When it comes to managing debt, how you handle your money can help you repay what you owe.
Being money smart is more than just a mindset shift – it involves taking proactive steps to improve your finances. For some, this could mean slashing expenses like fast food or subscription services, or it could mean paying off high-interest debts first.
In this article, you will learn what it means to be money smart, and how doing so can help you manage debt.
Key takeaways
- Being money smart means using the right tools and knowledge to improve your finances and manage your debts.
- Creating a budget and prioritising high-interest debts first are just some of the many ways to regain control of your finances.
- Free services like the National Debt Helpline can help you better understand your situation and debt relief options.
What Does It Mean to be Money Smart?
In 2024, more than 4 in 5 Australians set financial New Year’s resolutions, according to research. Saving money, spending less, and reducing expenses were the three top financial goals.
To be smart with your money, you don’t need to be rich, run a business, or invest. You just need to incorporate some basic tools and knowledge into your life. Even something as simple as learning how to budget is a great starting point.
Setting goals that are specific, measurable, achievable, relevant, and timely – otherwise known as the SMART acronym – can help you stay on track, too. With perseverance, you may form a more positive relationship with money and make better financial decisions.
4 Money Smart Ways to Manage Your Debt
Now that you know what it means to be money-smart, here are 4 ways to put this philosophy into practice.
1. Create a Budget
Use an online budget calculator to see how much money you have coming in and going out on a weekly, monthly, or annual basis. With the calculator, you can input your income and expenses, and then review the results.
Reportable income may be your net salary and bonuses, investments, government benefits, and other sources. Reportable expenses may relate to motor vehicles and transport, household and living, insurance premiums, loans, credit cards, and leisure.
Your results should provide a holistic overview of your finances. This may help you identify and address areas of overspending. For example, you may cut back on fast food or find a better deal for motor vehicle insurance.
2. Prioritise High-Interest Debts First
Are you juggling multiple debts at once? If so, the avalanche method is an effective debt management strategy.
The avalanche method is where you focus on repaying the highest-interest debts first. You still make the minimum repayments on all of your debts. But you then use any leftover money to make extra payments towards your highest-interest debt.
There is one important detail to remember. You should still focus on the highest-interest debts, even if they do not have the highest balance. This way, you will reduce the total amount of interest that you pay over the lifespan of all of your debts.
To see how much you can afford to repay with the avalanche method, use an online repayment calculator. Share the details of each debt and find out how much time and money you need to repay each one.
3. Seek Financial Help
Being in debt and keeping up with the cost of living can be stressful. The good news is that you don’t have to face it alone.
Talking to a professional, be it a financial counsellor or debt management specialist, is free and does not affect your credit rating. You also avoid the risk of pursuing dangerous quick-fix methods, such as taking out a new loan or raising your credit limit.
For free, confidential help, call the National Debt Helpline on 1800 007 007. A trained financial counsellor can assess your situation and provide free advice.
Are you over 15k in debt and stressed? Call Debt Fix on 1300 332 834 for free help. Our debt management specialists will work closely with you to design a debt consolidation plan in Australia that’s right for you. We provide all the advice and support you need to move forward.
Call Debt Fix on 1300 332 834 for an obligation-free assessment.
4. Set Clear Financial Goals
Goal setting can be an effective way to take back control of your finances. If you’re not working towards a specific outcome, you may be inclined to spend more than you should. Setting SMART financial goals can help you stay on track and focused on improving your finances.
What is a short-term financial goal? It is usually a simple task that does not take long to achieve. It could be creating a budget (as discussed before) or setting up an emergency fund. For example, a goal could be to set aside $500 of emergency funds within three months.
Long-term financial goals require more time and planning to pull off. Such goals could be to pay off your existing debts or estimate your retirement needs. Whatever your goals may be, use the SMART formula to keep them clear and attainable.
An example of a long-term financial goal could be to pay off your $3,000 credit card balance within three years. This goal works because it has a set monetary amount and time limit, so it’s easy to track and achieve.
Talk to Debt Fix
At times, trying to escape debt can feel like an uphill battle, especially when juggling multiple accounts.
Debt Fix offers a range of debt solutions to help you save money and get creditors off your back. We work closely with you to understand your circumstances and propose a debt relief strategy that works for you.
It only takes 30 seconds to get started. Share your details and arrange a 100% confidential chat.
Frequently Asked Questions (FAQ)
Is a Debt Management Plan Right for You?
You might want to consider a debt management plan if you are:
- Having trouble meeting your minimum debt repayment obligations
- Experiencing emotional distress or losing sleep due to debt
- Struggling to decrease your debt due to high interest
Does Debt Management Affect Your Credit Rating?
Your credit rating may suffer if you:
- Submit a hard inquiry and get rejected (e.g. apply for a lower interest)
- Miss one or more repayments
- Default on your account
Is It Free to Seek Financial Help?
Services like the National Debt Helpline and DebtFix offer 100% confidential and obligation-free advice and support.