Making repayments

Keep up with your repayments

If you keep up with or make extra repayments on your loans, you can get rid of your debt faster. You will save money in interest payments and take a financial load off your shoulders. Find out how you can reduce your home loan and credit card debts.

Why make extra repayments

The more money you owe, the more interest you'll pay. If you miss a repayment, the interest on your loan will build up so you end up paying interest on your interest.

By keeping up with or making extra repayments on your credit card or home loan when you can, you'll pay off your debts faster and save on interest. If you have more than one credit card or loan, pay off the one with the highest interest rate first, or tackle the smallest debt first.

If you choose a loan at a fixed rate, you may not be able to make extra repayments without incurring extra fees. Ask your credit provider if you can make extra repayments on your fixed rate loan without penalty.

Pay off your home loan faster

There are two things you can do to pay off your home loan faster.

Find a cheaper interest rate

Shop around to find a home loan that offers a lower interest rate than your current loan. A loan that offers a honeymoon or introductory rate can be good but you need to check that it is right for you. The savings tend to be short-lived and once the honeymoon period ends, you could end up with a more expensive loan. See switching home loans for more information.

Be cautious though as switching home loans may cost you extra. See if you can save on interest and fees without switching by:

  • Asking your current lender to match the best deal you can find or offer you a better loan so you can avoid refinancing costs
  • Asking the lender to waive fees to keep your business
  • Asking for a discount on your loan (sometimes called a 'professional package')

Don't be pressured by sales staff, brokers or loan minimisation 'experts' to switch home loans before you've compared fees and charges. Find out more about getting the best credit deal. Also see consolidating and refinancing debts.

Make larger or more regular payments on your loan

Smart tip

When interest rates go down don't drop your repayments but leave them as is. Then you'll be lowering your loan with no effort on your part.

Unless you have an interest-only loan, you usually pay both principal and interest on a home loan. On a typical 25-year mortgage, anything extra you pay in the first 5 to 8 years (when most of your payments go towards paying off the interest) will cut your interest bill and shorten the life of your loan.

Check if your loan allows you to make extra payments, and if there are any fees for doing so. You may not be allowed to make extra payments on home loans with fixed rates. Even if you can make extra payments, there may be a limit on how much you can repay over the life of the loan. Find out if there are any fees or penalties if you pay off the loan early.

Making extra repayments can cut your loan by years and can save you thousands. It is really worth looking into. Use our mortgage calculator to find out how much you can save. 

Mortgage calculator

Case study: Jie and Ming save $100,000 on their home loan

young couple sitting on porchJie and Ming saved up a deposit of around $70,000 to buy a two-bedroom apartment. They used a mortgage calculator to work out what the montlhy repayments would be. They decided they could afford to borrow $380,000 over 25 years.

They first considered a loan with a variable interest rate of 6.5%, but after comparing loans online, they found a loan with the features they wanted at a rate of 6%. This would save them around $35,000 over the life of the loan.

Jie and Ming also realised that by making slightly higher repayments fortnightly (calculated by dividing the monthly payment by 2), they would end up making an extra monthly payment each year. This would mean they could pay off the loan 4 years early and save about $65,000 in interest.

These two simple steps could save them up to $100,000 over the life of the loan.

Pay off your credit card

Try to pay off the entire amount owing on your credit card each month (or as much as possible). This will let you take advantage of any interest-free period.

If you only make the minimum payment each month, you will pay more interest and it will take you longer to pay off your balance. From 1 July 2012, your monthly statement must give you information about how long it will take to pay off the entire balance by making minimum repayments.

For more tips see saving money on your credit cards.

You can also use our credit card calculator to work out the fastest way you can pay off your credit card.

Credit card calculator

Video: Breaking the credit card debt cycle

breaking the debt cycle video

This video made by MoneySmart Teaching features Donna Maslan, a teacher in her 30s, talking about the effects of over-
whelming debt and how she was able to break the debt cycle.

Dealing with multiple credit cards

See saving money on credit cards for tips on how to deal with multiple credit cards.

Case study: Raj saves on his credit card bill

young father with his childRaj owes $1,000 on his credit card. The interest rate on his card is 16% per annum, which kicks in from the date of purchase. His minimum monthly repayment is 2.5% of the amount he owes (i.e. $25). There are no fees on his account.

Raj decides to stop using his credit card until he pays off his debt. He works out that if he only makes the minimum repayment of $25 a month, $13 goes towards paying the interest and $12 towards the actual debt. This means it will take him more than 11 years to pay off his debt! During that time, Raj will pay $862 in interest, on top of the $1,000 he owes - a total of $1,862.

He decides to pay an extra $50 a month towards his debt. This will allow him to pay off his debt in 1.4 years and he only pays $109 in interest. That's a saving of $753.

What to do if you can't make repayments

Act quickly if you have trouble making repayments. See trouble with debt for more details.

If you want to pay off your debts faster, choose loans with low fees and charges and repay as much as you can afford each month.


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Last updated: 17 Oct 2013

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