Monday, June 27th, 2011
The most common financial mistake people make is to borrow money at a high rate of interest in order to buy something they don’t really need or without considering whether they could borrow at a lower cost. This type of borrowing is what the Retirement Commission calls ‘dumb debt’ and they have launched a campaign aimed at encouraging people to get smarter with their debt. Examples of dumb debt are:
There is a very useful debt calculator on the Retirement Commission’s website, www.sorted.org.nz, which helps you work out the total amount of interest you pay over the period of your loan. For example, if you make a purchase of $2,000 on a credit card with an interest rate of 20% and monthly repayments of $100, you will take just over two years to pay it off and you will pay $453 in interest. If, on the other hand, you save $100 per month at 3% interest, you will be able to save the $2,000 you need within just over 19 months.
The best way to avoid dumb debt is:
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