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6 ways to reduce your debt

By taking small, well-considered steps, you can have a big impact on your repayments.

By Laura Culbert

  • Tips from CommBank’s personal finance expert Jess Irvine and financial counsellor Deb Shroot on how to budge down your debt
  • Small steps such as tracking your spending can have a big impact on repayments
  • The most important thing is not to beat yourself up about debt

1. Track your spending

The first step in tackling debt is to look at your spending. If you find that a lot of little luxuries have snuck into your lifestyle (we’re looking at you, multiple streaming services), now’s the time to cut back and use that money to start lowering your debt. “Try to live so that you’re spending less than you earn then divert some of those savings towards debt reduction,” says CommBank’s personal finance expert, Jess Irvine. 

2. Be strategic

Not all debts are created equal so how do you know which one to pay off first? The “avalanche” method prioritises high-interest debt, such as credit cards. The idea is to reduce the amount of interest you’re paying to save you money in the long run. “It may take a while to get your first win, because your highest-interest debt may also be your biggest outstanding balance,” says Irvine, “but over time you’re going to save the most on interest by paying off the most expensive debts first.”

Tip

Money Plan in the CommBank app offers plenty of great tools to manage your finances more effectively. It categorises your spending so you can clearly see where your money is going and then lets you set budgets for each category.

3. Start small

The “snowball” method, on the other hand, focuses on paying off the smallest loans first. Once each debt is paid, the money you were putting into the repayments is rolled into the next smallest debt – snowballing in size. “It can give you a real sense of accomplishment and this will help build the confidence you need to keep chipping away at the next, bigger debt,” says Irvine. Just don’t forget to make the minimum repayments required on all your loans to avoid incurring fees. 

4. Consider consolidating

Another way of paying off multiple debts is to combine them into a single repayment. This streamlines your finances and makes them feel more manageable. But you need to do your homework: compare the interest rate to your current debts and check for fees. If you’re consolidating to take advantage of a promotion, like a super-low interest rate, beware of any time limits. 

Tip

Money Plan in the CommBank app can help you predict your upcoming bills and manage regular payments. And you can enter extra bills manually so you have a full picture and can set aside money accordingly (and don’t have to worry about forgetting). 

5. Take charge of your bills 

If you’re missing due dates on your bills and loans, think about automating at least the minimum repayments to avoid paying late fees (and damaging your credit score). Deb Shroot, financial counsellor and sector advocate at Financial Counselling Australia, also suggests changing your billing cycle. “Consider making repayments fortnightly to help prevent bill shock.” 

Tip

Be careful not to take on any extra debt during this time. “This includes buy now, pay later services,” says Shroot from Financial Counselling Australia. “It’s very easy to get into debt by using multiple accounts and then falling behind on repayments.”

6. Use “found” money wisely

While it can be tempting to hit the shops when you receive your tax return, a work bonus or cashbacks from recognition programs such as CommBank Yello , it’s actually the perfect opportunity to give your debt repayments a boost – helping reduce the money you owe without affecting your regular budget. And remember, there’s no need to feel embarrassed if you’re struggling with debt. “My number-one piece of advice is to not beat yourself up,” says Irvine. “The good news is, it’s never too late or too early to start tackling your debts.”

 

If you’re still struggling, ask for help. “The best thing to do is call your lenders and ask to speak with the financial hardship team,” says Shroot. You might be able to negotiate a lower interest rate or set up a repayment plan. “You can also call the National Debt Helpline on 1800 007 007 for free and independent assistance from a financial counsellor.”

To learn more about Money Plan in the CommBank app, visit commbank.com.au/moneyplan

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This article provides general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as personal financial product advice. The views expressed by contributors are their own and don’t necessarily reflect the views of CBA. As the information has been provided without considering your objectives, financial situation or needs, you should, before acting on this information, consider the relevant Product Disclosure Statement and Terms and Conditions, and whether the product is appropriate to your circumstances. You should also consider whether seeking independent professional legal, tax and financial advice is necessary. Every effort has been taken to ensure the information was correct as at the time of printing but it may be subject to change. No part of the editorial contents may be reproduced or copied in any form without the prior permission and acknowledgement of CBA.