Top 5 Tips – What not to do with debt

It’s easy to get in trouble with debt – Our Top 5 Tips will help you steer clear of the pitfalls.

Tip 1 – Don’t borrow for a holiday

Borrowing to buy an asset makes sense. But borrowing for a holiday, or other general spending, can get you in real trouble. If you want it bad enough, then saving is the best option.

Credit card spending is an even bigger problem – unless you pay it off in full each month.

Tip 2 – Don’t borrow the maximum the lender will allow

Banks want to lend you money, and the maximum borrowing limit can be high. Of course they have limits on how much you can borrow – and those limits have become tighter in recent years.

Nonetheless, you should carefully consider the merits on borrowing to the maximum limit versus leaving some capacity in your financial position – consider the impact of interest rates increasing (which they will do!), or if you or your partner lose your job, or if your living expenses significantly increase.

It’s important to always allow a buffer in your monthly budget.

Tip 3 – Don’t ignore your loans – revisit them regularly

Lenders routinely offer better deals for new loans than for their existing loyal customers, so it pays to check your loans regularly and if appropriate, ask for a rate review.

Home loan repayments form a major part of most households spending – cutting just 0.5%pa on a $400,000 will save you $2,000pa

Tip 4 – Don’t assume you have to move lenders to get a better rate

A rider to the above tip is that if you are considering moving to another lender, do tell your current lender.

In the current competitive environment, they may offer to reduce the interest rate on your current loan to keep your business – a discount below the listed interest rate will often be available. Or, they may suggest an alternative loan product at a cheaper rate.

Of course, if you have found an alternative loan, it’s important to check the small print – make sure that you are comparing all moving costs and ongoing fees and not just the interest rate.

Tip 5 – Don’t pay only the minimum

Home loan rates are at an all-time low, and it’s the same for personal loans and credit cards.

But if you just pay the minimum you are not getting ahead – your home loan minimum payment is based on repaying over the full term e.g. 30 years.

By repaying a higher amount, you are reducing the loan amount and in turn, this reduces the term of the loan – and that equals interest savings.

Speak to a financial professional

As always, it’s important that you speak to your lender before making any significant changes, as penalties may apply.Victora Wallis-Smith

And if you’d like to speak with Victoria on how to better manage your cashflow and reduce your debts, please call our office to schedule an appointment.