Can everyday Aussies raise their "debt ceiling"?

When the US government increased the nation’s debt ceiling last week to avert defaulting it was a timely reminder for personal borrowers around the world to consider their own finances. 

While we don’t have the spending levels to negotiate a $US2 trillion increase to our debt capacity – as the US government treasury exercised – Australians saddled with debt do have options when facing financial hardship.

Ask for help

Whether you are swamped with credit card debt or struggling to meet repayments on a car loan or personal loan, the first thing you should do is contact your provider and alert them to your situation.

Prioritise

The Australian government’s Money Smart website advises borrowers to prioritise secured debts such as your home and car loan over ongoing payments on unsecured debts like credit cards. But debtors should also consider how much interest they are paying on a loan or credit card when prioritising repayments.

Refinance

If you can’t meet repayments it can seem like a good idea to roll all of your loans into one, but consolidating debt is not always the best option. You’ll need to determine whether amalgamating debts will reduce interest and fees paid. Think about the loan term too; rolling a car loan into a mortgage may mean paying less interest, but over a longer period such as 20 years or more, by which time the car in question has been sold or retired.

Think ahead

Before jumping into debt, calculate how much you are comfortably able to afford in repayments, accounting for any interest rate rises. Even a small difference in interest rate can make a big difference to what you have to pay. The government’s Money Smart website has a free and easy-to-use budget planner that will help you to nut out your cash flow.

Weigh up your options

Finding the right financial products to suit your needs may be a seemingly overwhelming process given the volume of accounts and loans on the market. But that’s where a financial comparison site, such as RateCity, comes in to play. To find a low interest car loan for instance, all you need to do is select the amount you wish to borrow and the loan term before clicking the ‘find a loan’ button. Results are then instantly displayed on screen and ranked by advertised interest rate, application fee and monthly repayment.

Before taking on significant debt consult a financial planner, which may be able to offer a solution that will see you better off in the long term.

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