Debt and Mortgages

Mortgage Debt

Many New Zealanders ambition is to own their own home, which means getting a mortgage to finance the house purchase.

Setting up your mortgage in the right way can make a difference to how long it takes you to repay it.  A few extra dollars can make a difference - particularly if you increase your repayments every time you re-fix your mortgage.

Getting rid of that mortgage is usually a high priority between the ages of 25 and 40, possibly even into your 40's and early 50's.

It is important that you make sure that you have your income protected with good quality income protection or mortgage repayment insurance in case you are unable to work because of ill-health.

Other Debt

Debt can be quite a trap that makes it difficult to get ahead.  A few simple tips:

1. Credit Card Debt is never good.

The interest rates charged on credit cards are very high compared to mortgage debt.  Your goal should be to repay credit card balances ON the due date, by setting up a direct debit to pay the balance in full.  

When you are developing your financial plan your first priority should be getting rid of this credit card debt. Your objective should be to only incur debt on your credit card that you will have savings in the bank to cover and repay the debt immediately.

2. Personal Loans and Hire Purchase loans

Like credit card debt, the interest rates on these loans are usually high as well, sometimes with severe penalties if you want to repay the loan early. READ the loan document carefully to understand what you are agreeing to.  Set up the maximum repayment you can afford to get rid of the debt quickly.  

3. Interest free loans from retailers

These loans in themselves are not bad, on one condition: that you repay 100% of the loan before the end of the interest free term. Many of the contracts turn into high interest debt after the end of the interest free time period, so you don't want to get caught in that situation.  Make sure that you can repay within the interest free time period, and be careful about how much you are paying to set up the interest free loan.  Work out whether it is in fact more than the interest that you would be saving...

The best rule of thumb is to only spend on things when you have the money saved to pay the bill, or when you will have the money by the due date.

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