While the unusually warm weather is doing its best to disguise the Australian winter, the quieter season of the year has arrived and lugging with it – our accumulated summer debt.
With Australian household debt currently sitting at $1.84 trillion, according to the Australian Bureau of Statistics, there is no better time than the winter months and the new financial year, to reassess your current debt and employ a frost-proof savings plan.
Alex Parsons, CEO of RateCity, warned that spiralling debt can creep up quickly during the warmer Australian months when people are more social and try to pack the most into the long days.
“But debt will remain long after the fun dissipates so it’s important to have a plan in place to beat your outstanding debt down,” he said.
Beat credit card debt
Burying your head in your credit card debt and summer indulgences could not only stall your repayments and increase the interest payable, but could make paying off your total debt impossibly hard.
“Credit card interest rates can spike to over 20 percent, so in order to avoid paying more for your purchases, and to keep on top of any debt you’ve accrued, you need to commit to paying off your credit card balance in full each month,” Parsons said.
If you are unable to pay off the balance in full each month, try to pay more than the minimum amount so you are reducing the balance and paying less in interest – otherwise it could take you months, or even years, to pay off your debt.
Take advantage of low mortgage interest rates
Strike while the iron is hot and the winter fire is burning, and take advantage of the current low interest rates by making extra repayments on your mortgage.
It’s easy to put your feet up and enjoy the lower repayments but by upping the amount you pay back now, you could save thousands over the term of your loan – and shave off a few years also.
“If you pay an extra $100 per month towards a home loan amount of $500,000, based on a historical average variable interest rate of 7 percent taken over 30 years, you could save $75,167 off your total mortgage and reduce your home loan term by two years and eight months – excluding fees and charges,” Parsons advised.
Pocket your summer nights into a savings account
Winter has a way off forcing us inside, which can be kinder on our hip pocket as we spend less on nights out, long-afternoon lunches and summer shopping sprees.
“It’s easy to feel impulsive during the warmer months but we pay for it during colder ones,” Parsons said.
“Consider taking the extra money you would be spending on a night out in town and put it into a high-interest savings account. That way your money is accumulating interest during the winter hibernation months and will help you develop some healthy savings habits to take into the warmer months.”
Invest your tax return smartly
Tax time can be joyous for some and scary for others, depending on whether the tax man is kind to you or not. If you are on the receiving end of a tax return it would be easy to see this as a windfall and spend it as quickly as it was received. But there may be smarter ways to spend your tax return.
“If you think of your tax return as a forced savings account, that you can invest further, you might be less likely to blow the whole amount frivolously,” Parson said.
“Consider putting the money into a high-interest savings account, paying down your existing debts or even putting it away for a rainy day.”
Rain or shine – any season is a good time to start thinking about your financial future and to start saving towards your important life goals.