For the majority of working Australians, the number one financial concern is debt, and the number one goal is reducing it. However, it’s sometimes surprising how limited our understanding is of debt strategies, and the various ways in which we can actually improve our financial outcomes.
Here we explore a number of strategies, from simple to advanced, that can be easily employed.
1: Pay more
While this may seem pretty obvious, there’s much more to it. Firstly, you may be surprised at actually how much can be achieved by just a little bit extra. Beyond that, there are actually a number of tricky ways in which you can pay more, including more frequent repayments (paying $1,000 per fortnight is better than paying $1,000 per month), as well as replacing savings accounts with an offset account (your savings and salary deposits are constantly reducing your total balance, saving interest). Along with spending restraint or budgeting techniques, these tricks can slash months and even years off your loan term.
The idea of repaying a sizeable mortgage can be daunting, and finding the willpower to make those extra repayments can be very difficult. One technique to overcome this is known as “chunking” – breaking the goal down into more manageable chunks. Instead of having say a $700,000 mortgage, section off a portion of around $25,000 – and focus any extra repayments on that. By setting a short-medium term goal of clearing that chunk, you are more likely to stay motivated, and get a sense of achievement much sooner. The maths won’t change, but the behaviour will, and before you know it you’re celebrating then moving onto your next chunk.
3: Loyalty to the bank costs!
Have you had your current loans in place for a while? Chances are, with all the interest rate and policy changes over the last couple of years, you’re no longer getting the most competitive deal. Banks rarely come out and tell you that your loan is no longer competitive, and we’re often too busy to shop around. That’s where a good broker comes in. We regularly review our client’s loans and renegotiate on their behalf, always making sure the bank is deserving to keep your business.
4: Tunnel vision (blindly focusing on just the mortgage)
There’s no doubt that being debt free is a worthy goal, but so is having a sizeable nest egg, or more broadly “achieving financial security”. Clarifying your most important long-term goals can open up new possibilities, and it can prove rewarding. Focusing solely on mortgage repayments can mean other wealth creation strategies (such as borrowing for investment properties, shares, or cranking up the super) are put off, and in many cases it’s better to undertake a combination of strategies to arrive at the best possible financial future. Repaying the mortgage with your property profits or some excess super can work quite well if you have used a smart strategy.
Interested in more Mortgage Busting ideas?
Register for our upcoming webinar where we dig further into these and more advanced mortgage busting strategies, including:
- Offset vs redraw
- Good debt vs bad debt
- 5 ways the government is helping you own your home sooner
- Debt recycling
Thu 28 Oct 12.30pm AEDT
Published : 08 Oct 2021