Get your credit report
To know where you stand with banks and lenders, you should get a copy of your credit report. This will come in useful later, if you decide to consolidate debts or take out new credit cards (we’ll explain in detail later on in the post.) Your credit report lists your last seven years of credit applications and defaults.
Defaults are failures to pay a bill or loan repayment after 60 days. You should get your credit report because it will show you if a bank or utility company has given you a strike on it by mistake. Credit reporting companies only tell you what’s on there; they have no power to fix mistakes. This will also show you your habits when it comes to paying back debts in full or on time.
Look at current income and expenditure
Now you know your history, it’s time to look at the present. Figure out where your money goes using an itemised list. Your bank statement is a good place to start.
If you have a poor record of paying debts back, focus on shifting more income toward servicing debt. At any rate, you should create a budget around major product or service areas. Utilities, transport, food, grooming, luxuries, going out, and so on. If you are spending too much on luxuries, rein it in. If you spend more on Uber than an equivalent car loan each month, it might be worth considering buying a car. If you don’t use all your calls or data per month, see if you can get a cheaper phone plan. Death by a thousand cuts is the best strategy when you want to kill debt.
Consolidate or reduce debt
According to the Organisation for Economic Co-operation and Development, Australians have the highest ratio of debt to income in the world, at a whopping 212%! If you have high amounts of debt from credit cards, personal loans and other loans, talk to a financial professional about consolidating your debts into one loan. This puts you on top by paying off one loan instead of several at varying interest rates. If you aren’t in dire shape, you can make a start by transferring a credit card balance to a credit card with a 0% balance transfer rate. This gives you time to pay off your balance without incurring more debt (provided you don’t spend more on the card!)
Budget and save
Once you’ve made all these changes, create a budget – and stick to it! This is the hardest part of your financial audit. Once you have made the changes, you can break free from debt and start saving your money!