May 13, 2025 • 21 mins
Interest rate cuts are likely on the way, which is great news if you’ve got a mortgage. But can it help you get on top of your debts as well? Join Canna Campbell - a financial planner for 20 years - and Fear & Greed's Michael Thompson as they look at how to use an interest rate cut to turn your finances around.
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The information in this podcast is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.
Canna Campbell is a Corporate Authorised Representative and Corporate Credit Representative of Wealthstream Financial Group Pty Ltd ABN 35 152 803 113 Australian Financial Services Licensee AFSL 412079.
See omnystudio.com/listener for privacy information.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome to How Do They Afford That? The podcast that
peaks into the financial lives of everyday Australians. I'm Michael Thompson.
I'm a writer and the co host of the podcast
Fear and Greed business news. As always, I'm with Canna Campbell,
financial planner and founder of Sugar Mama TV, the financial
literacy platform on YouTube and Instagram, podcasts like this, one, books, threads,
TikTok everywhere. Basically, Hello Canna, good morning. There is a
(00:24):
lot of excitement in the air at the moment. There
is talk of interest rate cuts on the way, bring
them on, and it's obviously great news if you've got
a mortgage.
Speaker 2 (00:34):
Well, if you've got a mortgage and you're on a
very poor rate, it's good news.
Speaker 1 (00:38):
Yeah. Indeed, today I wanted to go one step further
though than just looking at the obvious benefit of a
rate cut coming in. A rate cut can obviously save
you a certain amount off your mortgage repayments every week
or month, but can it help you get on top
of your debts as well? Can you kind of turbo
charge the benefits of a rate cut to really help
(00:59):
you kind of get on top of your household finances.
I'm setting you a very lofty goal for today's episode.
Speaker 2 (01:05):
Well, if we're going to be doing that, I'm going
to answer those questions. We need to remind everyone that
this is general advice only, of course, and obviously use
all of our answers for educational purposes, and always go
and get professional advice from a licensed financial planner. Because
last what we talk about might be great for you.
There might even be something that's even better, So use
this as a guide only.
Speaker 1 (01:24):
Well, I like that. Let's get into it.
Speaker 2 (01:26):
Then.
Speaker 1 (01:27):
How much of a difference can a twenty five basis
point rate cut actually make to someone's mortgage repayments, because
that's that's generally in most occasions, that is what the
Reserve Bank moves by. It is a quarter of one percent.
Speaker 2 (01:41):
Yes, so look it doesn't sound like much, but it
actually can make a real difference. So the average homeland
in Australia is around about six hundred and forty two
thousand dollars and the average interest rate is around about
six point twenty five. So you know, going off the
back of the recent cut and say it's dropped down
to say six percent per this is around one hundred
dollars back in your pocket from the previous cut. So
(02:05):
twelve hundred dollars a year, that's enough to help you
rebuild your emergency money. Maybe you pay off some pesky
credit card debt, start saving for a holiday, or just
you know, put it back for some very much needed
breathing space in your budget.
Speaker 1 (02:18):
Okay, so twelve hundred dollars thereabouts a year on a
six hundred and forty two thousand dollars average homeline. I'm
going to put you on the spot here, what is
the smartest thing that you can do with that extra money?
If you are juggling other debts as well, if your
(02:40):
mortgage is not the only debt that your household is
trying to service, all.
Speaker 2 (02:44):
Right, challenge towards the highest debt first is always the.
Speaker 1 (02:48):
Rule of thumb, as in the highest figure.
Speaker 2 (02:51):
Sorry, sorry my head, the highest interest rate debt first.
Speaker 1 (02:56):
Okay, So that would typically be your credit card.
Speaker 2 (02:58):
Credit cards, personal loans, and then obviously it filters down
to the mortgage. So you've got to think about it
as like a financial bush fire. You want to put
out the flames that are the hottest.
Speaker 1 (03:09):
You love your analogies, don't you.
Speaker 2 (03:11):
I work very hard on myte making them as creative
as possible, just to annoy you.
Speaker 1 (03:16):
It does feel like that is what your main motivation
now is not actually illustration or education, just sheer annoyance.
Speaker 2 (03:23):
You know, a home loan is average six percent, as
I just said, you know, a credit card can be
up to twenty two percent. So you know that is
the one that you would pay off first, and that's
obviously non deductible. It's often used to be just by stuff.
Speaker 1 (03:35):
Where does a personal loan kind of fit into that?
I know that you mentioned them before, but interest rates
on personal loans usually higher, substantially higher than a home loan.
Speaker 2 (03:43):
So it depends whether it's secured or unsecured, but they
can range anywhere between eight percent to twelve percent, sometimes
even higher. It depends on the sort of circumstances and
low dock loan and so forth.
Speaker 1 (03:55):
Okay, so that means then if we've got a credit card,
if we have a personal loan and a mortgage, you
can actually just step back and do a fairly rational
assessment looking at the three going which are the three
is the highest interest rate and that is the one
that you're going to target exactly Okay, how then do
you actually make sure that that money, that twelve hundred
(04:17):
dollars a year is going towards that and how do
you avoid falling into the trap of lifestyle creep. All
of a sudden, you've got this little bit of extra money,
and I know, speaking from personal experience, how easy it
is to find things to spend it on.
