Over the last couple of months I have been forced to tackle some debt. After calculating my tax return, I ended up owing the government a nice little sum last financial year, as I worked several jobs and managed to earn over the HELP repayment threshold. I also had to pay car registration, car insurance, a PPCA license, and a couple of other things.

After getting through all that, I realised that I needed to get into a better way to pay off my other long-term debts, such as my car loan and my HECS (HELP) debt. A little bit of research on the internet helped me find out about the Debt Avalanche method for handling debt. Flexo‘s post details how to best look at tackling your debt, by first targeting the higher interest rate debts in order to minimise the effect interest has on your overall balance. I’m going to quickly give a brief overview of this method.

  1. List all your debts, sorted by interest rate


    2. List all your debts, ordered from highest interest rate to lowest interest rate. This shows you which debts will cost you more over time. Most people will have credit cards up the top of this list, as they are designed to charge us the most!

  2. Pay off the minimum amount for each debt


    3. We don’t want any extra fees now, do we? Make sure you pay the minimum amount for all your accounts so you don’t get any fees.

  3. Send extra money to the highest interest rate debt


    4. By paying off the highest interest account, you will save more money by having less interest to repay.

  4. Rinse and repeat


    5. Do it every month, and eventually you will have paid off your debts!

Sounds simple ey? Make sure you check out the full post by Consumerism Commentary to learn more.