
Managing debt
Many people face a great deal of frustration when confronting trouble in managing their debt. Debt is a powerful tool that can deliver benefits but it can also be dangerous if not used properly. Our video explores some of the options available and there are always skilled people that can help. Taking action can stop a small problem turning into a big one.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 25 Jul 14
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Many people face a great deal of frustration when confronting trouble in managing their debt. Debt is a powerful tool that can deliver benefits but it can also be dangerous if not used properly. Our video explores some of the options available and there are always skilled people that can help. Taking action can stop a small problem turning into a big one.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
There is nothing wrong with debt by itself. Borrowing can allow you to manage your cash flow or increases the amount of money you have to invest But while debt is a powerful tool, it is dangerous if not used properly.
There is efficient debt and inefficient debt. Efficient debt is where you borrow money to make an investment larger than what you could have made under your own steam, the investment is made to create wealth and it generates assessable income – and you can gain a tax deduction on the back of it.
‘Inefficient’ debt is where you borrow simply for consumption, the goods or services or assets that you buy have no value once they're used – and you have to rely on your own resources to service the debt. You can’t offset the interest cost against other forms of income.
A prime example of inefficient debt is a personal loan for a holiday: it doesn’t generates income, and the interest isn’t deductible
Another is a credit card: not only is the loan not deductible, but if you don’t manage to pay for your purchases within the interest-free period, you can end up paying an interest rate of 18% plus, on the full amount of your credit card’s outstanding amount.
If you keep up with or make extra repayments on your loans, you can get rid of your debt faster. You’ll save money in interest payments and take a financial load off your shoulders.
Your home loan usually has the lowest interest rate, so if possible paying off other debt before your home loan may reduce your interest burden.
Try to pay off the entire amount owing on your credit card each month (or as much as possible), to take advantage of any interest-free period.
If you are finding it hard to keep up with credit cards or loan repayments or mortgage, the first step is to talk with your credit or service provider and let them know you are experiencing financial hardship.
If you are in debt and have legal problems, talk to your solicitor. Alternatively, community legal centres and Legal Aid agencies offer free legal advice, and services are available in every state and territory.
Taking action straight away can stop a small problem from becoming a big one.