No one means to get into debt; it just happens over time.

It starts with putting a couple of larger purchases on a credit card, then managing day-to-day expenses from food and petrol, to unexpected issues and bills. Sometimes in this day and age, it’s hard not to go into debt. And we all know how fast it can happen.

And the reality is there are good reasons to go into debt: buying a home, purchasing a car, making good investments. However, then there’s the bad debt, such as using credit cards and not paying them off or maxing out your credit (whether that’s credit cards, loans, etc.).

If you find yourself in debt that feels overwhelming, you’re not alone. Australia ranks as the fourth highest nation in the world in terms of personal debt. Since 1995, the ratio of income to household debt has more than doubled, from 104% to 212% according to 2015 data released by Organisation for Economic Co-operation and Development (OECD) data.

What does that mean? Take a household where the income is $80,000, then that household is spending more than $169,000 annually. While that might feel like an extreme, the average Aussie household owes $250,000. Granted, much of that is home mortgage, but there is also investor, personal (such as car loans), student and credit card debt included in those numbers.

If you find yourself in this situation, don’t despair. You can break the cycle and get out from under this burden. Below we explore 3 ways in which you could find financial freedom.

1. Home Equity Loan

One of the ways you might consider getting your debt under control and paid off faster is by taking out a home equity loan. If you are lucky enough to have owned your house for a bit and the house is worth more now, then you might be able to take advantage of a very cost-effective way to pay off your other debts.

But let’s break down the pros and cons of pursuing a home equity loan as a way to pay off your debt.

Pros

  • Repayment should be more manageable.
  • Interest rate should be lower than other options. It also should reduce your overall interest payments since you won’t be paying the higher interest that credit cards and other bad debt might have.
  • One monthly payment that takes care of your mortgage and your debts. It should help your finances.

Cons

  • Mortgage payment will increase so make sure you can pay it (keep in mind it should be easier to do that since your other debts will be paid off), but you certainly don’t want to go into default on your mortgage.
  • You will incur additional interest with the larger mortgage payments and/or longer term.

Overall, this could be a good option for some people if you meet all the criteria and can get a good rate (not pay a bunch of fees) and can get rid of your debt.

2. Credit Card Transfer

If you are juggling several credit card balances and would like to get out of paying three or four, it might be easy to take advantage of a balance transfer offer on a new card or perhaps an offer from a card you already have.

The advantage of these offers is that you’ll be able to put all of your money towards paying off the debt since there typically is a zero interest for a certain number of months. Of course you have to make the minimum payments and on time during this period to keep it in place.

Keep in mind that if you pursue this option then you’ll need to discipline yourself to pay a certain amount every month that will make sure you pay off the entire balance before the interest-free period ends.

3. Debt Consolidation Loan

Depending on how much debt you have, you might consider a straight debt consolidation loan. Taking all your small debts and consolidating them into one loan should give you a chance to get out of debt in a set amount of months and make one simple payment every month. The great part about a debt consolidation loan is the knowledge of exactly when you’ll pay off the loan so you know when you’ll be able to celebrate your financial freedom.

Here’s where a Swoosh debt consolidation loan could be perfect for you. It offers a way to make easy monthly payments with a known end date so you’ll rest easy knowing that you are mere months from being out from under this burden.

Plus, typically consolidating your debt into one loan should lower your monthly payments so that it becomes easier to get out of debt.

Swoosh Finance loans have only four requirements:

  • Be 18 years or older
  • Be employed for at least three months
  • Be a permanent Australian resident
  • Own a vehicle registered in your name, with no finance owing or encumbrances.

The best reason to take out a loan is to pay off those debts and create a fixed term for ending the stress.

Budget Tips

The biggest thing to remember in tackling your debt and trying to reach debt-free status again is to create a household budget. You’ll need to figure out how to make these payments using whichever method you choose to pay off the debt without incurring additional other debt. So create your budget and plan to stick to it so that you never find yourself in this situation again.

Obviously life happens, and you might find yourself in a pickle due to unforeseen issues such a medical event or costly repairs for your car or home. However, if you can start saving just a tiny bit each time you get paid, this allows you to create a rainy day budget that could help you from creeping back into debt again.

Whatever the case, however you got into debt, know there are resources to help you achieve your dreams. Check back here to the Money Gym Blog often! We are always posting tips on how to get the most out of your budget, and we’re here to help you!