Manage your debt

Not all debt is bad debt

You may have heard some debt described as ‘good’. And it’s true. Some debts have the potential to increase your net worth or generate income, such as student loans, a mortgage on your home, or the costs of starting a business. But other debts, such as spending above your means or borrowing money for non-essential items, are considered ‘bad debts’.

It’s important to evaluate your financial wellbeing and structure your assets and debts appropriately, to ensure you’re getting the most benefit. For instance, there can be tax benefits from certain ‘good debts’ – like business or investment lending. ‘Unfortunately it’s quite common for people to accidentally disadvantage themselves by having debt on the wrong asset or focussing on the wrong debt to repay first’ according to Rebecca Hurford, Senior Financial Advisor at ANZ.

What category does your debt fall under? Make a list of what you owe - including bank or student loans, credit card balances and buy-now-pay-later accounts. Label them ‘good’ or ‘bad’ and then we’ll make a plan to pay them off.

Prioritise your debts

You don’t have to pay off everything at once. Start by writing down your most expensive or pressing debt, or the one costing you the most in interest. Then move down the list to other items such as outstanding bills, car repayments and insurance. Make sure to include the total amount, the name of the creditor and any interest rates attached to the debt. Pay your way down this list.

Different ways to pay

Repayments come in all shapes and sizes. For example, student loans can be tackled with automatic salary sacrifice payments. For a mortgage, transferring your savings to an offset account may help reduce the amount of interest you’re paying.

Do some research about the types of repayments available for your type of debt. It can get complex, so feel free to reach out to a Financial Advisor for some tailored advice.

Pro tip

Making mortgage repayments more frequently (for example, fortnightly instead of monthly) can reduce the amount of interest you pay over the life of your loan.

Consolidate your debt

If you owe lots of small amounts, like store credit or personal loans, you may be able to consolidate your existing debts into one easy to manage loan. You can do this by applying for a personal loan and, if approved, using the funds from this loan to pay off your other existing debts. You then pay back the personal loan over a set term.

The key benefits of consolidating your debts can include:

• having only one set of regular repayments;
• potentially paying less in fees and charges;
• being able to get a lower overall interest rate when compared to your existing debts; and
• having a clearer timeline to the day you can pay off your debt.

Always remember to carefully read the terms and conditions, as well as the fees, charges and interest and work out what is best for you and your circumstances.

If this is something you’re considering, you can use the ANZ personal loan repayment calculator to estimate your repayments and see if they’ll work for your budget.

Make your debt work for you

There are many tips and tricks you can use to reduce your interest and pay off your debt faster.

• With credit cards, paying off your balance each month, or within the interest free period, stops your interest from piling up.
• With a personal loan, you can shop around to find the best interest rate or speak to an expert to help you decide if a fixed or a variable rate works best for you.
• See if your home loan is still working hard to meet your needs. A 15 minutes ANZ Home Loan Check-In could help you find ways to fine-tune your home loan so it continues to meet your needs.

Whichever types of debt you’re wanting to wrangle, speak to your financial institution to find ways to make them work for you.

Get creducated

With credit comes big responsibility. To learn more about how to make your credit card work for you, check out ANZ Creducation.

What is a credit score?

Your credit score is a number based on your credit history that lenders and banks take into account when determining whether or not to lend you money. In other words, it’s a pretty powerful number.

How is your credit score calculated?

The ASIC MoneySmart website says your credit score factors in the following:

• Your age and where you live
• Any loans you have
• The number of applications/enquiries you've made
• The type of credit accounts you’ve held
• Your usual repayment amount/s
• Whether you make your repayments on time
• If you have previously had a bankruptcy or personal insolvency agreement

How to improve your credit score

The good news is your credit score is dynamic, so it can improve depending on how you manage your debt. You can actively improve your credit score by paying all your bills or loan repayments on time. The ASIC MoneySmart website offers a few options for improving your credit score. Find out your score now, and then come back here to give your debt management a boost.

Check your credit score