Managing your debt

Here are our Top 10 Tips involving debt that can help you achieve your lifestyle goals sooner.

1. Consolidate your debts.

Merging your credit card debts and personal loans into a loan with a lower interest rate (e.g. your mortgage), can save you interest.

2. Use your cash reserve effectively.

Depositing your emergency cash reserve into your home loan (or 100% offset account), can effectively reduce your loan amount and ‘earn’ you an after-tax return equivalent to the interest rate charged.

3. Harness your cash flow.

Increasing the frequency of your repayments, increasing your repayment amount, crediting your salary into your loan (or offset account) and using ‘linked’ credit cards to pay for the majority of your living expenses can reduce your loan term and save you interest.

4. Get your investment into gear.

By enabling you to invest more money and possibly reduce your annual tax bill, borrowing to invest (‘gearing’) can build your wealth faster than if you rely exclusively on your own investment capital.

5. Gear your investments gradually.

By drawing on an investment loan periodically (‘installment gearing’), you can ‘average’ the price you pay for your investments and not have to worry about picking the right time to buy.

6. Consider an internally geared investment.

Because the manager borrows on your behalf, an internally geared share fund can enable you to benefit from gearing without having to arrange your own finance.

7. Transform your debt.

By paying a financial windfall into your home loan and redrawing an equivalent amount through an investment loan, you can make an investment and convert some of your non tax-deductible debt into tax-deductible debt.

8. Offset your investment loan.

If you make additional repayments into an investment loan offset account, you can withdraw the money for any purpose without affecting the tax-deductibility of the loan.

9. Choose the right investment owner.

If you have a partner, it can generally be more tax-effective if the borrowed money is invested in the higher income earners name and the existing money is invested in the lower income earners name.

10. Seek advice.

To find out which strategies (or combination of strategies) suit you best, please contact us to discuss your situation.

It's important to note, that all returns – positive and negative – are magnified by gearing. If your investment falls in value, your financial situation could be made worse by using a gearing strategy.