Repaying Non-Deductable Debt v Super Contributions
With the current low interest rates leaving excess cash in the bank isn’t as attractive as it once was. Deciding on what to do with your hard earned cash can be tough so we will look at different options. The two strategies that we will assess is reducing your non-deductable debt and contributing to your super. What to do depends on many different factors including how long until you retire and whether or not you will need access to this money in the future. To compare we will look at some of the advantages and disadvantages of each.
Reducing non-deductable debt advantages:
- Peace of mind knowing that you are closer to being debt free.
- Less means greater cash flow through lower repayments.
- Reduces the overall interest paid on the loan.
- Improves the equity of the house which would help future borrowings.
- The family home is an investment that is capital gains tax free.
Reducing non-deductable debt disadvantages:
- Repayments are made with after tax dollars.
- Loss of potential higher returns with an investment or super.
- Not all home loans have a re-draw facility or allow additional repayments without penalties.
Contributing to super advantages:
- If you’re self-employed you can claim a tax deduction for contributions.
- More funds available for retirement.
- No contributions tax paid if contributing with after tax income.
- If you earn $49,487 or less and make an after tax contribution you may be entitled to the Government’s Co-Contribution scheme.
Contributing to super disadvantages:
- Super funds aren’t accessible until you reach preservation age.
- Depending on the investment options you are in your balance may fluctuate with the market.
- Everyone’s situation is different so making a decision should be based on your personal goals and objectives.
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