3 Tips to Reduce Interest on Your Debts

3 Tips to Reduce Interest on Your Debts

1. Use your home equity to consolidate your debts

Consolidating means rolling all your debts into one, treating all the debts as one single debt. Using the equity in your home may save you in the long run. Home loans often bring with them a far lower interest rate than unsecured personal loans, credit cards and other types of credit facilities. If you have equity, refinancing can allow you to pay off higher-interest debts and pay back at a lower interest rate.

You could accumulate these into a single loan with one easier-to-manage repayment. It also allows you to spread your repayments over a certain period of time, making payments easier.

2. Stop paying too much on your home loan

There are quite a lot of ways to reduce the interest paid on your home loan. You can pay in more frequent instalments – such as weekly or fortnightly rather than on a monthly basis, make use of a mortgage offset account if available, or make extra repayments on your home loan to reduce the interest payable. Another way to reduce the interest you pay on your home loan is to ensure you do not miss an annual mortgage review, helping minimise costs and maximise your savings.

An annual review and home loan health check can help review interest rates and fees. With regular maintenance, homeowners can ensure they are not overpaying.

Most homeowners do not give much thought to paying interest on their purchases. For many, it is a price to be paid in order to get what they want. When borrowing money to generate wealth, as is the case with an investment home loan, the interest incurred may be considered a necessary expense to achieve property goals.

3. Pay off your credit card each month in full

Many people tend to use a credit card on a regular basis to earn reward points such as frequent flyer points. However, in terms of interest payments, credit cards can be one of the most expensive forms of debt available. Credit card interest rates can often be well above 20% per annum, and even higher for cash advances. Paying off purchases over a year or more adds substantial interest costs, which compound each year the balance remains unpaid.

Avoid using a credit card if the balance cannot be cleared at the end of the month, and rely on savings instead. Keeping a credit card for emergency situations, or maintaining a healthy savings balance or mortgage redraw facility, offers a practical alternative. This may mean saving up for larger purchases rather than buying them immediately on credit.

When a purchase is made with a credit card, paying it off as quickly as possible – ideally within the interest-free period – helps avoid extra charges. Some credit cards offer up to 55 days interest-free on purchases, so choose an option that favours your financial situation.

A mortgage and finance professional can provide guidance on available options, including budgeting, debt management and debt consolidation strategies.