Tuesday, October 16th, 2018
Tertiary education is an amazing thing that can help set you up for a lifetime of earning potential in a fulfilling career. But first there’s HECS debt and understanding how to make it work with your financial goals.
HECS-HELP is, basically, a government loan scheme to help eligible students in Australia cover university tuition fees without dealing with large up-front bills.
Although there is no interest charged on HECS‑HELP loans, the debt is indexed each year to reflect changes in the Consumer Price Index (CPI).
With that in mind, most financial experts argue that it’s smart to pay off other debts before dealing with your HECS debt – something that makes sense on the face of it, especially because of the scrapping of any government-led incentive to make extra/early repayments.
However, taking on a mortgage while you still carry HECS debt does raise some issues worth thinking about.
Your borrowing capacity is impacted by your HECS debt
Because your HECS repayments are factored into the calculations lending institutions use to assess your ability to repay your loan, any debt, including HECS debt, can be seen to impact on your ability to service future loans.
With repayments of HECS going up, and income thresholds going down, anyone with HECS debt in future can expect to pay back their loan faster than past generations of students.
This fact, combined with the fact that interest rates are sure to rise in the near future, means it may become more challenging to repay both HECS and a mortgage – especially if interest rates on home loans keep rising.
Talk to a trusted loan broker before taking on any type of loan – whether it’s a car loan, business loan or mortgage. Understanding your income and your true borrowing capacity should guide your decision-making to help you make smart decisions about what debt you can afford to live with.
Could your weekly budget cope with HECS debt and a home loan? And if interest rates start to soar, will you still be able to service your debt repayments? Prepare a realistic budget that factors in all your expenses before committing to taking on more debt.
Taking on debt doesn’t have to be a bad thing – but there are times in life when it works better than others. The important thing to remember is that every financial decision should be taken very seriously and with the right information guiding your thinking.
HECS debt is not a noose around your neck but, rather, a reminder of what you have achieved and what your potential is for achieving even greater things in the future. Don’t rush. The right time to take on debt and a mortgage is when it’s right for you and your individual financial situation. And when the debt is paid off in full? Your cash flow will increase to mean more ability to save for a deposit and better ability to repay larger debt.
Well-considered debt can help create future financial growth and sustainability – and that’s a positive that can pay off for many, many years to come.
For more information about tips to service your debts, talk to our loan specialists at Loans Actually today.