09 Mar 3 Ways to Lower your Interest Costs
Many people don’t think twice about paying interest, especially on the smaller things like their credit cards. For a lot of people, it’s the price they are willing to pay for convenience and getting the things they want in life. And when you’re borrowing money to make money, as with your home loan, your interest repayments may be considered a necessary evil if you want to get ahead.
But does paying interest always make sense? If you’re not careful, the interest you pay can end up costing you more than you can afford. Here’s three simple ways to help you keep your interest liabilities under control.
1. Be smart with your credit card
Many people think they just couldn’t live without their credit card. But in terms of interest payments, this is the most expensive form of debt there is. We’ve referenced it in a previous article but if your credit card interest is 20% per annum, you’re paying 20% more for everything you buy if you take a year to pay it off. Do you really want to be doing that?
Wherever possible make your everyday purchases using cash and only use your credit card in the event of an emergency, which is smart way to spend less in any event. This may mean saving up for larger purchases. The other option is using your credit card and paying it off in full every month or within the interest free period. Some credit cards offer 55 days interest free on purchases, so do your research and see what works for you.
2. Pay less interest on your home loan
There are several ways to reduce the amount of interest you pay on your home loan:
- You can make repayments more often – say weekly or fortnightly instead of monthly
- you can use a mortgage offset account
- you can make extra repayments on your home loan to reduce the interest payable.
All these measures together can accumulate to cut years off your home loan and save you tens of thousands of dollars on interest over the life of your loan.
Another way to reduce the interest you pay on your home loan is to keep it up to date – so you don’t pay the bank more interest than is necessary. We recommend that you contact us for a free home loan health check every year, or at least every two years. That way you can always make sure your home loan has the lowest interest rate available to you. Interest rates right now are as low as 3.99%, is it time to give us a call?
3. Consolidate your debts
How often do see advertisements for debt consolidation on TV? They are usually aimed at people who are in trouble with debt. However, there’s no need to wait until you’re in trouble to consolidate your debts, you can do it now to reduce the amount of interest you have to pay.
Consolidating your debts means rolling all your debts into one, usually using a loan that has a lower interest rate. If you have a home loan, for example, you could refinance in order to use some of the equity in your home to pay off all your other debts and access the lowest interest rate available.
If you don’t have a home loan and have quite a few expensive debts like credit cards or car loans, it may be possible to roll these into a personal loan that carries a lower interest rate overall. It also allows you to spread your repayments over time, making them more affordable. If you want to eventually end up debt free, consolidating your debts is a good place to start.
If you want to use your money to enjoy a better lifestyle or invest it to build wealth for your future, we’re help you with all your financing needs including budgeting, debt management and debt consolidation. Contact us today.
Please note this information is general advice only. Please seek advice before acting on any information in this article. Written in conjunction with our friends at Connective.