- Before you make a purchase using credit, think about whether you can really afford – and need, the item. Or try saving for it. Saving may take longer, but paying in cash could see you getting a better deal.
- Choose a credit card that matches your spending and repayments pattern. If you are likely to carry a debt from one statement to the next, opt for a card with a lower interest rate and ‘no interest free’ period rather than a higher rate card with interest-free days.
- Some cards will waive the annual fee if you spend over a certain limit on the card each year. This can save you money, but don’t let it tempt you into putting more on your card than you normally would.
- Store cards provided by major retailers offer savings through cardholder discounts and other benefits like extended warranties. The interest rates are often higher than for normal credit cards though, so use them carefully and don’t let them shape your shopping habits.
- Take advantage of the low introductory rates offered by many card issuers on balance transfers. Swapping a $2,000 balance on a card with a rate of 18% pa to a new card with a 12-month introductory rate of, say, 6%, could see you save $240 in interest for the first year. Be aware though that the lower rate generally only applies to balance transfers. The rate for new purchases may be far higher.
- Don’t regard the minimum repayment on your credit card as the only amount you can pay. . Paying more than the minimum each month can see you make substantial savings on your card’s interest charge.
- If you pay the card balance in full each month, you pay no interest, potentially making your credit card a cheap and effective means of credit. Before you pay to join a credit card reward program make sure it offers value for money. On a frequent flyer program for example, you may get a better deal by purchasing a discount airfare ticket once you’ve taken card fees and charges into account.
- Think about getting a combined debit and credit card that links to your savings account while providing access to credit. Use the debit card for everyday purchases and save the credit for larger or irregular purchases.
- Credit cards are convenient for shopping over the internet, saving you time and money. Be sure to shop at secure sites though and always keep a record of the transaction.
- Use your credit card to save on bank fees. If you are disciplined about repaying the card balance, consider using the card to make all your purchases instead of making frequent cash withdrawals from an ATM. Then, repay the card in full each month.
- Credit card reward programs may come at the price of a higher interest rate. Don’t shop somewhere just because it adds to your points tally.
- Store cards may be easier to access – especially if you have no previous credit history. But the interest are often much higher than on standard credit cards, which can make them unsuitable for newcomers to credit.
- Cancelling your credit card? Don’t just cut the card up – let your card issuer know you’d like to cancel the card, otherwise you could still be charged annual card fees. There is usually a phone number on the card that lets you contact the card provider.
- Be aware of your credit card repayment dates as a late payment can prove to be expensive.
- Store cards provided by major retailers offer savings through cardholder discounts and other benefits like extended warranties. The interest rates are often higher than for normal credit cards though, so use them carefully and don’t let them change your shopping habits.
- The primary cardholder is responsible for any debts racked up on a subsidiary credit card. If you believe the subsidiary card is being abused arrange to have it cancelled.
- Most thieves use stolen credit cards within 48 hours, so it’s important to call your credit provider as soon as you realise that any of your cards are lost or stolen.
- Always compare your credit card receipts to your monthly statements. Report errors immediately or you may be liable for the disputed amount.
- On cards with a low credit limit, a high annual fee can really boost the overall cost. For example, on a credit card with a limit of $1,000, an annual fee of $30 is the equivalent of an extra 3% in interest.
- Personal loans are best-suited to large purchases that you expect to repay over a period of years. Try to avoid using them for the sort of purchases that are ‘here today and gone tomorrow’ - you could be paying off the debt long after you have had the benefit of the item purchased.
- If possible, opt for a secured loan. The rates are generally cheaper than for unsecured loans.
- Be wary of vendor or dealer finance. A personal loan through a bank, credit union or building society generally offers cheaper rates.
- Always check your loan statement for errors. Don’t assume the credit provider won’t make a mistake.
- Avoid making multiple loan applications. All applications for credit appear on your credit bureau file and numerous applications raise questions among credit providers.
- A mortgage redraw may be cheaper than a personal loan – but it could also mean you are paying the debt off over a far longer period, and that can mean a higher overall interest charge.
- Don’t pay fees and charges for loan features that you may not use. ‘No frills’ loans offering the bare basics generally have lower rates.
- Look out for monthly fees on loans. These can be around $8 per month or more, and on a small loan this can be the equivalent of a few extra percent in interest.
- When comparing personal loans, look for ‘comparison rates’ that take most of the credit provider’s ongoing fees into account.
- Explain to your credit provider what the personal loan is for. They may be able to offer you a credit product better suited to your purpose.
- Members of some professions (for example, qualified accountants) are eligible for loan packages at reduced interest rates. Ask your credit provider what you may be entitled to.
- Keep your loan documents and statements in a safe place. Replacement copies can be issued, but at a cost.
- When shopping around for a personal loan, don’t compare on the basis of monthly repayments. Ask about the interest rate as well as ongoing charges.
- Ask your credit provider if you can make extra repayments on your personal loan. If you get a pay rise, put these payments towards the debt to repay it sooner.
- If your personal loans are becoming unmanageable, take a look at how far through the term you are before you consider consolidating the loan into a lower interest mortgage. Rolling a debt into a home loan can reduce the interest rate but increase the time you take to pay it off – resulting in higher interest. You may be better to just keep hammering away at the loan for the remainder of the term.
- Don’t pay for loan features you won’t use. Redraw facilities and other features may come at the price of higher interest or additional fees.
- Locking in to a fixed rate mortgage can be a good idea if interest rates rise, but these loans are often less flexible than variable rate home loans. You may be able to make extra repayments – and this is something worth looking for, but if you want to refinance the loan before the fixed rate period expires, you could face substantial exit costs. Interest-offset accounts let you use your savings to reduce the interest on your mortgage. Instead of receiving interest on your savings, interest is charged on the outstanding loan balance less your total savings amount. The rate on these home loans is often higher though, so if you have small savings and a large mortgage, it may not be the best option.
- Making your mortgage payments weekly or fortnightly will see you trim your mortgage interest bill. It works this way because if you halve your monthly repayment each fortnight, you will pay the equivalent of 13 monthly instalments per year – not 12.
- Making extra repayments on your home loan is the only way to pay your mortgage off sooner and make substantial savings in interest. As a rule, every dollar you make in extra repayments saves around two dollars over the life of the loan. ‘Find’ the extra money by collecting the change from your wallet each day, and once a month put it towards your mortgage – even small amounts build up over time.
- Use your annual tax refund to make a lump sum repayment on your mortgage – you’ll never miss what you’ve never had!
- The benefit of making extra repayments is greatest in the early days of your mortgage when the bulk of your repayments go towards paying interest rather than principal. This is also the time when extra repayments have the greatest effect in reducing the loan balance – so start making extra repayments from day one.
- Don’t let low interest rates be the only factor you consider when choosing a home loan. Mortgages are long-term loans, so be comfortable that you can live with the loan. In particular, some loan features like redraw may be extremely useful to you.
- Increasingly lenders are offering ‘package loans’ that combine a home loan, credit card and transaction account. These packages usually involve a rate discount, which can mean saving half a percent or more on the cost of your loan. The downside is that packages also charge annual fees, which can amount to a few hundred dollars. If your home loan is small, this annual fee can eat into the interest savings, so be sure to check that the benefits of a package outweigh the costs on the amount you intend to borrow.
- Redraw facilities allow you to use mortgage interest rates to finance other purchases by drawing out of your account any money you have put in over the minimum repayments. There are often fees attached to redraw facilities though, and possibly a minimum redraw amount. Remember though, if you do use the redraw option, you lose a lot of the ground you have gained on your mortgage, so it will take longer to pay off – with a higher interest bill.