Debt is a fact of life for many people, but it is important to manage your debt well so that you don’t end up paying more than you need to. The following quiz can help you explore your current debts and give you a starting point for a discussion with your partner or finance professional.
Explore your current debt and understand your financial position.
Explore ways to minimise the costs associated with your debt, like fees and interest.
Assess the progress of your debt repayments and explore ways to clear debt quicker.
Read each question carefully and answer YES or NO as indicated.
| Do you think your home will be paid off before you retire? | |
| Do you know exactly how much personal debt you have? | |
| Have you reviewed your mortgage interest rate in the last two years? | |
| Do you know if you are using the most cost-effective structure for paying off your debt? | |
| Do you feel you are making progress with paying off your debt? | |
| Do you know the benefits of paying off your personal debt by prioritising the highest interest rate? | |
| Do you know the benefits of paying off your personal debt by prioritising the lowest debt value? |
Speak to a licensed financial adviser and find out when you're projected to have repaid your mortgage. You may be able to take years off your mortgage by increasing your repayments, getting a lower interest rate, or perhaps you could consolidate personal debt to free up cash flow.
How many credit cards do you really have? What are the balances of each card and what is the total of your personal debt (excluding your mortgage)? By getting a clear picture of your personal debt, you may be able to identify more efficient ways to pay it off. It's also important to share information about personal debt with your significant other to ensure both of you understand your financial position as a couple. Review your debt position regularly to ensure you're not going backwards or stuck paying interest only.
Can you get a better interest rate without restarting your loan term? Most loans have additional fees added onto the loan, which can add up significantly over the life of the loan. Speak with a financial planner or mortgage broker and use their experience to see if you can get a better deal.
Do you know what an offset account is? An offset account can work to save you interest. When used correctly in conjunction with a credit card, you could make even more savings.
What does progress mean for you? The best way to track progress is to create goals for paying off debt and review them regularly. Examine where your repayment strategy is working and where it's not. It's also a good idea to review your bank statements to see if you can find places where you're not sticking to your budget (and make changes accordingly).
If you prioritise paying off the debt with the highest interest rate, you are effectively saving the most amount of interest (and paying the least amount to the banks). The benefit of this is you will be able to pay down your debt faster.
Prioritising by the lowest debt amount can give you some easy wins and help you stay motivated. However, the key benefit is that it frees up cash flow quicker, which can then be used to put towards the next largest debt. While this approach may cost you slightly more in interest, there could be greater benefit in freeing up your cash flow and giving you the sense of achieving a financial goal.
