Don’t just make your minimum payments. Pay down your debt while the money is cheap, it won’t always be.
Whilst we are all enjoying the benefits of lower interest rates, we need to understand that these low levels are not a good sign for the economy.
Currently the Reserve Bank has interest rates at a level where they are trying to stimulate the economy.
Whilst this enables higher borrowing capacity and easier payments for us all, we also need to understand that rates will not stay down forever and it is better for our employment and the economy that they get back to a more stable level. The Reserve Bank historically sets interest rates at around 5% when they are not in a stimulative or deflationary setting, currently they are at 2.5%. This is the lowest they have been in my lifetime. The last time they were this low Robert Menzies was Prime Minister and my beloved Melbourne Football Club was winning the Premiership.
This is a good time for all of us to be reducing debt and accumulating savings, so when interest rates return to a more stablelevel and the economy steadies we will be able to manage the increase in cost to the Family Budget. It may not happen soon but for the benefit of the economy interest rates will rise. My advice to everybody now: Don’t just make the bare minimum payments. Pay down your debt while the money is cheap, it’s the perfect time to get ahead. It won’t last forever.
Simon Birch, Sandridge Financial Solutions (affiliated with Solid Group), 7th August 2013