been prepared without considering your objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances.

* The results from this calculator should be used as an indication only.