Speaker 2 (04:34):
All right, let's just put things back into perspective, because
I have a moment of like immense I guess, admiration,
and I feel really proud because we have as a
country survived thirteen interest rate hikes. So if we've survived
these and come through, you know clearly we were all
very capable of managing our finances, and we actually already
(04:56):
have quite a lot of self discipline involved, so we
can really lock that win in. But what we need
to do is obviously redirect these new found free up
savings like one hundred dollars per month and actually put
them towards one of our financial goals. So you know,
you're paying off your mortgage, redirecting it to emergency money investing,
maybe even boosting your super But the trick is get
(05:18):
it out of your hot little hands before you get
tempted to spend it. And what I highly recommend is
trying to set up maybe set and forget automation plan. So,
for example, instead of if your mortgage rate gets dropped
and you've got a lower repayment, you set up an
additional repayment of the equivalent savings so that you don't
(05:38):
go and spend that money.
Speaker 1 (05:39):
So, to make it super simple, say that's one hundred
dollars a month or twenty five dollars a week is
being transferred automatically out of your pay or wherever it
is that you would normally be using to pay off
the mortgage. You are now transferring it into a separate
savings account or offset account, or your account that you
use to build up your investments or your superannuation.
Speaker 2 (05:59):
Absolutely don't fall victim of this like oh, just one
little splurge, or I'll just let it ride for the
first month or two and then I'll go and adjust
my budget and my automatic savings plans and investment plans.
Get on it now before we become victim of that
lifestyle creep.
Speaker 1 (06:14):
Have you ever found yourself victim of lifestyle creep? Like
I'm just curious, like you always you have an air
of great discipline about you that you seem as though
you would be very, very controlled with that. And we've
talked in the past where we've had little kind of
splurges here and there. But have you found yourself getting
(06:34):
into this this almost this trap really of as your
income increases, that all of a sudden you're expended to
rises to meet it.
Speaker 2 (06:44):
Not really, because I have three kids that constantly want
things and need things and are growing, and because we
talk about money in our household, like we're pretty disciplined,
and I kind of feel like I have enough. If
I need something, I want something, and it's within the budget,
it's acceptable, and it's not frivolous or spondorous. It's fine.
(07:06):
But there are definitely times where I've taken the foot
off the gas and I've had a blowout or a
bit of a splurge. But then that kind of ticks
that box, and then I want to go back to
something that kicks me, I guess accountable and gives me
purpose and direction. Again, Like I know that sounds so
cheesy and daggy.
Speaker 1 (07:24):
But a little bit, but it's okay.
Speaker 2 (07:26):
My value system is stability and security, So I don't
want to mess with that. But also, I do we
do spend money on travel, and we do, you know,
spend money on experiences as a family.
Speaker 1 (07:39):
Yeah, so it's not necessarily just kind of frivolous spending
that is there because money has suddenly started coming in
and your income has increased, but it is more spending
with purpose.
Speaker 2 (07:49):
Yeah, okay, sorry to disappoint.
Speaker 1 (07:52):
I was really hoping for a something a bit juicy. Yeah, yeah, no,
I really kind of started buying lots of shoes or
something like that. I don't know.
Speaker 2 (08:00):
I think there might be a bit of a complicated
like childhood history thing there for me. Actually really yeah,
not a money block, but it's something I'm very respectful
not to catch a chickens swill a hatch, and you know,
don't get too big fur en shoes.
Speaker 1 (08:17):
Okay, all right, it's interesting and this is a topic
of another another conversation all together, But isn't it interesting
where some of our money habits come from? And maybe
that is actually worth a conversation entirely on its own.
Kind of the things that you carry over from your
childhood that you don't even realize that have been kind
(08:38):
of ingrained into you from the very beginning, and they
can be good money habits, but they could easily be
bad money habits as well, and they've kind of they
were what you knew when you were growing up.
Speaker 2 (08:48):
Well, it's so funny you say this, because I'm actually
reading Happy Money at the moment, which is, you know,
a brilliant book by a Japanese author, and I've had
a complete mental make of his name, but it's absolutely
fantastic and he talks a lot about this. So we
definitely need come back to this.
Speaker 1 (09:01):
Okay, But we are talking about mortgages, and we are
talking about what to do when interest rates come down
and what to do with that money. I want to
talk to you about how you use it to get
ahead on your mortgage and keeping your repayments at the
same level, and a few other kind of debt repayment
strategies that can all come into this. Really, I probably
should have just gotten too that stuff before rather than
asking your relevant questions, but I was curious. We'll take
(09:22):
a quick break and come back in a moment. Cana.
We are talking about interest rate cuts today and how
to use an interest rate cut to really help get
on top of your debts. I know that you said
that we should focus on the debt that we have
(09:43):
that has the highest interest rates, so your credit card,
your personal loans, etc. But just how important is that
If you can to keep paying the same amount on
your mortgage as you were before the rate cut, so
you can just leave your repayments at the same level,
(10:04):
that's going to help you out.
Speaker 2 (10:05):
All right, let me ask you this question back. Oh, no,
do you think fifty eight thousand dollars is a lot
of money?
