At the start of the 2019-2020 financial year interest rates are at a historic low – the Reserve Bank took the cash rate down to 1% in early July and experts believe it will fall even lower. Banks have passed on the savings, with fixed and variable rates now generally falling between 3-4.5%.
The low rates make this an excellent time to review your finances and explore new avenues for reducing debt and creating wealth.
Laura Dew of Money Management notes that the rate cuts could deliver an extra $1000 per annum in the pocket of someone with a $400,000 mortgage. Those savings could, of course, be applied to the principal and pay off your mortgage faster but, as we’ve been recently discussing, debt reduction isn’t the only way to make the most of a climate of low rates and tax refunds.
Credit Card Interest Rates
Besides socking away the extra money that comes simply from lower interest rates, you could consider paying off any high credit card debt. Current card interest rates range between 11%-14% so consolidating that debt with a loan could save you a tidy sum – though the key to that being an effective measure is to ensure you don’t run up a new credit card debt right away. Refinancing your existing higher-rate mortgage may also be worth considering.
Low rates make this a good time to investigate entering the property investment market, or borrowing to invest in other ways. Borrowing at low rates for investment has the advantage of being tax effective, as covered in our post on debt cycling.
Investing in your superannuation is another excellent option for building wealth for your future. Take the time to review your superannuation fund to understand the rules around boosting contributions.
Whatever your financial situation, it’s always wise to make time to review your debts and assets and to seek ways to make them work more effectively for you. When rates are as low as this, it’s a better time than usual!