Credit - it plays a huge role in the lives of many Australians. After all, without it most of us wouldn’t be able to buy the homes we live in or the cars we drive. So when used responsibly, credit cards, personal loans and home loans can prove seriously handy for managing cash flow and helping make those big and small purchases in life.

Unfortunately, Aussies can easily get caught up in a debt trap if they borrow more than they anticipate to repay within 12 months. Luckily you don’t have to be a genius to tackle debt, but there are certainly some habits many Australians can ditch to help break free of their dumb debt permanently.

1. Not setting a budget

One of the biggest errors many people make is not setting, or sticking to, a budget. After all, it’s easy to spend beyond your means and rack up debt without a clear money plan in place. But creating a budget isn’t hard. It’s actually as easy as working out your total income and expenses so you have a clearer picture of your finances and where you can (and need to) save.

2. Only making the minimum monthly repayments

While avoiding late fees is great, only making the minimum repayment each month is one of the most common credit mistakes you can make because you’ll be maintaining the outstanding balance for longer and paying more interest! If you’re able to, on your credit card, pay off your balance in full each statement period, or move your mortgage payments to fortnightly rather than monthly payments (which means you’ll make roughly 13 months’ worth of payments over the year, instead of 12 – chipping away at your debt faster and reducing interest!).

3. Chasing rewards points

Rewards points can be a great incentive, but they should always be treated as that - a perk. Putting more on your plastic just to accrue points is a classic bad habit, and one which is more likely to compound your debt than put you in a first class seat to Hawaii. And bonus points are not the most important feature when you’re shopping for a mortgage. So if you’re looking to bump up your rewards points stash, make sure that it doesn’t lead to additional interest payments.

4. Not reviewing monthly bills

Whether it’s your electricity or internet bill, complacency is one of the major mistakes when it comes to tackling debt. That’s why it’s worth reviewing all your bills on a regular basis to ensure that you’re still getting the best value for money. If you’re not, it could be time to haggle with your provider for a better deal or make the switch to a more cost-effective option. After all, the less you pay in bills, the more debt you’ll be able to pay down.

5. Making late payments

Let’s be honest, most of us have forgotten to pay a bill at least once in our lives. It’s something that can happen, but that doesn’t mean it should become a habit. Not only will late payments on your credit card or bills come with the pain of late fees and extra interest repayments (for credit cards) that will compound your existing debt, paying past time or missing a payment altogether could also affect your credit health.  

6. Paying a premium for things you don’t use or need

Do you really need a subscription to both Netflix and Stan? How about that new pair of shoes you’re weighing up? Credit products can be great, but some are enablers and can support the temptation of impulse purchases. Chances are there are a few things in your life that you don’t use or need that are contributing towards your debt balance. So whether it’s channeling your inner Marie Kondo and ditching the ongoing expenses that aren’t bringing you joy (or helping you ditch debt), or making sure that you only buy clothes or other items on sale, reassessing your expenses is a smart way to cut back.   

7. Not paying off highest interest debt first

It can be easy to take a scattergun approach to paying off debt, but one smart step to paying it off efficiently is to consider how much each debt is really costing you, and pay off the debt with the highest interest or fees first. For example, paying off the balance of your credit card (20% interest rate) over your car loan (8% interest rate). That doesn’t mean neglecting your other debts, but it does mean funneling any extra repayments you can make towards the debt with the highest cost.

Consolidating your credit card could be a great way to lower your interest payments and wrap it all up in one place, otherwise a balance transfer to a credit card with a 0% or low introductory interest rate could be a solution for credit card debt. But make sure you stop using or close the account you’re transferring your balance from, or else you might just rack up even more debt.

Whatever your situation, making some simple changes and ditching the dumb habits will not only help you tackle your debt, it could help put your credit health in better shape.

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