Speaker 1 (10:11):
Objectively? Yes?
Speaker 2 (10:12):
It is?
Speaker 1 (10:13):
Why?
Speaker 2 (10:14):
All right, Well there's your answer. You know, if you
can afford to maintain your payments, you know, as they
are prior to this recent cut and future cuts, it's
one of the smartest financial moves that you can make.
So if we take that example of you know, the
average Australian mortgage being around six hundred and forty two
thousand dollars, if you maintain that mortgage payment as is,
(10:37):
you will save up to fifty eight thousand dollars in
interest over the life of the loan and up to
two years off your mortgage term, so you'll be mortgage
free two years sooner. Now, obviously everyone's numbers are going
to vary depending on the size of your mortgage, the
interest rate you're currently paying, future carts, future rises, and
of course like how far into your mortgage you actually are,
(11:00):
and you can plug everything into the Sugar Mamma calculator
to see a figure for yourself as a guide. But
I mean, this is a substantial savings if you can
choose not to spend that one hundred dollars per month
but actually keep going on your mortgage free journey, not
even twenty five dollars a week if you think about
it and we break it down, and if.
Speaker 1 (11:21):
You view it as money that you didn't have before,
then you're not going to miss it, right exactly, And
so obviously that would come into a play if you
perhaps don't have a credit card debt that needs your attention,
or you don't have a person alone that needs your attention.
But it's a good thing to consider regardless, right.
Speaker 2 (11:38):
And even if you can only meet halfway, that is
like that is still something to be celebrated.
Speaker 1 (11:42):
It's still chipping away and it's going to help. That
is staggering that you could pay it off two years.
Speaker 2 (11:48):
Sooner, and that's just with a twenty five percent drop.
Speaker 1 (11:51):
Can imagine being at mortgage free two years earlier, So I.
Speaker 2 (11:55):
Should say twenty five basis point drop, not twenty five
percent drum. But it's huge. And think about two of
your life to then bump up your super or to
put money into investing, or to take an earlier retirement
or travel overseas. That's huge.
Speaker 1 (12:08):
Yeah, that certainly is. What about the other effects of
a rate cut? Can you use it basically as a catalyst?
If you've been someone who's been putting off money decisions,
should you use a rate cut basically as the catalyst
to reset your financial goals, reset your habits. If you're
looking for an excuse right to get serious about your money,
(12:30):
your rate cuts as good as any.
Speaker 2 (12:33):
Look, the best motivation should really come within, you know,
reliant on the RBA to give you that kickup. The
asked to look at your mortgage and your cash and
your budget and your personal finances would have.
Speaker 1 (12:45):
To be one of the lamest things you've ever said.
That motivation comes from within. No, no, wait for someone
outside to say, get going. That's how I work.
Speaker 2 (12:55):
See the listeners of how To theyre for that. We
are doers, we are go getters. We do not sit
on our fingers, will sit on a finger stick, got
on my hands. Awkward to sit on our hands and
just wait for things to happen. We make things happen.
Speaker 1 (13:08):
Okay, okay, all right, So if a bard.
Speaker 2 (13:13):
With me here, hang and I'm feeling this element of
hesitation from you.
Speaker 1 (13:17):
Absolutely I would rather be motivated by myself, but as
in by this desire to do better. But I'm also
a realist, and I know that a lot of people go,
you know what, I've got too many competing demands on
my time.
Speaker 2 (13:30):
Rest or procrastinator. Let's be honest.
Speaker 1 (13:32):
Is there a difference? Not for me, there isn't. But
in terms of though, this could still help, as if
you've got if you need a catalyst, then the RBA
cutting rates is a reasonable one.
Speaker 2 (13:45):
Right.
Speaker 1 (13:45):
Yes, that's all I wanted. I just wanted an acknowledgment
from you.
Speaker 2 (13:49):
Use this rate as a bit of a nudge to
go and check your financial goals, run your numbers, and
see what you're capable of achieving. But remember, at the
end of the day, you are the dry of change,
not some stranger in a gray suit in a boardroom
looking at lots the pieces of paper and numbers and data.
Speaker 1 (14:10):
Okay, no, that actually it does make sense you need
to want to make changes, But I just like the
idea of going, Okay, my mortgage repayment's going to come down.
I'm going to this will be my first step. It
is a small but meaningful step that I can take
that is going to have a long term impact. And
(14:31):
that step I'm going to take is not reducing my repayments.
There we go. I am so happy I have ticked
something off my list broader debt repayment strategies. Right, if
we're looking at this bigger issue of how to use
an interest rate cut to help get on top of
your debts, are there any debt repayment strategies that are better,
perhaps more cost effective when interest rates come down.
Speaker 2 (14:53):
Yes. So, as I mentioned, obviously, automation is your best friend.
So you know, keeping the repayments at their highest level,
don't let the just automatically drop them down. So you
just mentioned that you're going to keep your mortgage repayment
as is. Now do you know whether the bank will
actually do that for you or do you have to
contact them? Because some banks will actually reduce your payments automatically,
(15:15):
some won'ty just to apply their lower interest rate but
they keep them as is.
