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Fine tune your financial fitness


Fine tune your financial fitness

 

With the world in such economic turmoil at the moment, reducing debt should be a top priority.

 

Recent numbers show that Australians have more personal debt than any other citizens of any other country in the world.

 

The Reserve Bank of Australia or the RBA has determined that most of the debt Australians carry is for mortgages, loans and credit cards. These debts are over $1 trillion AUD.

 

The RBA statistics also reveal the national credit card debt has climbed 42 per cent in the past five years to $49.3 billion in May this year, with $36 billion accruing interest.

 

With this in mind following are a few tips to help point you in the right direction to reduce any personal debts you may have. This information is of a general nature and does not take into account your personal situation.

If you would like some “one on one” assistance with your finances, please send me an email or give me a call.

 

Draw up a plan

 

Work out how much you owe on your credit cards, personal loans, store cards and mortgage – everything.

Then total all your income. Draw up a budget and work our how much surplus income is left after paying all your debts and everyday expenses.

 

Consolidate Debt

 

It is not unusual for Australians to have more than one credit card. Total up the debts and consolidate into one facility, either a personal loan or an additional loan against your mortgage. Another less preferred option is to transfer to a low rate or a short term “interest free period” credit card. Make sure you destroy the old credit cards and close the accounts to avoid the temptation to reuse the cards.

 

Pay high interest debt first

 

Pay off the debt that has the highest interest rate first, this is usually store or credit cards. Paying off just a small additional amount each month will save a substantial amount in interest. When you have paid off one card take the payment for the first card and add to the payment of the second card. Continue this until all debts are paid. Leave your mortgage (usually the cheapest rate) until last.

 

Cash Advance

 

Using your credit card for a cash advance is generally a sign of financial problems. Interest rates on cash advances are much higher than the interest rates on purchases. If you are continually using your credit card for cash advances it’s time to look at restructuring your finances.

 

Trim the fat

 

Most of us can find some savings if we try. A little smart shopping, taking advantage of discounts and buying petrol at the cheapest part of the week are just a few ideas. Download a copy of my free ebook “Surviving On A Budget” for more helpful hints.

 

Mortgages

 

Shop around for a better deal with either your existing lender or other banks. As a mortgage broker I can assist you to compare your current loan with many other lenders. Reducing the interest rate you pay on your loan can save you thousand of dollars in interest. Competition in the mortgage market is extremely competitive at the moment with mortgage lenders keen to have your business.

 

Do your sums

 

Borrowers should save $150pm on a loan of $300,000 over 30 years if an interest rate of 7.80% is cut to 7.10%.

 

Check out the comparison below:

 

Fully featured                       No Frills

Loan                                 Loan

Loan Amount:

$300,000

$300,000

Total Repayments:

$779,860

       $725,795 (save $54,065 in interest)
Nominated Term:

30

30

Monthly Fees:

$5

$0

Interest rate:

7.80%

7.10%

Comparison Rate:

7.90%

7.15%

Initial Repayments:

$2,165

$2,016

Repayment Frequency:

Monthly

Monthly

 

 

If you continued to make the higher repayment of $2,165pm on the lower interest rate the comparison would be something like this:

 

Loan Amount:

$300,000

       $300,000
Total Repayments

$725,795

       $628,999 (save $96,796 in interest)
Nominated Term

30

30

Actual Term

30 years

     24 years 3mths

Monthly Fees

$0

$0

Interest rate:

7.10%

7.10%

Comparison Rate

7.15%

7.15%

Initial Repayments

$2,016

$2,165

Repayment Frequency

Monthly

Monthly

 

If you made your loan payments weekly or fortnightly the interest savings would be even greater.

 

Basic Loans

 

Many borrowers pay higher interest rates for features such as a redraw facility and offset accounts attached to home loans. Some borrowers do not need these “bells & whistles” features and should consider the cheaper “no frills” option.

 

Bank Fees

 

Banks make millions of dollars profit from customers with accounts that are not suitable to their banking habits.

Review your account keeping fees and then discuss with your bank what account would be more suitable to your situation and enable you to reduce fees. Shop around for banks that don’t charge transaction fees at all. Ensure you only use your banks ATM or withdraw additional cash at “EFTPOS”, to avoid other banks ATM fees.

 

Save

 

When ever possible try and save at least $10 - $20 per week for a “rainy day”. Research different savings accounts to find the best interest rate for your savings and watch it grow. Keep this account separate you’re your everyday transaction account. Then when you have an emergency you will have the cash in your account and will not need to use credit cards.

 

 

 

 

 

 

 

 

 

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