This is a simple ‘getting out of debt’ style of money tip, though often many people don’t realise it can be done or why you should do it.
I am talking about paying more then you have to towards your debt, working towards a dual layer strategy of getting yourself out of debt as fast as possible while also water tightening your finances in case you or your partner were to be laid off or unable to make payments for a while.
Now the trick is, when times are going good, start paying down your personal debt and mortgage. Pay as much as you can reasonably afford and try to outdo each payment to ensure you are going above and beyond the required minimum payment.
Paying down your mortgage
With a mortgage, this will give you a buffer in case you are unable to meet payments one month, effectively helping your credit rating from taking a hit and keeping the banks off your back for a while.
If you are required to pay $1500 per month towards your principle and interest mortgage, why not aim to increase that to $2000?
Within 3 months you will be one full payment ahead of schedule, do this for a year and you have secured yourselves 4 months of buffer should you need to look for another job or face financial difficulty.
Paying down personal debt
Recently I started to earn a little bit more money, this would indicate that financially things are getting better for me. I could have celebrated by buying my lunch everyday instead of bringing it, instead I have used that money to pay down personal debts at a much faster rate than I could have otherwise done.
My overall aim is to rid myself of all personal debt, but for now I am just creating another buffer – hoping to show the banks that I can get far ahead of what I owe in little time.
Things to be careful of
Some banks don’t let you grow a buffer like I am talking about, so it is best to find out if your mortgage or personal debt allows this.
It is a tiny little strategy that can really help you out in the future when the time arises. Combine this with the fact it will increase the rate at which you become debt free, it’s a win, win!
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Alex Wilson is the founder and editor of Savings Guide, Australia’s number one saving money website. For regular money saving tips, visit Savings Guide or follow Savings Guide on Facebook. |