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| The best bang for your bucks | Wondering what to do with your $900? Why not watch it grow, writes Bina Brown
WHILE debate continues to rage about whether or not the Government's latest economic stimulus package will have the desired effect, taxpayers will make up their own minds whether to spend or save a fistful of essentially free dollars.
Few people would have trouble finding something to spend the money on, whether it be essential items - bills, food and rent - or a splurge on a new television or other luxuries.
In these times of economic uncertainty, however, reducing the amount of debt and saving or investing the money could deliver significant benefits.
* PERSONAL DEBTS
Non-deductible debt such as mortgages, personal loans or credit card debt is the first type of debt that should go and if the $900 can help get any outstanding balance down, then that would be a good thing.
Putting the one-off payment towards a $350,000 home loan at a standard variable interest rate of 5.96 per cent over a 30-year loan term would save about $4435 in interest and reduce the loan term by two months.
"Essentially, by you contributing the cash handout to your mortgage, the Federal Government is paying a few thousand or possibly even more off your loan depending on your loan type and lender, as well as reducing your loan term," says the senior corporate affairs manager for Mortgage Choice, Kristy Sheppard.
Credit card debt is another nasty that should be reduced. Someone with a $2000 debt being charged interest at 18.5 per cent a year who is just paying the minimum 2 per cent (it would start at $40) will take 33 years and 5 months to pay off the debt - a total interest of $5530.
According to the director of financial planning consultants Strategy Steps, Louise Biti, using $900 to reduce the debt to $1100 reduces the minimum to $22 per month (and lower as debt reduces) and the repayment timeframe is cut by almost 11 years with a saving of $3036.
Using the $900 to reduce the debt to $1100 and continuing to pay $40 per month would see the debt paid off in three years and one month with interest of only $343. "The trick with credit cards is to pay off as much as possible as early as possible," Biti says. | | 2009-04-08 09:50:50 |
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