It’s often easy to get into debt but not so easy to get out of it. Which debt should you pay off first? How can you manage a credit card without it costing too much? Should you take out a loan in the first place? How does buy now, pay later work?

Do I pay down debt first or get an emergency fund going?

Saving for an emergency fund of $1,000 is a great place to start, and then tackle all high-interest debt you're carrying. When you pay down debt first, if an emergency pops up, you are forced to borrow more in a crisis. With an emergency fund, however, you can handle those unexpected events like a car repair or trip to the vet, without sliding further into debt. The goal is to get out of debt for good, so here's more on starting your safety net

How many pay-later deals can I have going at one time?

A typical limit with a pay-later company is up to $1,500, and you can borrow with more than one pay-later company. But having too many of these going at one time is tricky to manage – it’s much easier and safer to have only one going at a time. If you must take out more than one of these, list them all and set a reminder in your phone when repayments are due. Here’s how to shop smarter when you’re using pay-later options like Afterpay, Laybuy or Zip.

Can debt affect my mortgage application?

One of the most important things that mortgage lenders look at is how much income you have free in order to make loan repayments. With too much debt, a lot of your income is already committed to other loans, and there's only so much to go around. Even if you’re not using all of your credit limit, it’s important to know that the lender will assess you as if you have. They will also look at your credit history, and how well you’ve repaid other loans. In the end the lender may decide to lend you less, or nothing at all. Here's more on what to expect to borrow when you're buying a home

Which debt should I pay off first?

We’re looking to pay off all high-interest debts. When you have a number of loans on the go, there are a couple of strategies that help to take them down. The first is a "debt avalanche", where you list all your debts and target the highest-interest loan first (the most expensive). This is the cheapest and quickest way out of debt. The second is a "debt snowball", where you target repaying the smallest loan first. This can be more motivating and effective for some people. Here’s where to find out more which suits you

Is debt consolidation a good idea?

Wrapping all our debts together and paying them off at once – ideally at a lower interest rate so we get out faster – can be helpful. But the key is to leave borrowing behind! Many times we've seen that consolidating debt into a single loan, while it seems like a good idea financially, in practice leads to more debt. Aim to close out your old credit cards and other ways of borrowing so you don’t end up racking them up again. Here's how to make debt consolidation work for you

Still wondering?

If you’d like to discuss your own situation (even anonymously) or need further advice, contact MoneyTalks.

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