6 Simple FutureNOW Hacks for Personal Debt Reduction [Interest Cost Savings]

Australian Big Banks earn more than $30 Billion dollars a year. That’s profits they’ve made from lending you money.

That’s your cost of interest; your hard earnt, after-tax money!

In fact, if you have a home loan, car loan and credit cards it possible the interest you are being charged is as much as the original principal you borrowed. That’s DOUBLE the amount!

Beyond that, most of just don’t realise what the true cost of debt can be.

We don’t really consider the long-term financial impact of taking out a loan, not to mention the emotional and economic toll our debts can play on our lives and our Future-selves.

Australian personal debt is the 2nd highest in the World! Credit Card debt alone is costing us all 6 Billion dollars a year in interest charges.

Households are swimming in debt, and many are ignoring some simple strategies to pay it off faster.

And, it can all be done with just the money you have now.

Here are just 6 ways to reduce your interest costs and pay your personal debts off faster.

1. Banking Structure using a 100% Interest Offset Account

A home loan offset account is simply a savings account linked to your loan account. An offset account works like a regular savings/transaction account. The big difference is that the balance in the savings account is offset against that owing on the mortgage. Any ‘notional’ interest on savings is earned at the same rate as the linked loan interest rate.

Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity.

We believe the proper use of Interest offset accounts is strongly encouraged. These accounts allow you to in effect, earn the home loan interest rate on your savings, tax free, rather than the much lower and taxable deposit rate whilst retain full accessibility when those funds may be needed.

An example:

If your home loan balance is $350,000 on a particular day and your linked savings account balance is $50,000 on that day, as interest is calculated daily you only pay interest on $300,000 for the day. You will not earn interest on the $50,000 in your offset account, instead the $50,000 is offsetting the interest charged on your home loan. As your offset account is reducing the interest charged on your home loan, but your standard repayments remain the same (reflecting the loan balance of $350,000), more money will be attributed to the principle and will in affect help you own your home sooner.

If you have savings, for example, with a 5% non-deductible home loan of $350,000 and a 1.5% bank account of $20,000 you should transfer the $20,000 to an interest offset account. If you do this you are in effect swapping a taxable 1.5% for a non-taxable 5% on your $20,000.

That is, at an effective marginal tax rate of 49%, you are going from an after tax earnings rate of 0.765% (i.e. 1.5% less 49% tax) to an effective pre-tax interest rate of 9.8%. Your effective return on monies saved is now more than 9% PA better!

Note: Lenders may apply and annual or monthly fee to having an Offset facility linked to your home loan. Enquiry with your Credit Adviser about this.

2. Switch to fortnightly repayments

When you elect to make monthly repayments, you’ll be making 12 repayments each year. If you make fortnightly repayments, you’ll essentially be paying the same amount each month, but you’ll be making one additional repayment each year.

This is because there are 52 weeks in a year, meaning you’ll be making 26 fortnightly repayments – making monthly repayments would be equal to you making only 24 fortnightly repayments.

The benefit of this method is that you won’t notice any difference in your ongoing repayments, but you’ll essentially be paying your loan off sooner and saving on interest.

On a $20,000 unsecured loan at 14% p.a. interest rate over 7 years your monthly repayments would be $374.80 with the total amount paid sitting at $31,483.22. If you were to make fortnightly payments of $187.40 you would save 11 months on repayments and only repay $29,832.26.

By switching to fortnightly you would save $1,650.96

3. Round up your direct debits

An easy way to manage your repayments is through direct debits – you’ll never forget to make a repayment if it’s automatically deducted from your bank account. This is also an easy way to make extra repayments on your loan.

If your fortnightly repayments are $235, round it up to $250, or even $240 – whatever you can afford. Even that extra $5 every repayment is going to make a huge difference at the end of your loan term.

On the same $20,000 unsecured loan at 14% p.a. interest rate over 7 years, by making an extra contribution of $50 you'll be able to save over $2,000 in interest. You'll also shave over a year of your repayments.

