Surviving the Financial Crisis, Reduce your Debt Levels

Meeting minimum debt repayments may be tough in a recession or when you face a personal financial emergency.

?Build a buffer for loan repayments. That way, if your income stops or is reduced temporarily, you'll have a cushion to help you get by. You may also slightly reduce the total interest you pay on the loan, provided you have an offset account. Aim to set aside two to three months of extra repayments at the very least.

?Consider refinancing. Interest rates have started to fall after hikes in recent years. If you locked in a fixed interest rate that now seems high, consider refinancing to a lower rate and/or a more flexible package. If rates have dropped 2% or more below your fixed rate, refinancing may save you money, even with break and exit fees taken into consideration. A good mortgage broker can do the shopping around for you and find you the most competitive rates and products. While you should review your debt periodically, good times or bad, you'll have more options if you refinance while your income is stable and before any potential drops in property values. In other words, don't wait until you - and your lender - get even more nervous.
If you do achieve a lower interest rate, keep your repayments at the same (or even higher) dollar level to help you build a buffer and pay down your debt more quickly.

?But keep ?bad debt? at front of mind. Focus on paying down high interest rate debt, first; if your mortgage rate is 7% and your car loan is 12%, work hard to pay down your car loan.

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