Here are three of the most common personal debts that can quickly get out of control, and how you can get a handle on them:

1. Personal loans

Whether it’s for a holiday, wedding or a big-ticket purchase like a new car, the main thing to think about is if you can make the repayments. Sounds simple. But life can throw in a few curveballs. So borrowing within your means (that is, at a level that you can fit into your budget without sacrificing other costs) is a great way to give yourself access to the things you’d like or need, but couldn’t afford upfront.

Much like with home loans, you may have a variable interest rate on your personal loan. That means you could be affected by national rate rises that put a strain on your budget. So before taking out a loan, consider whether you would be able to afford the repayments if the interest rate doubled, or even tripled. And don’t forget the fees and charges, and the T&Cs.

You can use a loan repayment calculator to better understand your borrowing power.

Hot tip

When deciding between fixed and variable interest rates, make sure you consider whether you’re likely to stick to the repayment schedule or want the flexibility to make additional payments. For example, some fixed interest rates will lock you in at a lower rate, but may also come with early repayment fees if you want to pay it off sooner.

2. Credit cards

Credit card debt usually comes with one major tip: pay off all or as much of the balance as you can afford each month. It might not be mind-blowing news, but it’s generally the most effective. If you can get into this habit every month, you can open yourself up to other benefits including rewards points and discounts.

A credit card can be great for a variety of reasons if you’re disciplined, but always do your research, know the T&Cs, fees and stick to your payments.

Brain hack

One reason people find it hard to pay off credit card debt is because of the 'Anchoring Effect' Our minimum repayment amount becomes fixed in our brains as the only amount we need to pay to get out of debt, but the reality is that this is just the minimum amount we need to pay to not be charged a late fee. When you can, paying above the minimum amount will reduce the debt faster.

3. Buy Now Pay Later (BNPL)

BNPL can add a little breathing room to your budget. But remember, it’s important to be disciplined and consider how realistic it is for you to be able to pay the repayments on time. With BNPL, it’s often not the cost of the item itself but the late fees that sting people. You might think that a $10 fee on a $500 item isn’t so bad (that’s only 2%), but what if it’s a $20 item (that’s a 50% penalty fee), or if you miss multiple payments in a month? Those costs quickly stack up.

If you’re going to use these types of schemes, here are some tips which can help you stay in control:

• Pay on time to avoid late payment fees.
• Purchase things you could technically afford in one or two payments, instead of spending five times as much in one transaction. If the money isn’t there to begin with, you’re risking digging a hole.
• Don’t forget the payments that will come up later – check your balance and payment schedule regularly so you’re not caught out (plus you can always pay early if you have the money there!).
• Where you can, pay off more than your minimum repayment.

Brain hack

Spending money tends to give us a hit of that feel good brain chemical dopamine, and when we use credit we feel like we’re getting the best of both worlds: buying something big without feeling like we’re spending the full amount. Our decisions are influenced by the framing effect - the reference point when information is presented.

In this case, how we can buy something big without spending all the money today. We need to focus on reframing our focus from the individual payments to the total cost.

See all managing debt 