One of the key goals our clients wish to achieve is to reduce their personal debt as quickly as possible. Personal debt comes in many different forms, however the most common are Mortgages, car loans, personal loans and credit cards. An issue we see on a regular basis is that although clients want to reduce debt as quickly as possible they may not necessarily have the cash flow to achieve this goal. We work with clients to manage their spending to find additional money that can be allocated debt reduction. However, there are many different ways a client can reduce debt without having to significantly impact their cash flow. The following are just some of the ways you can maximise your debt reduction over the shortest period of time:
The snowball effect:
If you have multiple debts, maximise the payments you make on the debt with the highest interest rate (most likely your credit card). Once this debt is paid off, you can then use these funds to maximise the repayments on the next debt and so on and so forth. By utilising this strategy, you will limit the amount of interest you pay which will ensure you can pay your debts as quickly as possible.
Utilise the offset facility on Mortgages:
Offset accounts is an everyday transaction account, however the big difference between an offset account and a normal bank account is that the funds in this account, offset the amount you have owing on your loan. For example if you have a mortgage of $500,000 and $5,000 in your offset account, you will only be charged interest on $495,000 and not the full loan amount. Utilising an offset account is a simple yet extremely effect way of shaving years off your mortgage whilst retaining access to funds if required. The following is a simple example of how an offset account starting with $10,000 and adding an additional $100 per month through effective cash flow management can save you $60,000 in interest and shave 2 years off your mortgage.
Make weekly mortgage repayments rather than monthly:
When you rent a house, it is common to pay your rent on a weekly basis rather than monthly, therefore why not do the same with your mortgage repayments? If your monthly repayments are $2,000 per month, you could break this down into weekly payments of $500 a week. The outcome here is that there are more than four weeks per month. So by paying one quarter of the monthly payment each week, you are in effect paying more money into your mortgage.
Over the course of one year, $2000 per month total $24,000. $500 per week totals $26,000 over the year which is $2,167 per month. This is a $100 more than the original monthly payment.
These are some examples that the qualified Financial planners at PFG Financial Services can help you implement to ensure you reach your goal of becoming debt free as quickly as possible.
PFG Financial Services Pty Limited (ABN 23 052 977 189) and PFG Global Pty Ltd (ACN 161 691 103) trading as PFG Financial Services (Global) is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services License 232706 and Australian Credit License 232706.
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