Blog: Top 3 debts to pay off before you get aggressive with your mortgage
While many Australians naturally want to see see the end of their home loan term, increasing payments may not be the best idea if you also have other loans.
Although mortgage payments might seem like your biggest outgoing cost, the amount of interest you are paying is likely to be the lowest of all your various loans.
Therefore, it is best to get debts with high interest rates off your back before you tackle the home loan.
Getting rid of high interest loans and debts faster means you'll pay less in the long run, so it is best to pay off credit card debt as well as car and personal loans before tacking extra payments onto the mortgage.
Credit card debt
The average interest rate on a credit card is around 15 per cent. Compare this to the average rate of interest on a fixed rate loan- at say 4 to 5 per cent per annum- and it is easy to see how savings could be in the thousands for some home buyers.
If you can't pay off your credit card before your home loan, it may be worth consolidating your loans so you end up paying off your credit card at the same rate as your home loan.
If you are looking at buying a new car or upgrading the one you have, it might be better to consider a home loan with revolving credit instead of getting a loan to pay for the new vehicle.
This is one way to keep interest rates down because, again, you would only be paying the interest at the same rate as your mortgage.
The downside is it could take longer to pay off the car over the long run, actually costing you in interest rates. It might be best to increase repayments on your car's loan in order to pay it off as soon as possible.
Get some advice from an expert who can work out the best deal for you in these circumstances.
Whether you are getting married or going on holiday, if you get a personal loan, chances are you will be charged a high rate of interest, so you will definitely want to pay it back as soon as you can.
Avoid borrowing from 'loan sharks' because they often charge extremely high interest rates – up to several hundred per cent over a year.
A loan with a revolving credit line might be a better option, but it is worth talking to the experts before you commit yourself.