Speaker 1 (15:19):
No mine keeps it at the same amount unless you
choose to lower it. They send you plenty of notifications
to say, hey, if you want to lower it, you can,
but we will leave it at the same amount for now,
which I think is admirable.
Speaker 2 (15:32):
Yes, interestingly, though, I want to keep ours as is.
Ours were automatically reduced. So then I had to go
log into my banking check everything and everyone should do
this as well, to see how their interest rate cut
was passed on and how to adjust your repayments or
not and make that decision. So I then have to
contact the bank or go and set up a manual
automatic repayment plan on top of to take it back
(15:53):
up to what it was.
Speaker 1 (15:55):
It feels like that's not high risk, but that would
be that's bad news for anyone with a money block.
That's like, it's another step you have to do that
can potentially get kind of pushed further down the road.
Speaker 2 (16:09):
Well, this is the problem with baring your head in
the sand. Like a lot of people assume that you
know your payments are either kept the same or reduced,
and it's not until you you know six months later
or five months later you're looking thinking how why am
I still struggling, you know, whether we've had all these
interest rate cuts that I'm still struggling to get through
my pace? Likele h, why is my mortgage not going
(16:29):
down as quickly as what it used to be. That's
why we need to go and take a couple of
minutes just to go and check these do this, I guess,
mini financial life admin, to see how these interest rate
cuts are being applied and what we need to do
to make sure they're in alignment to our goals.
Speaker 1 (16:44):
Okay, so in terms of debt repayment strategies, we are
talking about a check in actually making sure that if
you want to continue paying the same amount that you
are actually doing it. So a checking is kind of one.
What about conser olidating debts? Does a rate cut make
it more worthwhile to do that or is that not
(17:08):
something that you should do because you are essentially just
fighting debt with more debt.
Speaker 2 (17:13):
We need to do a special episode on debt consolidation
because it is can be a little bit complicated, and
there is it can be a little bit of a
trap as well. But to answer your question, yes, obviously
there are a lower interest rate means you know, greater
loan affordability, so your boring power improves and you're more
likely to get you submit a more successful application. But
(17:36):
you obviously need to remember you want to pay this
debt off as quickly as possible. You know, consolidation isn't
just a you know, fix it cure at all solution.
It also works best if you're addressing your spending habits
at the end of the day so that you don't
go back into debt once you've paid it off.
Speaker 1 (17:52):
Okay, I think in the end I can summarize this
as there are some very simple priorities. When the Reserve
Bank cuts interest rates, and assuming that your bank or
your lender passes on that interest rate cut, that you
are looking first at your highest interest rate debt. So
(18:13):
whether that be your credit card or your personal loan
or your mortgage, you're working in that order, and you're
really aiming it at the highest debt first to put
that extra money in try and pay that down if
you are able to make the most of additional repayments
on your home line, So keep your rate your repayments
(18:33):
at the same level.
Speaker 2 (18:34):
Or as close as you possibly can after your budget.
Speaker 1 (18:38):
Because that can actually shave months or years and thousands
of dollars in interest payments off your mortgage, and.
Speaker 2 (18:48):
That fifty eight thousand dollars figure assumes no further interest
rate cuts. So I've actually been really conservative in the
potential savings is actually quite possibly a lot more subject
to see how much you alone is.
Speaker 1 (19:01):
Yeah. Absolutely, though in terms of other debt repayment strategies,
there's nothing that leaps out at you in terms of
consolidating debts as something that you should turn your attention
to immediately, because if you were to combine everything into
one big debt, you might be getting a slightly lower
interest rate on that, but in the end you are
(19:21):
still you still need discipline in order to focus your
attention on that debt.
Speaker 2 (19:25):
And look, it depends what type of debt we're talking
about consolidating. And this is why you need an experience
mortgage broker to help you out but also help you
stick to a new budget that actually prioritizes, you know,
getting back on top of things again.
Speaker 1 (19:37):
Okay, I think we've covered this. What I hope now
is that if you've listened to this, that you've at
least got some ideas on what to do when that
rate cut comes through. Because it is covered extensively within
the media, you will see it on the news every
night that the rate cut has come through, and then
you will see the big announcements from it to the
banks that they are passing it on. And this hopefully
(19:58):
will give you a bit of a checklist as to
what you do then so that it doesn't just get
swallowed up by this lifestyle creep that I know, for one,
would happen to me if I wasn't being deliberate about
how I use that money.
Speaker 2 (20:14):
I think the mantra for everyone listening to this episode
is attention and intention. I like that. Thank you.
Speaker 1 (20:22):
It's a very positive way to finish.
Speaker 2 (20:23):
I'm a very positive person.
Speaker 1 (20:25):
Mostly yes, eighty percent of the time you are very positive.
You seem to save the twenty percent of negative and
angry for when the mics go off. Then it gets really,
really scary.
Speaker 2 (20:38):
Ranky Kuna comes out.
Speaker 1 (20:39):
No, I know never all right. If anybody wants more
information from you, where do they find you?
Speaker 2 (20:44):
The best place to get in contact with me is
on Instagram, at sugar mom My TV and of course
at Canna Campbell.
