does paying non deductible debt first mean..

Discussion in 'Money Management & Banking' started by Synergy, 11th Oct, 2019.

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  1. Synergy

    Synergy Well-Known Member

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    When people say "always pay non deductible debt first" does that mean actually putting money into the ppor loan account and not withdrawing it?

    Or is keeping all cash in offset lowering interest payments a better way?
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    I keep cash in offset.

    The Y-man
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Really depends on your plans beyond owning your own home.

    Putting money into the offset account gives you a degree of financial flexibility. There can be tax benefits, the cash is at had if you want it (not always the case with redraw), plenty of good reasons to use an offset account.

    However this might mean combining long term savings with day to day cash flow. For some people simply paying off their home is their primary objective. Paying the loan down directly can also mean they're not tempted to spend the money as it's out of sight, out of mind.

    The best answer really depends on your goals and your habits.
     
  4. Marg4000

    Marg4000 Well-Known Member

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    Pay it off the loan if that is your goal, or if you are disciplined and won’t be tempted to spend, put it in the offset, same financial result but more flexibility, for you.

    But before you put extra money in the loan or offset, make sure you have paid off all debt other than loans for investment. All credit cards, personal loans, car loans should be paid off first (start with the one with the highest interest, usually the CC), unless there is a penalty for early payment.
     
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    It depends

    if you are debt recycling you would need to pay down non-deductible debt and reborrow to invest. Otherwise you would just be borrowing to invest - both are fine but it will depend on your circumstances.

    I would keep money in the offset until you plan to invest and then at that point, or a few days before, consider.
     
  6. Air_Bender

    Air_Bender Well-Known Member

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    I also keep cash in offset.
     
  7. Kelvin Cunnington

    Kelvin Cunnington Well-Known Member

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    We put every available dollar into our Offset account from our normal day to day account, but also pay the repayments on the Loan it is attached to on top of this - also from the day-to-day account.
    And, we make weekly repayments rather than monthly, and we pay more each week than the minimum required repayment amount.
    The results are quite amazing.
    This strategy is probably basic stuff to most here, but maybe some dont know about this and will benefit.
     
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  8. Trainee

    Trainee Well-Known Member

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    And what happens when you want to upgrade ppor?
     
  9. Kelvin Cunnington

    Kelvin Cunnington Well-Known Member

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    Yes; your PPoR is a non-deductible debt. Same with most credit card use and most car loans (unless cards and cars are used for running your Business).
    I think it is advisable to never get into the habit of withdrawing money from a PPoR loan account.
    It starts people on a dangerous practice of taking money back out for personal, lifestyle spending. Its a strong temptation for many.
    Keeping cash in an Offset is a terrific tool to reduce interest on your PPoR loan, and allow for reusing money if required in emergencies - but I think only for the people who are disciplined.