This depends on your goals, how you use your credit cards, if you put extra funds on your loan etc.
A couple with one child had a professional package loan. They were paying $375pa to receive a discount of 0.6% off the lenders variable rate. They had a platinum credit card, no annual fee, with a rate of 19.39% p.a., a bank account with no fees and they could vary their loan for no fees.
A good package. However, the couple never had much money left in their bank account each week, they always had a balance of $500 to $1,000 on their credit card; and after discussing their goals for their future, they had no intention of increasing their loan or varying it for the next few years.
We gave them a few options and they picked the following:
They went with a low rate loan with a standard variable rate of 5.98% p.a., with a free offset account, debit card and no application fee. This saves them $66.00 p/m or $792 p.a. just in interest; plus we looked at low interest credit cards which met their needs – Interest free for 55 days, $59pa fee, min payment of 2.5% of the balance, late fee of $5, no over limit fee and interest rate of 12.99% pa.
The average balance of their credit card was $500 therefore:
$500 @ 19.39% pa = $96.95pa interest
$500 @ 12.99% pa = $64.95pa interest another saving of $32pa
They were paying $375 p.a. for their annual fee and now they only pay $59 p.a. for their new low fee credit card = another saving of $316 p.a.
Over all, they save $792 just on interest + $32 on credit card interest + $316 on fees = $1,140 p.a. being a saving of $95 per month. Not bad for just having a think about your needs and your plans for the next few years.
It is to plan and know what your goals are for the next few years. Know what you’re paying for and if it really suits you.
Be honest with yourself; no use saying I normally pay off my credit card every month, but we just used it for an emergency once and we intend, we pay that off, it will not happen again. There are great deals to switch to a credit card and move your balance across for very low interest for a term.
Have a look what is your average balance in your bank account could you direct debit an extra $10 or $20 per month on your loan. This saves interest and builds up, so you can then redraw it for an emergency rather than using a credit card.
There are many things you can do that will help you save interest and fees, but you are the only one that can tell us how you operate. Then, we can help you achieve a loan that works for you and that you know how it operates and what you are really paying for.