在澳大利亚 The pool at of an IP needs to be resurfaced (or so the pool doctor says), the cost was estimated to be $10K ($10,000), after recoverying from my impresssion of a cat coughing up a fur ball, it just seems far too much. Its just a standard poo I need some advice regarding a property purchase. Property - semi-detached house Bedrooms - 2 Condition - average needs internal reno to modernise Street - one of the best in suburb Location - excellent Close to schools - yes Transport - 50m
Should i pay off my HECS debt for better cashflow, or leave the amount sitting in my offset?
Just purchased my first IP, with settlement on the 21st of this month. I will have roughly 10k in my offset once it settles (hoping to add $1200 month to this). I currently have a HECS debt of around $5000-6000, with on average $45-80 a week taken out of my pay.
Should i continue this for another few yrs to pay it off, or use the money in my offset to improve cashflow for when i approach the bank later in the yr (hoping to get my 2nd IP within 6 months if the time seems right).
That $50pw could be the negative gearing in a property, but also, my offset would be a little less, charging me more on my loan.
Do you still get 10% off on a lump sum payment over $500?
Yes you do.
If you do plan to pay upfront, May is the best month to do it in, because the CPI indexing is applied on 1 June from memory (you should double check this)
I wouldn't bother unless you need that extra cash flow for whatever reason.
DH and I are going to pay off the last of his HECS debt befoer the end of this financial year, but only because it increases our servicability considerably (by like 50k) and we need that with these interest rate rises that we beleive are still yet to occur.
Payn off HEC's
HEC's is indexed annually by CPI. If the CPI this year is 3% then your debt would be increased by a further $180. Taking your debt to $6,180. Disregarding further increases if you pay $45 per week then you are repaying approximately $2,340 per annum or if you pay $80 per week you would repay approximately$4,160 per annum. So if you do not pay it off in a lump sum it will take you somewhere between 18 months and 3 years to clear the debt.
I would probably say pay it off just to get rid of it.
You can then use the extra cash to create further wealth.
Intellikev said: ↑
HEC's is indexed annually by CPI.Click to expand...Which basically makes it an interest-free loan.
Why would anyone ever pay off an interest-free loan?
Edit: Ooooooh, servicability. Sorry, I always automatically think lo-doc.
rugrat said: ↑
but only because it increases our servicability considerablyClick to expand...if you've got the money hanging around - and get 10% discount for paying it off in a lump sum - then purely for the reason above i'd get rid of the debt.
one less thing to consider on your path to wealth creation.
Why pay off an interest free loan? You're better off investing your cash elsewhere assuming you can get a higher rate of return.
I still owe $13k or so, but I'm in no hurry to pay it off, just gonna let them take it out of my pay gradually... I am pretty sure over the next 2-3 years it'll take me to pay off my HECs I can make way more than 4% a year on 13k which is roughly what inflation will be.
When I paid mine off, it was the best feeling....I had the chance, went for it, got my discount and now it's out of my life forever....
It's was a bit of a psychological boost for me...
Bon said: ↑
Why pay off an interest free loan? You're better off investing your cash elsewhere assuming you can get a higher rate of return.Click to expand...when you add in the 10% discount for lump sum early payouts - does this really mean it's an interest free loan? don't think so.
lizzie said: ↑
when you add in the 10% discount for lump sum early payouts - does this really mean it's an interest free loan? don't think so.Click to expand...No, you're right lizzie, for every $90 you spend paying off HECS, you're getting a $100 return (11%). So you've to be making more than 14% (11% + CPI) elsewhere to be ahead. However that assumes you actually pay it back at all.
I think to work out the maths exactly, you'd need to know exactly when and how often ATO force a repayment, because if you never had to repay, then who cares how big the debt grows due to CPI.
IFBB said: ↑
I currently have a HECS debt of around $5000-6000,Click to expand...Personally, I wouldn't worry about it. I've got a $20k HECS monkey on my back that I choose to ignore. Like some of the other posters have said - it's an interest free loan and I could probably generate more money investing the $20k wisely.
I never bothered. real inflation is always a few ticks above the CPI so the debt is actually going backwards AFAIK.
Also, if your TAXABLE income is below a certain threshold you
a. don't have any it deducted from your income and;
b. get a low income rebate.
I think if you earn over $38 000pa, they deduct it from your pay.
Its not interest free, as mine went up by $400, then $300 the first 2 yrs i worked after leaving uni (with my workmates going up by $600 last financial year).
Have you ever played the game cashflow. You don't get out of the rat race focusing on paying off debts. (Although it's important, you can do this later from cashflow from investments) Pay the min out of your pay and focus on investing the rest.
ianvestor said: ↑
No, you're right lizzie, for every $90 you spend paying off HECS, you're getting a $100 return (11%). So you've to be making more than 14% (11% + CPI) elsewhere to be ahead. However that assumes you actually pay it back at all.You can accumulate a HECS debt up to 100k, no more after that (regardless of if you have paid it all off or not). You are only required to pay it if you earn over a certain income, and the amount you pay increases as your income increases.
I think to work out the maths exactly, you'd need to know exactly when and how often ATO force a repayment, because if you never had to repay, then who cares how big the debt grows due to CPI.Click to expand...
I currently owe 47k (courtesy of a commerce degree and a law degree), but earn so little that I do not have to pay it at all. No point in me paying it off until I have to pay something. If I never earn above that threshold, I never have torepay the debt (but I will earn above the threshold when I return to work when the kids are all in school). Plus I will be increasing that debt with further study in the next few years, so it is a bit pointless paying it off yet anyway.
We are going to pay out the amount left of DH's HECS debt, but only because that gives us an extra $200 or so in the hand every f/n - and the banks will give us more money as a result.
lizzie said: ↑
when you add in the 10% discount for lump sum early payouts - does this really mean it's an interest free loan? don't think so.Click to expand...So I'd get $100 off for every $900 I pay?
I owe $13k or so, with the time value of money I am pretty sure I could make way more than $1300 by keeping my $11.7k and investing it elsewhere.
Suppose I take my $11.7k and use it as a partial deposit on a property with a LVR of 90%... that money is now leveraged to control $100k+, hopefully earning 8-9% p.a capital growth. Seems like a no brainer to me.
Given you get 10% bonus for payments over $500 per month, and the debt is relatively small then my inclination would be either:
- Pay it off entirely in one hit. You've got the cash, and it's one less thing to worry about.
- Can you pay it monthly rather than weekly? If so, push the monthly payment up to $500 from the $200 to $350 split over the weekly payments. That's not going to hit cashflow too badly (I hope), and lets you get the 10% bonus.
Bon said: ↑
I owe $13k or so, with the time value of money I am pretty sure I could make way more than $1300 by keeping my $11.7k and investing it elsewhere.Click to expand...Yeah..IF you do something with it...problem is, people don't...
Easy man, I more than doubled my money on the $11.7k for the last financial year..