Part 2: How to get on top of your repayments?
By Finn Dorney
In the second part of my blog series on bill paying I discuss how you can get on top of your repayments.
Many of us would like to be able to get ahead of our repayments and avoid the interest payments which add up over time. Here are some ideas on how you can get ahead of your mortgage and credit card repayments.
Increase your repayment amount - where possible increase your regular repayment amount above the minimum payment required. Any additional amounts paid will help to offset the total interest cost.
Change to fortnightly repayments - if you pay your mortgage once a month, split the total monthly repayment in half and pay that amount every two weeks (fortnightly). Over a year this method is equivalent to making an extra month's payment.
What if I need money in an emergency?
In the event of an emergency, if you need access to some funds here are some suggested ways to do this via your mortgage.
Redraw facilities – most lending facilities have a redraw facility where you can access any additional amounts paid. Some lenders set a minimum amount that can be redrawn (eg $500) and may charge a fee to access these funds, so it is important to check with your provider beforehand.
Set up an offset account– this is a transaction account that can be linked to your home loan. The balance of your transaction account is offset daily against your outstanding loan balance, thus reducing the interest to be paid on the loan. The funds in an offset account remain readily accessible to you whilst allowing you to make the most of your income and other funds to reduce the interest payable and thereby reducing the term of your loan. Check with your financial institution if any account fees apply before implementing.
Credit cards can be an effective way to manage payments but only if it's done responsibly. Below are some tips on what to watch out for.
Interest-free period credit cards – make sure your credit card has an interest-free period applicable. This feature is an opportunity to avoid paying interest on purchases as long as you make full payment by the specified due date each month.
Generally, if you have a card with an interest-free period and you fail to pay the full closing balance by the due date you will lose the interest-free benefit for that period. You will also most likely be charged a late payment fee.
If you don't have a credit card with an interest-free period, interest is normally calculated daily on all transactions irrespective of whether you pay the full closing balance by the due date. Interest is debited to your account on the closing date of each statement period.
Don't use the cash advance feature – many credit cards offer cash advances and these can be quite attractive if you're low on cash. However if you do take out a cash advance interest charges usually start accruing immediately, regardless of the type of credit card you hold, so avoid them at all costs!
Rewards programs – many credit card products offer reward programs that can accumulate points towards such things as travel and store vouchers. If you are able to repay your credit card in full by the specified date each month then this is a good way to get something back for the spending you do.
If you are seeking help with cash flow and money management why not get some advice from a financial adviser.
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