Jan 11 2012
4 Ways To Go On A Skinny Debt Diet
We all know if you eat less and exercise more you'll end up skinnier! In a similar fashion, if you spend less than you earn and invest the difference you will be on the way to wealth.
But how do you go on a debt diet? If we apply the same elements to debt management as we do to dieting,then we can at least make a start in the right direction.
The number one way is to always make sure that you pay off the non deductible debt first. That way you will have the tax reduction aspect working for you as you go forward in paying off your debt on your home or investment loan.
The very next thing is to go searching and ensure you have the least features you want for your loan at the lowest rate for your credit profile. That way you are paying the least rate for the loan you qualify for- which has the minimum features you want. Be sure not to skimp on features that save your cash such as free ATM charges, if you know that you can’t avoid them or redraw if you are planning on needing to take cash back out for a good reason, such as to buy another property.
Another way to reduce debt costs, is to utilise a “capped loan”, this is where the rate is fixed if it goes to a certain rate like 6% and variable if the rate falls below that. This is only worthwhile if the rate is very likely to be 6% or higher.
One final way is by using a fixed loan with an offset. Not a great deal of lenders offer this nonetheless it is often available. That way you can grab a great fixed rate (as long as you are persuaded that the IRs have bottomed). Just make sure that you select a time period where you know you won't have to sell your property, as there can be important costs for breaking a fixed loan early.
That is the 4 recommendations on how to keep your debt on the thin!
Virginia Graham manages Central Coast Mortgage Broker and is an Australian finance expert, having wrote a finance book “Flirting With Finance” and being a frequent contributor to web-based magazines.
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