Loan consolidation

Debt Management

On one hand, there is good debt where you borrow to invest and your investment grows in value or earns money. Good debt actually works for you. On the other hand there is bad debt where you borrow for a car, boat or use a credit card to buy items that depreciate in value and don’t earn you any money. You lose twice here – the capital value and the interest you’ve paid. That’s why before you start accumulating assets, it’s important to check what you owe – how much, in what form and at what interest rate. Then you can see whether you can arrange your debt more efficiently.

Provident can help

  • Review and analyse your current spending patterns.
  • Review your financial commitments and debts.
  • Identify your opportunities to save money.
  • Construct a budget with you.
  • Help you consolidate your debt effectively.
  • Recommend savings or investment products to achieve your goals.
  • Review, recommend and arrange appropriate insurance.
  • Look at ways of turning bad debt into good debt.

Debt Consolidation

To defeat the insidious costs of small debt you need to look at consolidating your debt, streamlining your paperwork and rationalising your interest expenses.

See our Debt reduction calculator.

  • Itemise your debts and the interest rate for each and use lower interest loans to repay higher interest rate loans.
  • Consider taxation when comparing your different debt obligations.
  • Factor in regular fees and charges to determine how much your debt is costing you.
  • Certain loans may have penalties for early payouts. We work out how these compare to the interest you would save.

Debt Recycling

Many people wait until their home loan is repaid before starting to invest. Unfortunately, this means they invest later in life, limiting the growth potential of their investments.

There is, however, a strategy that lets you invest now and continue to pay-off your home loan reasonably quickly. It’s called ‘debt recycling’ and involves three key steps:

  • Use your home equity as security for a separate investment loan.
  • Use the investment income and any tax savings you receive from your investments (as well as your surplus cash flow) to help reduce your outstanding home loan balance.
  • At the end of each year, re-borrow from your investment loan the amount you have paid off your home loan to purchase additional investments.

Benefits of using debt recycling

  • Replace inefficient (non tax-deductible) debt with efficient (tax-deductible) debt.
  • Establish an investment portfolio sooner.
  • Reach your lifestyle goals faster.

Debt recycling may mean it takes a little longer to pay off your home loan, but you still have the potential to create extra wealth.

  • Consider an interest-only investment loan so you can direct more cashflow into paying off your home loan.
  • Consider a higher pre-approved investment loan limit to avoid any additional paperwork and fees when adjusting your loan balances each year.
Our advisers are ready to help you get your debt working for you, contact them today.

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