Speaker 1 (20:49):
Official, and you can hear me every day as well
on Fear and Greed, daily business news for people who
make their own decisions. Thank you for listening to how
Do They Afford That? Remember to hit follow on the podcast.
That is very important, and the best thing you can
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ford that. Thank you very much for your company. Join
(21:10):
us again next week.
Welcome to How Do They Afford That? The podcast that
peaks into the financial lives of everyday Australians. I'm Michael Thompson.
I'm a writer and the co host of the podcast
Fear and Greed business news. As always, I'm with Canna Campbell,
financial planner and founder of Sugar Mama TV, the financial
literacy platform on YouTube and Instagram, podcasts like this, one, books, threads,
TikTok everywhere. Basically, Hello Canna, good morning. There is a
(00:24):
lot of excitement in the air at the moment. There
is talk of interest rate cuts on the way, bring
them on, and it's obviously great news if you've got
a mortgage.
Speaker 2 (00:34):
Well, if you've got a mortgage and you're on a
very poor rate, it's good news.
Speaker 1 (00:38):
Yeah. Indeed, today I wanted to go one step further
though than just looking at the obvious benefit of a
rate cut coming in. A rate cut can obviously save
you a certain amount off your mortgage repayments every week
or month, but can it help you get on top
of your debts as well? Can you kind of turbo
charge the benefits of a rate cut to really help
(00:59):
you kind of get on top of your household finances.
I'm setting you a very lofty goal for today's episode.
Speaker 2 (01:05):
Well, if we're going to be doing that, I'm going
to answer those questions. We need to remind everyone that
this is general advice only, of course, and obviously use
all of our answers for educational purposes, and always go
and get professional advice from a licensed financial planner. Because
last what we talk about might be great for you.
There might even be something that's even better, So use
this as a guide only.
Speaker 1 (01:24):
Well, I like that. Let's get into it.
Speaker 2 (01:26):
Then.
Speaker 1 (01:27):
How much of a difference can a twenty five basis
point rate cut actually make to someone's mortgage repayments, because
that's that's generally in most occasions, that is what the
Reserve Bank moves by. It is a quarter of one percent.
Speaker 2 (01:41):
Yes, so look it doesn't sound like much, but it
actually can make a real difference. So the average homeland
in Australia is around about six hundred and forty two
thousand dollars and the average interest rate is around about
six point twenty five. So you know, going off the
back of the recent cut and say it's dropped down
to say six percent per this is around one hundred
dollars back in your pocket from the previous cut. So
(02:05):
twelve hundred dollars a year, that's enough to help you
rebuild your emergency money. Maybe you pay off some pesky
credit card debt, start saving for a holiday, or just
you know, put it back for some very much needed
breathing space in your budget.
Speaker 1 (02:18):
Okay, so twelve hundred dollars thereabouts a year on a
six hundred and forty two thousand dollars average homeline. I'm
going to put you on the spot here, what is
the smartest thing that you can do with that extra money?
If you are juggling other debts as well, if your
(02:40):
mortgage is not the only debt that your household is
trying to service, all.
Speaker 2 (02:44):
Right, challenge towards the highest debt first is always the.
Speaker 1 (02:48):
Rule of thumb, as in the highest figure.
Speaker 2 (02:51):
Sorry, sorry my head, the highest interest rate debt first.
Speaker 1 (02:56):
Okay, So that would typically be your credit card.
Speaker 2 (02:58):
Credit cards, personal loans, and then obviously it filters down
to the mortgage. So you've got to think about it
as like a financial bush fire. You want to put
out the flames that are the hottest.
Speaker 1 (03:09):
You love your analogies, don't you.
Speaker 2 (03:11):
I work very hard on myte making them as creative
as possible, just to annoy you.
Speaker 1 (03:16):
It does feel like that is what your main motivation
now is not actually illustration or education, just sheer annoyance.
Speaker 2 (03:23):
You know, a home loan is average six percent, as
I just said, you know, a credit card can be
up to twenty two percent. So you know that is
the one that you would pay off first, and that's
obviously non deductible. It's often used to be just by stuff.
Speaker 1 (03:35):
Where does a personal loan kind of fit into that?
I know that you mentioned them before, but interest rates
on personal loans usually higher, substantially higher than a home loan.
Speaker 2 (03:43):
So it depends whether it's secured or unsecured, but they
can range anywhere between eight percent to twelve percent, sometimes
even higher. It depends on the sort of circumstances and
low dock loan and so forth.
Speaker 1 (03:55):
Okay, so that means then if we've got a credit card,
if we have a personal loan and a mortgage, you
can actually just step back and do a fairly rational
assessment looking at the three going which are the three
is the highest interest rate and that is the one
that you're going to target exactly Okay, how then do
you actually make sure that that money, that twelve hundred
(04:17):
dollars a year is going towards that and how do
you avoid falling into the trap of lifestyle creep. All
of a sudden, you've got this little bit of extra money,
and I know, speaking from personal experience, how easy it
is to find things to spend it on.
