How to get out of debt fast

After decades of bingeing on credit, Aussie consumers have decided it’s time to kick the habit.

Perhaps it’s the sheer size of our commitments that has jolted us into action – on credit cards alone, Australians currently owe more than $50 billion.

From credit cards to car loans and the mortgage, you can free yourself from debt. There are simple tips to cover everything and free up some cash in the weekly budget.

Financial expert Paul Clitheroe says the best place to start is the family mortgage.

“The place where I would typically save a normal Australian family about $3000 a year is just by getting the family into the right mortgage,” he told A Current Affair.

“If your mortgage starts with a six, you’re paying too much.”

Pay down your home loan

RateCity data shows some home loan rates have fallen below the 5 percent mark, with two-year fixed rate mortgages currently available at 4.99 percent.

Alex Parsons, chief executive of RateCity, said it’s not often that you see the fixed home loan market beneath the variable home loan market.

“At 4.99 percent on the fixed home loan you’d be mad not to fix some your loan today at that rate,” he said.

“The 4.99 percent is over two years and so in order for you to be worse off you’d have to have two drops really in the first year – so that in the second year you’re beneath the 4.99 percent.”

According to the Australian Finance Group, almost a third of new home loans last month were fixed; it is double the number from January and the highest in a decade.

Fixing a home loan isn’t for everyone, though. There may be significant savings to be found by refinancing into a lower rate, variable home loan.

On a $400,000 home loan, RateCity calculations show that by reducing the interest rate charged from 6 percent to just 5.5 percent, can free up $121 cash each month. Reinvest this into the mortgage (by making extra repayments) and the interest saved long term is a whopping $36,634.

Take control of credit cards

Out of control credit card debt, says Clitheroe, is another common trap for families.

Latest Reserve Bank data reveals that Australians owe more than $50 billion in credit card debt – or around $3282 per card.

Refinancing to a lower rate option could help to ease some pressures on repayments. For instance, while the average credit card rate in the RateCity database is 17.21 percent, personal loans with interest rates below 10 percent are available through the site.

Not all debt is bad debt

Getting into debt isn’t always a bad thing, according to Clitheroe.

“Good debt is going into assets that are giving you somewhere to live,” he said. “Necessary debt is maybe the car, then we start to move into what we call bad debt and bad debts are things like a 12 or 13 percent credit card.”

Finally, Clitheroe offers these simple tips to help Australians to kick the debt habit and ease pressure on the family budget:

• Be organised: know what you owe and make a budget
• Have a goal: set financial targets
• Find the right mortgage: anything over 6 percent is too high
• Take free money: haggle with your utilities and insurance providers
• Credit card: only use in an emergency.

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