Saving on Your Current Debt

According to almost all the newspapers, Australian families are in for a tough time of it financially over the next year or so.  In fact you are not alone, almost the entire world is in recession so money is in short supply almost everywhere.

However, you are not entirely helpless as you may be able to save of up to a quarter of your salary if you follow some simple financial advice.
 
To make the most of the savings identified by these various market experts, you must shop around for the best available deal.  And you must shop around for the best available deal on absolutely everything!

So, where should you start?  

The most obvious area to start, given its likely size, is your mortgage.

Mortgages are expensive beasts, but they can be tamed and choosing the right type of mortgage for you can literally save you AU$000s.

In fact, it may be possible for you to save in excess of AU$4,000 every year simply by switching to the most cost-effective mortgage loan.  This is a must for all of us, but will be a significant and meaningful saving for you if you are struggling with debts.

Another area where it is likely that you can make significant savings is in on personal loans.

Are you paying too much in interest?  Many families are, and you must tackle this if you are in a similar situation.

If you are paying around 11 per cent interest on an AU$20,000 loan, you should ask yourself why.  Rates of around 7 per cent are available if you look hard enough.

Additionally, you won’t be surprised to read that credit card debt has a similar warning that you absolutely must heed!

Did you realise that even on a typical AU$2,000 debt (the average was actually $2,932 per card as at December 2007!) on a credit card can routinely cost you AU$320 a year in interest alone!

The average was actually $2,932 per card as at December 2007; how do you compare?

However, significantly cheaper deals can be found with only just a little bit of time and effort.  Look around to see what’s best for you, if you do clear your balance every month, look for a card that offers cashback features, whereas, if you maintain a running balance, make sure that you choose one which is a low rate credit card.

Moreover, many Australians have life insurance through their superannuation fund, but not all chose to take out this type of policy.

Whilst this will undoubtedly save you money every month, do consider seriously the implications of something happing to you.  Could your family and dependents cope with a loss of your earnings? Almost 60% of Australiansiii are unable to work through injury or serious illness for a period of one month during their working lives.  Could you cope with losing a month’s salary?

Even if you do have an existing policy, you can make savings.  You may be aware that life insurance is becoming cheaper, mostly due to longer life expectancy, but you can and must make further savings if you are going to make best use of your finances.

Ask your insurance provider what level of cover you have and see if it still matches your circumstances.  You may have taken out your policy out years ago to cover your mortgage in the event of anything happening to you and, now that a large part of your mortgage is paid off, you ma not need so much cover.

Whilst life insurance is getting cheaper, home insurance, on the other hand, is not.  This is being brought about by huge insurance losses brought about by the increasingly turbulent and unpredictable weather. These premiums in some cases are going up by around 15 percent each year, translating to an extra annual bill per Australian household of AU$30iv?

The premium for a combined home and contents policy for Australian homes currently comes to around AU$750 - yet it is possible to reduce this by as much as AU$200 by looking around for the best deal and choosing the most appropriate policy for your needs.

Of course, similar savings on car insurance can also be made through similar efforts in shopping around.  So make sure that you take every opportunity to save in insurance that you can.

You also must carefully consider which bank you choose to operate your current account with and this is particularly important if you are under financial pressure.

Most current accounts pay just 0.1 per cent interest on money held in the account, meaning a customer who earns AU$1,500 a month makes just 75c in interest every year.
If this sounds like your current account, you should seek to transfer your income to a high interest savings account that could earn you up to AU$60 per annum.

As far as your current account is concerned, also make sure that you manage your account carefully so that you don’t get charged unnecessary fees for unauthorised overdraft use and the like.  A survey by the Consumer Law Service of Victoria found that banks frequently charge between 62 and 94 times the amount of money it costs to service each of these charges, so don’t give them this opportunity to make money at your further expense.

There are many other ways in which money can be saved.  In fact, you can do this in almost every area of your life. Such potential targets for saving include switching gas, electricity and telecoms providers, and paying less for things at the supermarket by buying in bulk.

With all this extra money being saved, you’ll definitely find that paying other bills will become easier, and there might even be some left over to put in a savings account!  

So what are you waiting for!  Go ahead and save!

For additional information on credit cards or related topics please visit our library of credit card articles.