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 Understanding the difference between good and bad debt - and sticking to a budget - are the first steps to keeping your household in the black.
Although many Australians despise the thought of being 'in debt', debt should not always be seen as a negative.
Good debt can include anything you need but can't afford to pay for upfront, without wiping out cash reserves or liquidating all your investments, such as a property.
Alternatively, loans taken on items you don't really need (and can't afford) could be categorised as bad debt. Wherever bad debt arises, you'll find that a credit card is never far away.
So if you're concerned about rising debt levels in your household, what can be done to regain control?
Chop up the card - Once safe from temptation you can set about reducing the outstanding amount without adding to the problem. Remember, the minimum repayments on a credit card are designed to keep you paying interest for longer.
Work to a budget - Spot the gaps where the dollars have been leaking by recording what you spend each month. Once you know where your income is going, you can set a budget to keep you on the right track. Note down all regular commitments, including loan repayments. Anything that's left is your disposable income, although it's a good idea to try to channel as much of these funds into additional loan payments.
Change spending habits - Changing your behaviour is the only sure way to safeguard against slipping back into trouble. Stop impulse buying, which means making a list of items you need before going shopping. Also look for money saving opportunities, like taking a packed lunch to work, or cutting out the morning cappuccino. And if in doubt, be honest with yourself and ask 'can I really afford this'?
Consolidate debt - If you have multiple debts, consolidation may be the answer! One monthly repayment can be easier to manage than several. What's more, credit cards are charged at a higher interest than most other loans, so it may be worth paying off the debt with one hit and switching to a cheaper rate. One option worth exploring is to consolidate debts into your mortgage.
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