4. Refinance your Home Loan to a lower fee or lower rate loan

Refinancing your home loan is possible, but it’s easy for borrowers to get complacent and think switching loans or lenders is more difficult than the return they’ll receive. But, if you see a loan available for a better rate, it's worth doing some quick calculations to work out if refinancing your loan is worth it.

Remember to take into account any early repayment fees and loan discharge costs that you might be charged on your current loan, as well as any application fees or other additional fees that you might be charged on the new loan.

5. Refinance your personal loan to a balance transfer credit card or Consolidate your Loans

If you’re in the final stages of your loan term and don’t have far to go, you could consider transferring your personal loan debt to a balance transfer credit card. There are a few card providers who will let you balance transfer this type of debt, and offer you interest-free terms for as long as 24 months.

If you budget your repayments and are able to repay your debt within the terms of your new card, you can save considerably on interest repayments. The credit card you take on could give you an ongoing means of spending, as well, after you repay your debt.

Keep in mind that repayments you make to your card will be allocated to the debt being charged at the highest interest. So, if you make purchases on your card during the balance transfer period, repayments you make will go towards them before paying off your debt. This needs to be considered before making purchases on your card during this period. 6. Budget to pay off your loan early

When you take on a personal loan you agree to certain loan terms, and if you repay your loan before the agreed terms it’s considered repaying your loan early. Some lenders may charge you fees for doing this, while others may let you repay your loan early for no penalties whatsoever.

If your lender is part of the latter, you could budget to make lump sum repayments and pay off your loan early. You could save yourself hundreds in interest charges depending on when you repay your loan.

Getting the lowest rate and the lowest fees isn't the only way to save on your personal loan. Use these hacks to reduce what you pay in interest and get in control of your personal loan debt earlier than you thought you could.

The Best Solution – “The Big Short on the True Cost of Debt”

FutureNOW is market leading financial software, developed by Rarebreed Technologies, its algorithms apply incontestable money logic and amazing results with only the money you have now!

With smart credit advice and Rarebreed’s exclusive FutureNOW money management plan they’ll help you get closer to your future-self, and your future opportunity, so you are more likely to save for retirement, make healthy decisions, and avoid rash spending behaviours.

Rarebreed & FutureNOW can set you up to cut years off your debts and save you thousands in interest costs so you, can enjoy life now and look forward to a better future.

FutureNOW looks carefully at your cash flow and debt today and projects outcomes toward your future retirement, identifying how managing your money today more wisely can improve your savings, financial net wealth and retirement income.

The FutureNOW principles and logical priorities are:

1. Learn your cash flow movements and spending behaviours – without this knowledge it will be difficult for you to establish and maintain your Cash flow budget and understand your “consumer behaviours”. I can help you with this.

2. Set simple, practical and realistic budgets on your expenditure with the absolute intent to ensure you have greater income than expenditure. Know what you earn and how you spend.

3. Within your budget, ensure that you retain a cash flow buffer, recognising that your cash flow (inflow and outflow) will have its up’s & downs and that it is wise to have available “cash at hand”; enough to insure you against life’s misfortunes, breakages and inflation.

4. Use simple and cost efficient banking and loan structures with effective use of Offset accounts and FutureNOW money management strategies.

5. Next, and importantly, rid yourself of high interest personal debt using FutureNOW’s Cascade strategies.

6. If you have other life goals (with priority over paying down your Home Loan) that require savings then save for That “Big Hairy Audacious Goal”, now. Examples of these are building savings before taking time off work to have a Baby or returning to study and still managing whilst your income is less.

7. Pay your Home Loan off as soon as possible

8. Invest in your retirement, over and above your Superannuation Guaranteed Contributions, as soon as you are able and can afford to.

Rarebreed & FutureNOW can set you up to cut years off your debts and save you thousands in interest costs so you, can enjoy life now and look forward to a better future.

An Example of the results of a FutureNOW

Money Management Plan

AMAZING RESULTS