The recent interest rate rise by the Reserve Bank not only put pressure on those with a home loan, but it also further damaged consumer confidence. The 0.25% increase in interest, which brought the interest rate up to 6.5%, adds about $50 a month extra to the average $250,000 home loan. With interest rates at their highest level in 10 years, and the expectation that they will increase further, what can you do to lessen their impact on your finances?
Clearing debt is perhaps the best place to start. Credit cards are useful, but are they essential? Many of the purchases we make on credit are luxury items and quite often things we can do without. Assessing your credit cards - both the number of cards you own and the amount you spend - can be a positive exercise in helping reduce your debt.
Start by telling your credit card provider that you want to reduce your credit limit. Next, try to pay off your card during the interest-free period. Then ask your bank about consolidating your credit card and other debts.
Reduce the cost of your home loan
If you have a home loan, there are ways you can decrease the amount you pay over the long haul. One effective technique is to make your higher loan repayments on a fortnightly, rather than monthly, basis. By splitting your monthly repayment into two, you can save thousands over the term of your loan, because the accrued interest is lower over the shorter period of time.
Lastly, it's worth considering your banking situation. Bank fees add up, especially when you're not paying attention.
Be aware of withdrawal charges. Some banks charge for writing cheques, others have high fees for ATM transactions. If you can find a bank with reduced fees and greater flexibility on ATM transactions, for example, this can be an easy cost-saver.
Also make sure the interest in your account is calculated daily. Some banks charge interest on a monthly balance, which really means interest on the minimum monthly balance. And remember, if interest is paid more frequently, the return on your saving will be better because the interest compounds on itself.
For the latest tips, tricks and strategies to get the most out of your home loan, check out the latest issue of Your Mortgage on sale now.