How to pay down debt in a recession

Saving and paying down debt have become national pastimes as Australia enters its first recession in nearly three decades.  

Amid revelations of a record economic contraction, household spending fell by $35.2 billion in the three months to June 30 while household savings rose by a whopping $42 billion. 

Fitzpatricks Private Wealth certified financial planner Randall Stout said that meant Australians were doing the right thing and building up a financial buffer in uncertain times. 

Here are three tips to help you do the same. 

1. Fight the avalanche

There are two schools of thought when approaching debt repayment: The ‘snowball’ and the ‘avalanche’. 

The ‘avalanche’ method involves making minimum repayments for all your debt, and funnelling any extra cash towards the debt with the highest interest rate, such as a credit card. 

The ‘snowball’ method follows the same first step as above, but then focuses on paying off the smallest debts first, before moving on to larger sums.  

The first method saves borrowers more money, as it reduces the total amount of interest paid. 

But the second method is often more motivating, as borrowers see progress more quickly, which in some cases helps them stick to their goals. 

Mr Stout said one strategy stands out as a clear winner. 

Continue reading about how to pay down debt in a recession. 

First published on www.thenewdaily.com.au and republished with permission from The New Daily. For the full article visit The New Daily website.