Making the most of reduced interest rates
Whether you currently have a loan or credit card, or you plan to get one in the future, it’s important to think about how you can get rid of the debt faster. Depending on the type of debt, the interest rate may change every so often. So, if your interest rate ever falls, how can you make the most of it?
If your minimum repayment has reduced, it can be tempting to reduce your current repayment to the lower amount. However, if you keep your repayments as they currently are, you’ll end up paying off your loan sooner.
Think before spending more
Before booking a spontaneous holiday due to the reduced interest rate on your credit card, check that the costs fall within your budget. Repaying a larger amount of debt at a lower rate of interest can still result in you paying more interest than you previously were.
Credit card repayments
Similar to the points above, if you currently pay the minimum on your credit card balance, it could be worthwhile to start paying a bit more than the minimum each month. The reduced interest rate will only help this. You can also set up a regular Visa card payment to clear the monthly balance in full.
Safeguard for the future
It’s always a good idea to prepare for any interest rate movements in the future. Repayments may be comfortably affordable now, but what happens if your home loan interest rate is at 6% or 7% in 5 – 10 years’ time? Making small changes can benefit you now and ensure that a future rate rise doesn’t have to involve drastic lifestyle changes.
Paying an extra $50 per month on top of your repayments is enough to significantly reduce the amount of interest payable over the course of your loan. If you plan to only pay the minimum repayment amount, utilising an offset account or redraw facility are two ways that you can make your money work for you.
Check out our Extra Repayments Calculator to run through the numbers yourself.