Student loans, overdrafts, credit cards, personal credit lines – debts can feel like a dark cloud hanging over your head.

Burying your head in the sand and wishing them away can leave you feeling vulnerable and uninformed. Taking control of your debts and making an action plan to tackle them in order of priority will feel like a weight lifted off your shoulders. Let’s get organised!

 

1. A budget can be your best friend

Setting up a budget is the first step to taking control of your finances. There are lots of tools and spreadsheets out there to help you manage your income and outgoings – this one by Sorted is really helpful. While paying off debts is a priority, it’s also important to make sure you still have enough to live on and for other mandatory expenses (rent, bills, food) – and still enjoy a brunch date or a trip to the movies occasionally.

Setting up a budget can be a bit of initial admin, but once you’ve put in the leg work, it will help you get on top of everything, see where your money is going and where there are payments that can be shuffled around to suit your needs.

 

2. Cut the Creditline

If you have a MAS/Westpac Student Creditline there is a big incentive to pay this off as soon as you can after graduating. Your MAS adviser can help you work out a manageable repayment plan based on your income and how fast you’d like to pay it off.

As an example, someone with a Creditline of around $9,000 could make repayments of $500 a fortnight to pay the debt off in two years or $350 a fortnight to pay it off in three years. It really depends on what your other financial obligations are and how important paying off this debt is to you.

 

3. What would Speedy Gonzales do?

He would pay off his high interest-earning debts first – and as fast as possible. Any consumer debts like overdrafts and credit cards that earn high interest should be your number one priority. If you can smash them first, then at least you won’t be adding more debt to your existing debt. So you probably need to be repaying more than the minimum each month.

It can be tempting to pay off smaller, more manageable debts first to give you a feeling of accomplishment but try to resist this – you will be better off in the long run by tackling debts that accrue the highest interest first and paying smaller debts later.

 

4. Your student loan is like a self-cleaning machine

Your student loan may look big and scary, but the positive is that this loan is interest-free as long as you live in New Zealand. You can chip away at it with the minimum repayments required and not think about it until you’ve got your other debts under control. Any surplus income you have shouldn’t be directed at this debt while you have other remaining interest-earning debts.

Of all the debts, the student loan is a fairly easy one to manage as deductions happen automatically with little effort required – thanks Inland Revenue. When you have squashed all other debts, then consider ramping up your student loan repayments. Find out more about paying off your student loan here.

 

5. Treat yourself

Paying off debts is no easy feat, so remember to #treatyourself for meeting your targets and accomplishing milestones. If you successfully pay off your credit line, reward yourself with a celebratory lunch or something small that will make you happy and keep you motivated on your journey to becoming debt-free.

We all need encouragement and fun in our lives, it can’t be all work, work, work. Just remember not to take it too far – you don’t want to end up back in the depths of debt that you worked so hard to get out of.

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