Credit Card debt is always best avoided. You will hear us preach loud and long about ways to reduce credit card debt.
But, what to do with the money that you save? Our standard response to any extra cash is that an extra contribution into super is the standard against which everything should be compared. This is because super is usually the best way to convert a saving into wealth – with a little tax-advantaged turbo-charging thrown in.
Here are some suggested SOA paragraphs for a client who should consolidate a credit card debt on to a home loan and use the cash saved to fund a salary sacrifice strategy.
Turn your credit card debt into an extra $140,000 of super
I suggest you ask your bank manager to increase your home loan by an amount equal to your credit card debts, and that you use this to pay off your credit cards. Consolidating your debts into the lower cost home loan will save you about $2,000 cash a year, and this is the same as earning an extra $3,000 of salary.
I recommend that you do not spend the extra $2,000 cash a year, and that you instead ask your employer to reduce your salary by $3,000 and pay an extra $3,000 to your super fund.
This simple strategy, compounded over the next twenty-five years, will add more than $150,000 to your retirement at age 65 (subject to some assumptions about future earning rates). The position is charted here:
(Assumptions: 9% return; 15% tax)