Reduce Debt Or Save

• Budgeting
• Insurance
• Debt Reduction
  • Reduce Debt Or Save
  • Reducing The Mortgage
  • Credit Cards
  • Student Loans
  • Consumer Debt Reduction
• Savings
• Before You Invest
• Investments
• Retirement Planning
• Estate Planning

Calculators

• KiwiSaver Account Calculator for Employees
• Residential Property Investment Calculator

Useful Resources

• KiwiSaver Tools and Information
• Follow the Secrets to Wealth
• Get the newsletter direct to your inbox each month
• Independent life insurance information

• Introduction
• A simple example
• The debt reduction vs savings calculator
• The exception to the rule

A simple example

The mortgage rate on a loan of $100 is 8.50%. You'd pay interest of $8.50. Therefore, if you repaid the loan, you'd have an extra $8.50 to spend or save each year.

Now, instead of repaying the loan, you decide to invest the money. In this example, let's suggest a return of 7% from your local bank. Therefore, you'd earn $7.00 income per year. But, you'd have to pay tax on that of $2.31 (assuming a marginal tax rate of 33%).

So the total extra amount you'd have to spend or save each year is $4.69.

It's obvious in this case that repaying the loan would be more beneficial. Note again that repaying the mortgage is a risk-free investment.