5 strategies for going on a financial diet

Bessie Hassan | Money Expert at finder.com.au

We’re all guilty of paying the “lazy tax” from time to time. Whether it’s exceeding your mobile data limit or paying too much interest on your credit card, there are many ways we overpay for our everyday consumption.

With the cost of everyday life, it can be be tempting to bite off more than you chew as far as your finances are concerned, which can make it hard to stay on top of your ongoing (and often increasing) financial commitments.

To find out how you can give your finances a detox by employing some basic money-saving strategies, read on.

• Check your credit score

Learning your credit score should be your first step, and it’s easy to do. You can look it up for free online. Your credit score is a number ranging from 0 to 1,200, which gives you an idea of the type of borrower you are. Banks and lending institutions often use your score as a means of deciding whether you can comfortably afford to repay a loan. For example, if you have a below average credit score of say, 400, and your credit file is tainted with defaults, a bank may be hesitant to lend to you.

Knowing your score can help you manage your expectations when you apply for finance. For instance, if you know that you have a low score due to several missed repayments, you can attempt to fix your score before applying for a long-term product like a home loan to avoid being rejected.

• Roll existing debts into one account

Combining your debt is another good way to tidy up your finances. Rolling your debts into one account allows you to save on costs, as you won’t be paying account-keeping fees or interest on several individual accounts.

Say you have three different credit card accounts but you’re finding it hard to make your repayments in full. You could sign up for a 0% interest balance transfer credit card, which would basically allow you to consolidate all of your accounts onto one card and repay the total debt with no interest charges for a given period of time. To take advantage of this kind of product, make every effort to repay as much of your balance as you can during the interest-free window. You may be lumped with a much higher revert rate after the interest-free period expires.

• Challenge your provider to match a competitor’s price

It could mean an awkward conversation, but it’s certainly worth the reward! If you think you’re paying too much on a household bill or a financial account, do some research to see what other providers are offering. If you discover a more competitive price elsewhere, tell your provider about it and see if they can match it. More often than not, they’ll give you a discount because they won’t want to lose you as a customer.

Refinancing is a great way to save money, particularly on long-term products like a personal loan or a home loan. On a $350,000 loan, with 5.5% interest, your monthly repayments would be $1,987.26 and the total cost of your loan will be $715,414.14. However, at 4.5%, your monthly repayments would be $1,773.40, saving you $213.86 per month and $2,566.32 per year.

• Prioritise high-interest debt

If you have any leftover cash after making the minimum repayments on your accounts, focus on repaying your high-interest debt first. For example, you could be paying around 17.15% on your credit card compared to 5.08% on your home loan. In this case, you’re better off making extra repayments on your credit card first rather than your mortgage.

• Resist temptation (and learn to be frugal!)

Adopting a frugal mindset is central to any financial diet. Resisting expensive holidays, refusing to increase your credit card limit and even using a budgeting app or making extra repayments on your car loan can go a long way in helping you save money.

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Going on a financial diet involves understanding your financial behaviour and working out what money-saving tactics can help improve your position. Whether it’s getting rid of debt faster through consolidation, negotiating better prices on your accounts or adopting a frugal mindset, there are plenty of ways that you can change your financial situation for the better.