Everyone knows if you eat less and exercise more you’ll finish up skinnier! Similarly, if you spend less than you earn and invest the difference you will be on the road to wealth.
But how do you go on a debt diet? If we apply the same guidelines to debt management as we do to dieting,then we are able to at least make a start in the right way.
The primary way is to always ensure that you pay off the non deductible debt first. That way you’ll have the tax reduction aspect working for you as you go forward in paying down your debt on your home or investment loan.
The next thing is to go searching and ensure you have the least features you need 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- that has the minimum features you need. Be sure not to skimp on features that save your cash such as free ATM costs, if you know that you can not avoid them or redraw if you are planning on having to take cash back out for an excellent reason, for example to buy another property.
Another way to reduce debt costs, is by utilising 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 many lenders offer this nonetheless it is sometimes available. That way you can grab a great fixed rate (so long as you are convinced that the rates have bottomed). Just make absolutely certain that you choose a time period where you know that you will not have to sell your property, as there can be important costs for breaking a fixed loan early.
That’s the 4 pointers on how to keep your debt on the thin!