If you have a number of debts from various sources, there are ways to reduce or better manage them. We recommend that you speak with a financial advisor first, who can recommend the best option that suits your needs. Below are just some of the strategies you could use to better manage debt.
Budget
Take the time to complete a budget planner. A budget will help give you an idea of where you're spending your money, where you can potentially cut back and how much is left over after you've paid all your regular bills and living expenses. If you find that your income is greater than your expenses, you can use the extra money to pay off your debts.
Pay off higher-interest loans first
Credit cards or personal loans tend to have a higher interest rate, so it makes sense to repay these first. Pay at least the minimum monthly amount. We recommend that you budget carefully and try to keep money aside for extra repayments.
If you have more than one loan, make extra payments on the loan with the highst interest rate first. Once that has been paid off, focus on the next highest interest rate loan.
Reduce your mortgage
Any extra repayments you make on your home loan will reduce the interest you pay in the long run, potentially reducing your mortgage term by years. Before you make any extra payments on your home loan, check with your lender first, as some may charge you for paying more than you should or paying out the loan early. You should also check that your lender allows you to withdraw money from your home loan as this will give you peace of mind that you can get back any extra you've paid you need to, for example, to pay for emergency bills.
Combine your debts with a debt consolidation debt
Consider a debt consolidation loan to repay all your debts. This will make life simpler for you as you only need to make one payment each month now. And if the loan has a lower interest rate than your other debts, you save money.
Use your home loan redraw facility
Another option is to redraw funds from your home loan to pay off your personal loans or credit card debts. Home loans generally have lower interest rates, so redrawing money to pay off your outstanding debts will result in you paying less interest and having a lower overall repayment.
If you can maintain the monthly repayment at the amount you were paying on the individual debts, you'll reduce the loan even quicker.
You could also use your redraw facility as a savings account. Instead of keeping money in your bank account or a cash trust where you pay tax on the interest it earns, you'll reduce the amount of loan interest you pay while still having access to your money.
For more information on how to manage and pay off your debts quickly or if you need help with budgeting, speak to a financial advisor from Intellichoice on 1300 55 10 45. They will be able to recommend that best option for you based on your circumstances and needs.
