Want $500 more in your pocket each month? Look at your loans and review the situation
They say the average New Year’s resolution takes 11 days, and guess what? Today is January 10th. So, it’s time to forget about your vague revision intentions; you know, spend less, save more, ditch fast fashion. Indeed, you may have already done so!
Instead, decide to replace three core banking products over the next week or two. Because today I can reveal that ditching and replacing the average credit card, personal loan and mortgage would save the typical Australian around $500 a month. Let’s break it down.
Your credit card: The RBA says the average outstanding credit card balance is $1588 (dividing the personal card balance with interest accrued by the number of cards). The credit card industry’s dirty little secret is that credit card rates virtually never change, whether official rates are high or low.
Mozo says the average remains around 18 percent; It has been at that level since it was first disrupted by the global credit crisis in 2008, long before the cash rate reached its highest level of 7.25 percent nearly 20 years ago.
Compare that to today’s most competitive rate of 8.99 percent (offered on a variety of cards including Community First, Defense Bank, Easy Street and MOVE Bank).
This interest rate difference in dollars is in 2016 dollars if you repay the minimum amount, and a card with a higher interest rate would take another seven years to repay. Even the lowest rate takes more than eight years to clear.
There’s the equivalent of almost four rate cuts you can give yourself instead of waiting for the Federal Reserve to forgive.
But there is a much better way; Way to pay nothing. Available cards like that is shrinking, but new customers can get a 0 per cent balance transfer credit card for 26 months from ANZ (and 24 months from Bankwest and MyCard).
This means, as it implies, that you will receive this period interest-free; This gives you the opportunity to get a refund at no extra cost.
Average savings: $1,990 for 26 months…calculated assuming you pay the same amount on a 0 percent card as it would take to pay off your debt in 26 months on an 18 percent card: $61 per month. You can weigh the numbers against your own potential savings. moneysmart.gov.au’s credit card calculator.
Your personal loan: The most common value of one or more personal loans across Australia is harder to pin down, but $25,000 (usually at least partly for a car) is not an unusual figure.
Here, Mozo says the average interest rate is 9.57 percent, with the best going for nearly half that rate: 5.76 percent (from Harmoney, which has risk-based pricing credit; the better your credit score, the lower your rate).
Average savings: Assuming a five-year loan, that’s $45 per month, or $2700 over five years.
Your mortgage: This is where you’ll almost certainly make the biggest savings, as you probably have your biggest debt (but probably your biggest asset).
Mozo says the average variable rate for owner-occupiers is 6.13 per cent, while the cheapest quality mortgage (on actual offset calculation) is 5.2 per cent (products close to this rate are available from Bank of China, Up and Queensland Country Bank; People’s Choice, Police Credit Union and Northern Inland Credit Union also come close).
If you haven’t done that, there’s the equivalent of almost four rate cuts you can give yourself instead of waiting for the Federal Reserve to forgive. And indeed, it’s just in time, given that the next official cash rate move still looks set to be accurate above (Despite last week’s low inflation).
What are your potential savings based on the average home loan, which today averages $694,000 nationally to close to $700,000, according to the latest credit statistics from the ABS? That’s $388 per month or $116,400 over 25 years.
But the thing is… if you can All If you manage to keep your repayments the same after the switch, you’ll reach mortgage-free not $116,400 cheaper, but $215,155 cheaper.
What’s more, you’ll pay off your loan four years early; At this point, it’s obvious that no monthly mortgage payment will be required. And remember, this is because you’re not spending a penny more today than you’re used to.
This New Year, give HE I thought a little.
Nicole Pedersen-McKinnon is the author of: How to Get Mortgage-Free Like Me?Available at: www.nicolessmartmoney.com. Follow Nicole Facebook, X And instagram.
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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