I agree with what the RBA did over the past two months, shaving 0.5 per cent off official interest rates and bringing the cash rate down to 4.2 per cent.
Households and businesses needed those cuts but now it’s over to you to do something with them.
The RBA tries to keep inflation between 2 and 3 per cent, and in its latest decision it acknowledged that inflation is outside its target (actually, it’s at 3.5 per cent and has been as high as 3.9 this year).
Yet the Reserve decided to cut interest rates on predictions that inflation would be go down in 2012-13. But if Australian inflation doesn’t drop in 2012 and the Reserve has to raise interest rates again, what can you do right now?
Get the best mortgage
When rates change, so do a lot of mortgage products: banks add in or take out features. So look around and get the product that fits your needs best: not just the cheapest rate but also the right flexibility for your circumstances. And be honest about fixed rates – yes they look cheap but they are totally inflexible.
Get the best rate
When rates are trending one way or another, the lenders don’t want to lose their customers. So start by asking your current lender first and then research home loans, look around to make sure you’re paying the best rate. If you can’t spare the time or you don’t like dealing with your lender, use an expert adviser such as a mortgage broker.
Prioritise your debt
You should attempt to have as much debt at the cheap rate as you can, and then reduce or cull your expensive debt products such as store cards and credit cards by using easing interest rates to pay them down. Once you have a zero balance on a store card, delete it and reduce your credit card limits to a manageable limit. Your greatest debts should be your cheapest.
Use your cheapest debt
If you have some equity in your home loan, why not pay-out your high cost debt with your low cost debt? If you have store cards or credit cards, you should investigate how you can pay them down by using your mortgage facility. It’s worth asking your lender. The same goes for financed vehicles and equipment finance, such as computers and printers. Use your cheapest debt first.
The economy has dealt harshly with many households and business owners over the past few years. Retail and hospitality have had a particularly tough time, as has manufacturing. Use this reprieve in interest rates to tame your expensive debt. Don’t let this opportunity pass because if inflation stays high, interest rates will rise again.
* Mark Bouris is the Executive Chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting & tax and insurance. Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.