Seven ways to help you stay ahead of rising rates
You probably heard that the Reserve Bank of Australia (RBA) did something in May that it had not done in more than 11 years – it raised the official cash rate.
The RBA's decision put pressure on lenders to do likewise with interest rates, and most have or will soon follow.
Higher interest rates, of course, mean home loan repayments increase.
But there are things you can do to better manage your money and limit the impact of rising rates.
Here are seven ideas that can help you stay on track:
Reduce unnecessary spending
This need not be as drastic as it sounds. Perhaps it's time to re-evaluate your private healthcare provider, insurer or electricity provider? There are many providers of phone and internet services – how long since you looked for a better deal?
If you drive, you would be well aware of surging petrol prices. Consider using comparison websites and apps which can tell you where to find the cheapest fuel.
Food, alcohol, gym and entertainment are also obvious areas to examine to see if you can cut back on your spending. Also consider subscription services like Netflix and Spotify if you haven't used them in the last month – these are typically month to month with no joining or exit fees, so you can cancel the service and simply re-subscribe the next time you decide to use it.
Take advantage of the Customer Benefits program
As a State Custodians customer, you have exclusive access to a program designed to help you save money on everyday purchases, essentials and splurges. State Custodians Customer Benefits offers discounts at big name retailers such as Ampol, BWS, Caltex, Coles, JB Hi-Fi and Woolworths. For example, Coles and Woolworths offer a four per cent discount. The supermarkets' offer alone could help you save an average of $24 per month, based on an average weekly grocery spend of $153.
Consider consolidating your debts
Do you have credit cards, personal loans or other debts? These liabilities are usually charged at much higher interest rates than your home loan. According to the Australian Bureau of Statistics, the average standard credit card rate is a whopping 19.94%.
If you have enough equity in your home, you may be able to consolidate your debts by topping up your home loan. This could give you a lower overall interest rate and require just one payment per month.
A drawback is that you would be paying the debt off over a longer period of time, which can limit any interest savings that you may have achieved through debt consolidation. To get around this, you can create a new portion in your home loan specifically for that debt, and focus on paying that portion over a shorter time span.
Use your offset account to its potential
Your offset account can be a great tool to help reduce the interest you pay on your loan. The more money you keep in your offset account, the less you pay in interest. Of course, you can still access the former for everyday purchases.
We encourage you to think about idle funds you might have elsewhere which could move to this account. Do you have some money in a bank account earning next to no interest that you could transfer to your offset and lower your interest charges? Maybe you could have your salary paid into your offset account?
An offset account is available at no cost to all State Custodians customers. If you don't have one, get in touch with our Customer Care team on 13 72 62 (press 2) or firstname.lastname@example.org.
Think about making additional repayments
While this tip won't be feasible for every borrower, you can make more repayments than your monthly required minimum. Some people have spare funds sitting around in bank accounts earning little interest. This money might be better used lowering the amount owing on your loan, and your interest charges, and automatically goes into your 'redraw account'. Perhaps you're able to increase the frequency of your repayments? Do the maths on what you can afford. You can take money back out of your redraw account as needed.
Look for more pay
Earning more money is one of the simplest ways to overcome higher rates. This doesn't always mean leaving your employer. Put your best case forward to your manager as to why you deserve a pay rise. Is there a higher paid position you could aspire to? Even if you're not immediately successful, your request might stay on your manager's agenda.
Otherwise, you can scour the jobs market. Employers have struggled to find suitable candidates while unemployment remains low, and are prepared to pay more to secure a rare find.
Also consider side hustle/gig economy opportunities to earn some additional cash. Some of these platforms don't even require much active effort on your part; simply by leveraging an unused asset such as a parking spot, vehicle or spare room, you can generate a new source of income.
Go green to save money on utility bills
Switching to energy-efficient products such as solar power, battery storage and smart home solutions can significantly reduce utility bills. These savings also enable you to pay those products off over time, while reducing your reliance on fossil fuels. A combination of solar panels and battery storage, for example, work together wonderfully – with the former generating power from the sun and the latter capturing and storing unused power that can be utilised at night or on overcast days.
According to Solaray Energy, a 5kW solar system will generate around 20kWh per day, which could enable a saving of around $500 per quarterly bill if all solar power is used. Choice estimates that a lithium ion battery and hybrid inverter costs between $8,000 and $15,000, depending on the storage size and type of battery – on the lower end of the scale, a saving of $500 quarter on an $8,0000 system equates to around four years before the system pays itself off. Thinking about installing energy-efficient improvements in your home? Be sure to check out our Green Loan, an exclusive offer to State Custodians customers with a fixed rate of only 0.89%p.a. (1.73%p.a. comparison rate*) for the first five years. See here for more ways to improve the energy efficiency in your home.
*Eligibility criteria, terms and conditions apply. Interest rates are effective from 1st August 2021 and are subject to change. The Green "Top Up" Loan is only available to existing customers. The Green "Top Up" Loans is an increase to an existing secured loan with us and is established as a new portion. When settlement of the Green "Top Up" loan occurs, it will be rounded up to the nearest dollar value. Fees and charges are payable on all existing loan portion(s) in accordance with your agreement(s) with us.. The comparison rate shown is based on a loan amount of $25,000 over 25 years, with an introductory rate of 0.89% per annum for 5 years, reverting to 2.24% per annum thereafter. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.
This information is of a general nature and does not comprise professional advice or product recommendations. Before making any decision about any investments, financial products and services, you should consult with your own independent legal, taxation and financial advisors, who can provide advice which takes into account your own personal circumstances, goals and objectives.