MANAGING DEBT

Given Australian households have some of the highest levels of indebtedness in the western world, debt is pretty common. However, it is important to understand there are 'good' debts and 'bad' debts.

A ‘bad’ debt is one that is unsecured (e.g. credit card/personal loan) or secured against a depreciating asset (i.e. car).  These debts involve more risk for the lender, particularly when unsecured, and are normally associated with high interest rates.

A ‘good’ debt is often secured against a stable or appreciating asset (e.g. property or business) or funding something that has the potential to improve your income (e.g. HECS for educational costs).  These debts are generally associated with lower interest rates.

Inca Mortgage Solution’s Golden Rules of managing debt are:

Prioritise

Pay down highest interest loans first! This may sound obvious but many people do not follow this simple and effective rule.  Generally, the higher interest rates will be found in this order: credit card, personal loan, car loan then home loan.

Budget

Prepare a budget and understand where your money is going.  Many people could put aside an extra few dollars if this were debited from their account, whereas left in their account that money will be spent.  Nominate to make slightly higher repayments to pay off your loan quicker without even thinking about it.

Consolidate  

If you have a lot of high interest, unsecured debt it might be worth seeing if you can use equity in an asset you own (normally your home) to refinance/consolidate these to a lower interest loan.

Avoid mortgage arrears

There are very few refinance options for clients with mortgage arrears.  If you have to choose, you are better off not paying the credit card rather than not paying the mortgage.  The credit card company may chase you more and you will likely get a default on your credit file, however, this leaves you with more options and keeps a roof over your head.  

If you follow these simple rules you will be on the path to paying down your debts, not letting them rule you.  If you are struggling to keep on top of your debts, we’re always available for a confidential chat.  There’s also the National Debt Helpline, a free advisory service, that can be reached on 1800 007 007.

Don't delay in reaching out to someone - the longer you leave it, the harder it will be to get back on track.