Speaker 2 (04:34):
All right, let's just put things back into perspective, because
I have a moment of like immense I guess, admiration,
and I feel really proud because we have as a
country survived thirteen interest rate hikes. So if we've survived
these and come through, you know clearly we were all
very capable of managing our finances, and we actually already
(04:56):
have quite a lot of self discipline involved, so we
can really lock that win in. But what we need
to do is obviously redirect these new found free up
savings like one hundred dollars per month and actually put
them towards one of our financial goals. So you know,
you're paying off your mortgage, redirecting it to emergency money investing,
maybe even boosting your super But the trick is get
(05:18):
it out of your hot little hands before you get
tempted to spend it. And what I highly recommend is
trying to set up maybe set and forget automation plan. So,
for example, instead of if your mortgage rate gets dropped
and you've got a lower repayment, you set up an
additional repayment of the equivalent savings so that you don't
(05:38):
go and spend that money.
Speaker 1 (05:39):
So, to make it super simple, say that's one hundred
dollars a month or twenty five dollars a week is
being transferred automatically out of your pay or wherever it
is that you would normally be using to pay off
the mortgage. You are now transferring it into a separate
savings account or offset account, or your account that you
use to build up your investments or your superannuation.
Speaker 2 (05:59):
Absolutely don't fall victim of this like oh, just one
little splurge, or I'll just let it ride for the
first month or two and then I'll go and adjust
my budget and my automatic savings plans and investment plans.
Get on it now before we become victim of that
lifestyle creep.
Speaker 1 (06:14):
Have you ever found yourself victim of lifestyle creep? Like
I'm just curious, like you always you have an air
of great discipline about you that you seem as though
you would be very, very controlled with that. And we've
talked in the past where we've had little kind of
splurges here and there. But have you found yourself getting
(06:34):
into this this almost this trap really of as your
income increases, that all of a sudden you're expended to
rises to meet it.
Speaker 2 (06:44):
Not really, because I have three kids that constantly want
things and need things and are growing, and because we
talk about money in our household, like we're pretty disciplined,
and I kind of feel like I have enough. If
I need something, I want something, and it's within the budget,
it's acceptable, and it's not frivolous or spondorous. It's fine.
(07:06):
But there are definitely times where I've taken the foot
off the gas and I've had a blowout or a
bit of a splurge. But then that kind of ticks
that box, and then I want to go back to
something that kicks me, I guess accountable and gives me
purpose and direction. Again, Like I know that sounds so
cheesy and daggy.
Speaker 1 (07:24):
But a little bit, but it's okay.
Speaker 2 (07:26):
My value system is stability and security, So I don't
want to mess with that. But also, I do we
do spend money on travel, and we do, you know,
spend money on experiences as a family.
Speaker 1 (07:39):
Yeah, so it's not necessarily just kind of frivolous spending
that is there because money has suddenly started coming in
and your income has increased, but it is more spending
with purpose.
Speaker 2 (07:49):
Yeah, okay, sorry to disappoint.
Speaker 1 (07:52):
I was really hoping for a something a bit juicy. Yeah, yeah, no,
I really kind of started buying lots of shoes or
something like that. I don't know.
Speaker 2 (08:00):
I think there might be a bit of a complicated
like childhood history thing there for me. Actually really yeah,
not a money block, but it's something I'm very respectful
not to catch a chickens swill a hatch, and you know,
don't get too big fur en shoes.
Speaker 1 (08:17):
Okay, all right, it's interesting and this is a topic
of another another conversation all together, But isn't it interesting
where some of our money habits come from? And maybe
that is actually worth a conversation entirely on its own.
Kind of the things that you carry over from your
childhood that you don't even realize that have been kind
(08:38):
of ingrained into you from the very beginning, and they
can be good money habits, but they could easily be
bad money habits as well, and they've kind of they
were what you knew when you were growing up.
Speaker 2 (08:48):
Well, it's so funny you say this, because I'm actually
reading Happy Money at the moment, which is, you know,
a brilliant book by a Japanese author, and I've had
a complete mental make of his name, but it's absolutely
fantastic and he talks a lot about this. So we
definitely need come back to this.
Speaker 1 (09:01):
Okay, But we are talking about mortgages, and we are
talking about what to do when interest rates come down
and what to do with that money. I want to
talk to you about how you use it to get
ahead on your mortgage and keeping your repayments at the
same level, and a few other kind of debt repayment
strategies that can all come into this. Really, I probably
should have just gotten too that stuff before rather than
asking your relevant questions, but I was curious. We'll take
(09:22):
a quick break and come back in a moment. Cana.
We are talking about interest rate cuts today and how
to use an interest rate cut to really help get
on top of your debts. I know that you said
that we should focus on the debt that we have
(09:43):
that has the highest interest rates, so your credit card,
your personal loans, etc. But just how important is that
If you can to keep paying the same amount on
your mortgage as you were before the rate cut, so
you can just leave your repayments at the same level,
(10:04):
that's going to help you out.
Speaker 2 (10:05):
All right, let me ask you this question back. Oh, no,
do you think fifty eight thousand dollars is a lot
of money?
Speaker 1 (10:11):
Objectively? Yes?
Speaker 2 (10:12):
It is?
Speaker 1 (10:13):
Why?
Speaker 2 (10:14):
All right, Well there's your answer. You know, if you
can afford to maintain your payments, you know, as they
are prior to this recent cut and future cuts, it's
one of the smartest financial moves that you can make.
