6 · Debt: the mortgage, the card, and the study loan
Not all debt behaves the same way, and the most common well-intentioned mistake in Australian households is paying down the cheap debt while carrying the expensive one.
Debt is the fastest-moving lever most households have. A half per cent on a $520,000 mortgage is not a rounding error, and the difference between a card at 20.99% and a mortgage at 5.9% is roughly four times the cost per dollar owed. The Forecast tab’s payoff panel exists so that these are numbers on a screen rather than intuitions.
Order of attack
- Build the buffer first. A household with no emergency fund that puts everything into the mortgage often ends up borrowing at 20% for a car repair — undoing years of good work in an afternoon. Under three months of cover, the buffer is the first job.
- Then the expensive debt. Cards, personal loans, buy-now-pay-later. Give each debt its own column in the year-by-year table and watch which one barely moves.
- Then the mortgage. And here the choice between extra repayments and an offset account is genuinely open — see below.
- HELP last, usually. At an indexation rate below your mortgage rate, money in an offset almost always does more work.
Five things that work on a mortgage
| Move | Why it works | The caveat |
|---|---|---|
| Round the repayment up | $3,521 rounded to $3,700 is barely felt and lands entirely on principal | Only from a genuine surplus. Funding it from a card at 20% to save 5.9% is going backwards with excellent intentions |
| Pay fortnightly, not monthly | Twenty-six half-payments is thirteen monthly payments a year, not twelve | Check the lender credits it that way — some hold fortnightly payments and apply them monthly, removing the effect entirely |
| Use an offset account | Reduces interest exactly as an extra repayment does, but the money stays available | Sometimes a higher rate or an account fee. Compare the rate difference against the balance you would realistically keep in it |
| Ring and ask for a better rate | Keeping a borrower is cheaper than finding one, so it often works | Refinancing has real costs and takes weeks. Make the phone call first |
| Redirect the pay rise before you feel it | A repayment raised the month a rise lands is never missed | The same increase attempted a year later feels like a cut — see Section 11 |
Decide now where the repayment goes when the loan ends
A cleared loan frees a large monthly amount that has been invisible for years. In the forecast, freed repayments appear in the surplus in the payoff year — and households that have decided in advance keep that money, while households that have not absorb it within about two months. Give it a job before it arrives.
Should I pay the study loan off early?
Usually not, and the reason people give is usually the wrong one. The strongest argument for clearing it is timing rather than rate: pay the balance off before you lodge and no compulsory repayment is raised for that year at all. Second, a voluntary payment made before 1 June reduces the balance that indexation applies to. But none of that changes the basic comparison — indexation rate against mortgage rate. The gap is the answer.
None of this makes a HELP debt free. It still reduces your borrowing capacity when a lender assesses you, and the balance still rises with indexation while your income is under the threshold.