Ways to reduce your debt

There are a number of ways to reduce debt, depending on your personal circumstances. Some useful debt management strategies are shown below.

Pay off non-tax deductible debt first

Interest payments on debt used to purchase assets that produce income, such as a loan for an investment property, are generally tax deductible. On the other hand, interest payments on debt such as your home mortgage, credit card or car loan are generally not tax deductible. If you have both deductible and non-deductible debt, reducing the non-deductible debt first should minimise the after-tax cost of your interest payments. For example, you may choose to make interest only payments on any deductible debt while you pay off the non-deductible debt as fast as possible.

Don’t borrow to fund depreciating assets

Ideally, try to avoid going into debt to pay for depreciating items, such as cars and luxury goods. You’ll probably end up paying a lot more than you intended, so before you buy you should consider the total cost of the purchase, including interest repayments.

Pay off high interest credit cards

Interest charged on credit cards is high, so do your best to pay the balance of any credit card debt in full every month. If you have multiple credit cards, you may want to review and consider cancelling them, and then find the cheapest card that suits your needs. Watch out for low interest balance transfer offers as they can have a sting in their tail and many providers introduce much higher interest rates after the promotional period expires.

Are you seeking a comprehensive financial planning solution? Talk to the specialists at MG Financial Services by calling 03 9523 6500 or emailing reception@mgaccountants.com.au

 

 

 

 

Important information

This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. ‘Count’ and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Information in this document is based on current regulatory requirements and laws, as at 1 July 2016, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. If you wish to ‘opt out’ of receiving marketing material please contact your financial adviser