Every day, the news and casual conversations with friends and acquaintances highlight the increasing costs of virtually everything. From mortgage repayments to daily expenditures, including our weekly groceries, utility bills, fuel expenses, every facet of life seems to be affected. Although individuals with lower incomes might be familiar with managing debt and financial instability, the ongoing crisis has introduced a new reality where many people are grappling with financial challenges for the first time in their lives.

Managing debt can often be overwhelming, especially if you haven’t been in this situation before. Here are some steps to tidy up your finances and cope with the cost of living, including the potential use of debt consolidation:

Assess your finances

Start by evaluating your current financial situation. List all your debts, their interest rates, and monthly payments. Also, track your monthly income and expenses to understand your cash flow.

Create a budget

Develop a realistic budget that prioritises essential expenses such as housing, utilities, and groceries. Allocate a portion of your income to savings and debt repayment.

Explore debt consolidation options

Research debt consolidation options, such as personal loans, balance transfer credit cards, or home equity loans. Compare interest rates, terms, and fees to find the most suitable option for your financial situation.

Apply for a debt consolidation loan

If you decide that a debt consolidation loan is the right choice, apply for one with favourable terms. This loan should ideally have a lower interest rate than your existing debts, helping you save money in the long run.

Stick to your budget

After consolidating your debts, adhere to your budget rigorously. Cut unnecessary expenses and allocate any extra funds to debt repayment. This will help you regain control of your finances.

Build an emergency fund

Establishing an emergency fund can prevent future reliance on credit in case unexpected expenses arise. Aim for three to six months' worth of living expenses in your emergency fund.

Negotiate with creditors

If you're struggling to meet your monthly obligations, contact your creditors. Some may be willing to negotiate lower interest rates or more flexible repayment terms, providing temporary relief.

Seek professional advice

If your financial situation is complex, consider seeking advice from a financial advisor. They can provide personalized guidance based on your specific circumstances.

Consider your mental well-being

If your financial struggles are impacting your mental well-being, seeking professional help is a recommended step. Sometimes, simply discussing these issues with a friend or family member can provide a sense of support, lessening the feeling of isolation. They might offer valuable advice or assist you in scheduling an appointment with a debt advisor if needed.

It's important to remember that how you choose to address your debt is a personal decision. However, tackling the issue promptly is crucial to prevent further arrears and additional financial hardship. As you begin to open up about your financial situation, the process becomes more manageable and comprehensible. This not only contributes to a better understanding of your finances but also empowers you to regain control over your life.

Australian Mutual Bank has partnered with Your Financial Wellness to provide our members with free access to a Personal Financial Wellness Scale. This service offers easy to use tools designed to help you make more informed decisions regarding your financial future, whether it's creating a budget, saving for retirement, getting out of debt or just understanding where your money goes. See your Financial Wellness Score here.

If you have questions or want to speak to someone about minimising your debt, call us on 13 61 91 or visit moneysmart.gov.au for more tips and guidance.

11 January 2024