June 30, 2011
If you rely on someone else to sort out your finances or you’ve simply lost track of yours then you could be wasting hundreds, if not thousands, of dollars each year in interest, fees and charges without even knowing it. So to regain your financial independence and reduce your monthly outlay, get into the driver’s seat using these top tips towards fiscal freedom!
Sit down with your bank statements and work out exactly how much money you’re paying each month to service car loans, personal loans and credit cards. Interest rates have remained steady for seven months but are likely to increase by the end of the year, if speculations are correct. So you should take advantage of these times and accelerate payments to reduce debt.
Start by repaying debts with the highest interest rates first, then move on to a mortgage if you have one. By ramping up your repayments on a car loan can drastically reduce the term and therefore the amount you’ll pay in interest. For example, if you have a $20,000 car loan with a rate of 10.9 percent (the average variable rate on car loans of the big four banks), then you’re likely to be paying around $440 per month in repayments. If you can afford to increase that by an extra $40 each month, you’ll repay a five-year loan seven months early, saving more than $1200 over time.
By switching to a cheaper loan you could potentially wipe hundreds of dollars from your loan and repay it sooner and the easiest way to find a better financial product is to see what else is on the market. Using a financial comparison site such as RateCity is one of the quickest and simplest ways to weigh up your options, rather than visiting multiple providers’ websites for quotes.
It’s worth taking the time to compare car loans too. By switching from the average benchmark variable car loan rate of 10.9 percent to one of the best rates available online (for example, CUA‘s secured loan for vehicles less than two years old and worth less than $30,000 at 8.99 percent) you could reduce your monthly repayment by $20 on a $20,000 loan, saving $1200 over five years.
Budget and save
Once you’ve sorted out the best financial products for your needs, draft a budget to ensure you never miss a repayment. You might be surprised at how much further your salary will stretch when you’re organised. The government’s budget planner is a great tool and can be found at www.moneysmart.gov.au.
Any disposable income should be used to pay down debts, but you may also wish to put aside 10 percent to be used as a safety net.
Now that you’re on track financially, don’t let your money go astray again. Revisit your loans, credit cards and even your savings and transaction accounts annually to make sure you’re still using the best options available on the market. If you find a better deal, consider switching. But first calculate the cost to refinance and make sure it’s worth your while, because exit fees and establishment fees can really add up.
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