So if we take that example of you know, the
average Australian mortgage being around six hundred and forty two
thousand dollars, if you maintain that mortgage payment as is,
(10:37):
you will save up to fifty eight thousand dollars in
interest over the life of the loan and up to
two years off your mortgage term, so you'll be mortgage
free two years sooner. Now, obviously everyone's numbers are going
to vary depending on the size of your mortgage, the
interest rate you're currently paying, future carts, future rises, and
of course like how far into your mortgage you actually are,
(11:00):
and you can plug everything into the Sugar Mamma calculator
to see a figure for yourself as a guide. But
I mean, this is a substantial savings if you can
choose not to spend that one hundred dollars per month
but actually keep going on your mortgage free journey, not
even twenty five dollars a week if you think about
it and we break it down, and if.
Speaker 1 (11:21):
You view it as money that you didn't have before,
then you're not going to miss it, right exactly, And
so obviously that would come into a play if you
perhaps don't have a credit card debt that needs your attention,
or you don't have a person alone that needs your attention.
But it's a good thing to consider regardless, right.
Speaker 2 (11:38):
And even if you can only meet halfway, that is
like that is still something to be celebrated.
Speaker 1 (11:42):
It's still chipping away and it's going to help. That
is staggering that you could pay it off two years.
Speaker 2 (11:48):
Sooner, and that's just with a twenty five percent drop.
Speaker 1 (11:51):
Can imagine being at mortgage free two years earlier, So I.
Speaker 2 (11:55):
Should say twenty five basis point drop, not twenty five
percent drum. But it's huge. And think about two of
your life to then bump up your super or to
put money into investing, or to take an earlier retirement
or travel overseas. That's huge.
Speaker 1 (12:08):
Yeah, that certainly is. What about the other effects of
a rate cut? Can you use it basically as a catalyst?
If you've been someone who's been putting off money decisions,
should you use a rate cut basically as the catalyst
to reset your financial goals, reset your habits. If you're
looking for an excuse right to get serious about your money,
(12:30):
your rate cuts as good as any.
Speaker 2 (12:33):
Look, the best motivation should really come within, you know,
reliant on the RBA to give you that kickup. The
asked to look at your mortgage and your cash and
your budget and your personal finances would have.
Speaker 1 (12:45):
To be one of the lamest things you've ever said.
That motivation comes from within. No, no, wait for someone
outside to say, get going. That's how I work.
Speaker 2 (12:55):
See the listeners of how To theyre for that. We
are doers, we are go getters. We do not sit
on our fingers, will sit on a finger stick, got
on my hands. Awkward to sit on our hands and
just wait for things to happen. We make things happen.
Speaker 1 (13:08):
Okay, okay, all right, So if a bard.
Speaker 2 (13:13):
With me here, hang and I'm feeling this element of
hesitation from you.
Speaker 1 (13:17):
Absolutely I would rather be motivated by myself, but as
in by this desire to do better. But I'm also
a realist, and I know that a lot of people go,
you know what, I've got too many competing demands on
my time.
Speaker 2 (13:30):
Rest or procrastinator. Let's be honest.
Speaker 1 (13:32):
Is there a difference? Not for me, there isn't. But
in terms of though, this could still help, as if
you've got if you need a catalyst, then the RBA
cutting rates is a reasonable one.
Speaker 2 (13:45):
Right.
Speaker 1 (13:45):
Yes, that's all I wanted. I just wanted an acknowledgment
from you.
Speaker 2 (13:49):
Use this rate as a bit of a nudge to
go and check your financial goals, run your numbers, and
see what you're capable of achieving. But remember, at the
end of the day, you are the dry of change,
not some stranger in a gray suit in a boardroom
looking at lots the pieces of paper and numbers and data.
Speaker 1 (14:10):
Okay, no, that actually it does make sense you need
to want to make changes, But I just like the
idea of going, Okay, my mortgage repayment's going to come down.
I'm going to this will be my first step. It
is a small but meaningful step that I can take
that is going to have a long term impact. And
(14:31):
that step I'm going to take is not reducing my repayments.
There we go. I am so happy I have ticked
something off my list broader debt repayment strategies. Right, if
we're looking at this bigger issue of how to use
an interest rate cut to help get on top of
your debts, are there any debt repayment strategies that are better,
perhaps more cost effective when interest rates come down.
Speaker 2 (14:53):
Yes. So, as I mentioned, obviously, automation is your best friend.
So you know, keeping the repayments at their highest level,
don't let the just automatically drop them down. So you
just mentioned that you're going to keep your mortgage repayment
as is. Now do you know whether the bank will
actually do that for you or do you have to
contact them? Because some banks will actually reduce your payments automatically,
(15:15):
some won'ty just to apply their lower interest rate but
they keep them as is.
Speaker 1 (15:19):
No mine keeps it at the same amount unless you
choose to lower it. They send you plenty of notifications
to say, hey, if you want to lower it, you can,
but we will leave it at the same amount for now,
which I think is admirable.
Speaker 2 (15:32):
Yes, interestingly, though, I want to keep ours as is.
