Good Debts and bad Debts

debt management tips

As Australians earnings and lifestyle habits are increasing, so are their debts.  In order to manage and decrease these debts, Aussies need to become educated on their debts and which debts to stay away from.

The three most popular debts Australians tend to hold are: personal loans, credit cards and mortgages.  To catergorise these, personal loans and credit cards are considered bad debts as they usually result in nothing of value to show

for having the debts (i.e. there is no investment property at the end of the tunnel).  Additionally, these debts typically have highest interest rates and are used for assets that depreciate, or lose value over time (such as a motor vehicle).

A mortgage on the other hand is considered a good debt to have, as typically the asset will appreciate in value.

Managing Good Debts and Bad Debts

To assist in managing good debts and bad debts there are a variety of options available.  The first thing is to focus on reducing the bad debt such as your credit card debts.  Credit card companies set the minimum payment so low so that it takes clients a long time to pay off if you’re only ever repaying the minimum requirement.  A great option is to transfer this debt to a low or no interest credit card or better yet, consolidate your high interest debts into a loan with a lower interest rate.

Personal debts are usually easier to manage because they have a set pay-off time.  To reduce the amount of interest paid, try to increase the frequency of your repayments.

Here is an example of how a small change to your debt repayments can generate large rewards.  If you’re paying off a $250,000, 25 year mortgage and you decided to pay an extra $100 per month; you could save $53,000 and take over 3 years off then period of the loan.  If you decided to pay an extra $500 a month, the savings equal $155,000 and over 10 years.

Australian Lending Centre specialises in assisting clients in reducing debt and debt consolidation.  If you decide to use debt consolidation on your credit card debts, we could also help you free up extra funds, which subsequently you could use to pay off your mortgage quicker!

If you’re struggling with your payments or want to reduce your loans interest rate or simply would prefer to have one convenient repayment to make per month, call a debt consolidation consultant on 1300 138 188.  Alternatively, fill out our express enquiry form to your right and a debt consolidation consultant will call you shortly.

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