Now that the festivities are over you have probably accumulated a few more pounds and a significantly larger debt balance. Like many other Australians you are probably tired of Robbing Peter To Pay Paul and are looking for some more durable debt elimination solutions.
Here are some steps that you can take immediately to improve your financial position:
Document all your ongoing obligations, your living costs, mortgage repayments, credit card debts etc, as well as all your sources of income. Try and work out a payment schedule that allows you to cover all your debts and leaves a little extra to reduce obligations. If you genuinely wish to improve your situation – if it is not in the budget Do not purchase it.
Keep up-to-date with the latest home loan products advertised, as well as offers to roll-over credit card debts into a low interest card for a few months or a year. Some of these can really help reduce monthly repayment obligations.
Direct surplus funds into the debt accounts starting with the one that charges the most interest while maintaining minimum payments on other accounts. For example if your credit card interest rate is 17% and your store card has a rate of 13%, direct minimum payment to the store card and surplus funds to the credit card – this will save the interest paid at a higher rate.
Even if you are lucky enough to receive a pay rise – that way you can use the extra funds towards savings or your mortgage.
If you are able to do so. Get ahead of any future rate rises and fix your repayments on a higher rate now as if the rate were 1-1.5% higher. This enables you to pay your home loan off quicker and save a lot of money in interest before any rate rises and thus get ahead while rates are unchanged.
Set your repayments fortnightly instead of monthly, as you will then be making 26 payments in a year rather than 24. This in turn will save you interest costs and reduce the term of your loan.
For example, if you have $250,000 loan for 30 years at 7.82%, a fortnightly repayment will save you $114,926.11 and reduces the loan term by seven years and three years over the life of the loan.
Switch to a low interest card and choose one without annual fees or transfer fees. If you have $1,000 in your credit card at 15% interest, switching to a lower interest card at say 8.9% with no annual fee will save you more than $800 on interest and fees each year. If you put that saving in your mortgage you will cut your 30-year $250,000 loan by three years and eight months and save more than $58,000 on interest.
Bringing your lunch from home more often in the working week and putting the savings made into your mortgage can significantly reduce your interest payment and the term of your loan.
We all love the take-away meal and seem to eat them on a regular basis. If you were to give up one super-sized take away meal a week, say $7, and pay it off your home loan you would save nearly $25,000 and also about two years off your loan, plus imagine how good you will look. Home cooked meals are healthier for you as well as for your wallet.