Ours were automatically reduced. So then I had to go
log into my banking check everything and everyone should do
this as well, to see how their interest rate cut
was passed on and how to adjust your repayments or
not and make that decision. So I then have to
contact the bank or go and set up a manual
automatic repayment plan on top of to take it back
(15:53):
up to what it was.
Speaker 1 (15:55):
It feels like that's not high risk, but that would
be that's bad news for anyone with a money block.
That's like, it's another step you have to do that
can potentially get kind of pushed further down the road.
Speaker 2 (16:09):
Well, this is the problem with baring your head in
the sand. Like a lot of people assume that you
know your payments are either kept the same or reduced,
and it's not until you you know six months later
or five months later you're looking thinking how why am
I still struggling, you know, whether we've had all these
interest rate cuts that I'm still struggling to get through
my pace? Likele h, why is my mortgage not going
(16:29):
down as quickly as what it used to be. That's
why we need to go and take a couple of
minutes just to go and check these do this, I guess,
mini financial life admin, to see how these interest rate
cuts are being applied and what we need to do
to make sure they're in alignment to our goals.
Speaker 1 (16:44):
Okay, so in terms of debt repayment strategies, we are
talking about a check in actually making sure that if
you want to continue paying the same amount that you
are actually doing it. So a checking is kind of one.
What about conser olidating debts? Does a rate cut make
it more worthwhile to do that or is that not
(17:08):
something that you should do because you are essentially just
fighting debt with more debt.
Speaker 2 (17:13):
We need to do a special episode on debt consolidation
because it is can be a little bit complicated, and
there is it can be a little bit of a
trap as well. But to answer your question, yes, obviously
there are a lower interest rate means you know, greater
loan affordability, so your boring power improves and you're more
likely to get you submit a more successful application. But
(17:36):
you obviously need to remember you want to pay this
debt off as quickly as possible. You know, consolidation isn't
just a you know, fix it cure at all solution.
It also works best if you're addressing your spending habits
at the end of the day so that you don't
go back into debt once you've paid it off.
Speaker 1 (17:52):
Okay, I think in the end I can summarize this
as there are some very simple priorities. When the Reserve
Bank cuts interest rates, and assuming that your bank or
your lender passes on that interest rate cut, that you
are looking first at your highest interest rate debt. So
(18:13):
whether that be your credit card or your personal loan
or your mortgage, you're working in that order, and you're
really aiming it at the highest debt first to put
that extra money in try and pay that down if
you are able to make the most of additional repayments
on your home line, So keep your rate your repayments
(18:33):
at the same level.
Speaker 2 (18:34):
Or as close as you possibly can after your budget.
Speaker 1 (18:38):
Because that can actually shave months or years and thousands
of dollars in interest payments off your mortgage, and.
Speaker 2 (18:48):
That fifty eight thousand dollars figure assumes no further interest
rate cuts. So I've actually been really conservative in the
potential savings is actually quite possibly a lot more subject
to see how much you alone is.
Speaker 1 (19:01):
Yeah. Absolutely, though in terms of other debt repayment strategies,
there's nothing that leaps out at you in terms of
consolidating debts as something that you should turn your attention
to immediately, because if you were to combine everything into
one big debt, you might be getting a slightly lower
interest rate on that, but in the end you are
(19:21):
still you still need discipline in order to focus your
attention on that debt.
Speaker 2 (19:25):
And look, it depends what type of debt we're talking
about consolidating. And this is why you need an experience
mortgage broker to help you out but also help you
stick to a new budget that actually prioritizes, you know,
getting back on top of things again.
Speaker 1 (19:37):
Okay, I think we've covered this. What I hope now
is that if you've listened to this, that you've at
least got some ideas on what to do when that
rate cut comes through. Because it is covered extensively within
the media, you will see it on the news every
night that the rate cut has come through, and then
you will see the big announcements from it to the
banks that they are passing it on. And this hopefully
(19:58):
will give you a bit of a checklist as to
what you do then so that it doesn't just get
swallowed up by this lifestyle creep that I know, for one,
would happen to me if I wasn't being deliberate about
how I use that money.
Speaker 2 (20:14):
I think the mantra for everyone listening to this episode
is attention and intention. I like that. Thank you.
Speaker 1 (20:22):
It's a very positive way to finish.
Speaker 2 (20:23):
I'm a very positive person.
Speaker 1 (20:25):
Mostly yes, eighty percent of the time you are very positive.
You seem to save the twenty percent of negative and
angry for when the mics go off. Then it gets really,
really scary.
Speaker 2 (20:38):
Ranky Kuna comes out.
Speaker 1 (20:39):
No, I know never all right. If anybody wants more
information from you, where do they find you?
Speaker 2 (20:44):
The best place to get in contact with me is
on Instagram, at sugar mom My TV and of course
at Canna Campbell.
Speaker 1 (20:49):
Official, and you can hear me every day as well
on Fear and Greed, daily business news for people who
make their own decisions. Thank you for listening to how
Do They Afford That? Remember to hit follow on the podcast.
That is very important, and the best thing you can
do is to tell somebody else, send them the link
to this episode and spread the word about how today
ford that. Thank you very much for your company. Join
(21:10):
us again next week.
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