Why it May be Time to Reassess Your Debt Strategy

Whether you have one investment property or many investment properties in Perth, experts warn that it could be time to reassess your current situation to ensure that your debt strategy doesn't become inefficient when interest rates rise. Noel Yeates, who works as a wealth advisor for Macquarie Bank, warned investors that interest rates will rise within the next few years.

Yeates believes that the cycle has bottomed out and that rates will begin to rise within a year. Yeates recommends closely monitoring how your debt is structured and taking steps to ensure that your debt structure can adequately protect you from a rise in rates.

Here are two strategies that can help you get rid of bad debt like credit cards, vehicles and personal loans and therefore be in a better position to protect your investment properties in Perth. These strategies are purely based on the numbers, for specific advice make sure you consult a financial planner.

Reducing Debt via Payment Strategies

Many people pay financial counsellors to help them with debt, but we recommend two strategies that are especially effective with credit card debt: the High Interest Strategy and Snowballing. We are going to compare the strategies with “doing nothing,” or paying off the debts as recommended.

Doing Nothing

If you have three credit cards, one with a debt of $1,000 and $30 payments at 27% interest; one with a debt of $2,000 and $40 payments at 10% interest; and one with a debt of $2500 and $50 payments at 15% interest, you would pay a total of $8415 and it would take 79 months to become debt-free.

High Interest Strategy

The most mathematically sound way to get out of debt quickly is to use surplus money to pay extra on the debt with the highest interest. You simply list your debts in order of high interest to low interest, establish a budget that gives you “extra” money to pay after minimum payments are made and pay the extra toward the loan with the highest interest.

In the above scenario, with a surplus of only $10 a month, it would take only 60 months to pay off the cards and your total would be $7782.00.

Snowballing

In snowballing, you pay the smallest debt off first, reducing the number of debts as fast as you can. With a $10 surplus and the snowball strategy, you would take 61 months and pay $7815.00.

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