For millions of Australians, financial freedom seems like an unaffordable fairy tale. Debts pile up slowly over the years, often due to unforeseen circumstances such as a loss of income or the onset of medical bills. However you accumulate your debt, it’s important to remember that you do have options for debt management, and they do not have to include the devastating effects of bankruptcy. The path to financial freedom may include better budgeting and debt consolidation.

Stop Lying to Yourself

Find out exactly where your money is going. Count every dollar and coin spent, and keep a record for one month. At the end of the month, make a pie chart of expenses, sectioning your mortgages, regular debt payments, living expenses and miscellaneous expenses by the percentage of money spent on each category. Attempt to cut back on your excess spending by five to ten percent, and apply the additional money toward your debts.

Budget Your Debts

Budgeting includes more than just your daily spending. You already know that in order to pay off your debt, you have to cut back on your spending and apply more money to your financial minimums. However, you must know which debts to pay off first. Avoid your lowest interest debts that often carry the highest balances, such as your mortgage and car payments. Interest rates on these types of loans are almost always in the single digits. For your remaining debts that may include credit cards or personal loans, you can take one of two approaches: the high interest approach or the snowball effect.

The high interest approach means tackling the debts attached to the highest interest rates first. The benefit to this method is a quicker payoff and less money paid in interest over time. However, the snowball effect takes a different angle by paying off the smallest balances first, regardless of their interest rates. While you may pay more money in interest, you will experience small successes every few months when a debt is paid off, and the extra money can be applied toward the next smallest debt, allowing you to pay off bigger and bigger sums of money. The snowball effect usually takes a bit longer and costs a bit more over time, but is more likely to keep you on track.

Debt Consolidation

Consolidate your debt into one low monthly payment. The responsibility of having only one payment each month is easier to manage and pay on time. Additionally, a consolidation loan or debt consolidation plan is likely to carry a lower overall interest rate than your average credit card rate, resulting in a faster payoff. Most local lending institutions will offer debt consolidation loans. A good credit history and strong collateral will help your chances of obtaining a debt consolidation loan. But do remember there are other debt consolidation options that do not require a loan but still deliver some of the same benefits. For these type of options you should call a debt consolidation expert, like Debt Fix.

Stay on Course

A plan is no good unless you stick with it. Stay on course, and don’t allow yourself to slack on your regular payments. Refuse to fall into the same old habits that were likely to get you into debt such as overspending and failing to make timely payments. You didn’t get into debt overnight and it will likely take even longer to get out of debt. But the end results are worth the time and effort.