Debt Management

In financial advice, debt management refers to understanding all your debts, their term, interest rate (level, and fixed or floating), tax deductibility of interest, and associated risks. In managing your debts, your objective will be to understand how these debts are going to be repaid and prioritising which debts are to be paid first to try to optimise your position. It is understanding how your debts and their management fit into your financial plans and strategies, and involves understanding how different debts work and impact wealth, and often involves financial modelling and projections.

We find that with many clients, without an understanding of their current debt situation and a plan to manage debts, will find it difficult to meet wealth accumulation and retirement plans. Even relatively moderate levels of personal debt, can limit a client’s ability to have the capital in retirement to meet their objectives.

There are a variety of considerations such as the type of debt and its terms, interest deductibility, and your stage in life. Your other objectives need to be considered such as whether you hold or will hold insurance in your superannuation account. Once these are understood, financial advice involves making assumptions then doing financial projections and scenarios to ascertain the better strategy.

Subject to caps, when you are over the age of 60 years you can access your superannuation in a tax effective manner and there are strategies to reduce your debt and in some instances limit the reduction in your superannuation balance through recontribution as a salary sacrifice. It is important that as a person approaches retirement and that may be over a 10 year period that they are managing their debt to reduce its balance quickly in preparation for retirement.