For those with an offset account, do you use your credit card all the time?
- Thread starter Chloe
- Start date
Not at all.
Forget about using it. The day to day advantages are small, though there is a big difference if you turn the PPOR into an IP down the track, but there are also lots of pitfalls. If you can't control it or don't use it properly, it'll cost you much more.
Just stick to paying off the loan as fast as you can.
It's a fancy gadget. It'll help only if you understand how to use it.
Yes, if you change from PPOR to IP down the line (especially if you do it much later on, when the loan is close to being fully offset) an offset is much better.
I'd suggest actually working out how you're going to use the offset day to day and make sure you understand how it works.
I find the offset account much more flexible than paying off loans....Great if you need to get hold of cash in an emergrency and even better if it is likely that your PPOR may eventually become an IP . All my loans are IO with an offset attached to my PPOR with my savings deposited therein as well as salary. Day to day expensers are paid via AMEX/Visa with a monthly sweep from the offset accouynt no pay off the balance in full . Mortgage interest is also debited to it monthly
To the extent there is an increase in the offset balance at any given month end I deem that to be my quasi principal mortgage payment even though the actual loan balance hasn't changed.
The offset has to be a 100% offset though otherwise it becomes less attractive
To the extent there is an increase in the offset balance at any given month end I deem that to be my quasi principal mortgage payment even though the actual loan balance hasn't changed.
The offset has to be a 100% offset though otherwise it becomes less attractive
Offset account with all purchases on the credit card - have done this for years.
Why?
- Money stays in my offset, reducing interest payable.
- Transactions can be disputed/reversed
- Statement breakdown (no "cash" black holes such as a daily coffee)
- Set and forget, automatic payments in full
- Steadily increasing offset balance is hugely motivational
- Reward points converted to vouchers reimburses you about 1% of expenditure.
- Easy to track/analyse the numbers
Biggest gotcha is that (for a 55 day card) your credit limit must be at least 2x your monthly expenditure, preferably 3x to account for one-off purchases.
To get your budget sorted: dump your CC statements from net banking into a spreadsheet, add another column and enter a key word for every transaction such as "FUEL", "FOOD", "WORK", "IP1", "IP2" etc. Sort by this column and sum each group and you have a easy breakdown of expenditure. You can get even fancier with formulae to the point where you get numbers that plug straight into your tax return.
Why?
- Money stays in my offset, reducing interest payable.
- Transactions can be disputed/reversed
- Statement breakdown (no "cash" black holes such as a daily coffee)
- Set and forget, automatic payments in full
- Steadily increasing offset balance is hugely motivational
- Reward points converted to vouchers reimburses you about 1% of expenditure.
- Easy to track/analyse the numbers
Biggest gotcha is that (for a 55 day card) your credit limit must be at least 2x your monthly expenditure, preferably 3x to account for one-off purchases.
To get your budget sorted: dump your CC statements from net banking into a spreadsheet, add another column and enter a key word for every transaction such as "FUEL", "FOOD", "WORK", "IP1", "IP2" etc. Sort by this column and sum each group and you have a easy breakdown of expenditure. You can get even fancier with formulae to the point where you get numbers that plug straight into your tax return.
I'm not into credit cards (never wanted to cosy up to them too much in case I got the credit bug) but I do use the debit card attached to my offset when necessary. I find my offset invaluable as I like quick access to my cash and leaving all my options open.
If you have enough in there the interest reductions are enough to make it worthwhile, but if you're not much of a saver, you're probably better paying down the loan as the money feels more locked and forgotten.
If you have enough in there the interest reductions are enough to make it worthwhile, but if you're not much of a saver, you're probably better paying down the loan as the money feels more locked and forgotten.
So a big advantage of a redraw is that it reduces the total value of the loan.
This is something that appeals to me moreso than the offset but I know the offset will be of benefit in the future if I turn the property to an IP.
With the offset, those savings aren't actually paying off the loan, just reducing the amount of interest paid while the money is in there.
Doesn't look so attractive.
This is something that appeals to me moreso than the offset but I know the offset will be of benefit in the future if I turn the property to an IP.
With the offset, those savings aren't actually paying off the loan, just reducing the amount of interest paid while the money is in there.
Doesn't look so attractive.
Hi Chloe,
An offset account is a fantastic product! It enables you to put money into an account that can be used as a cash buffer, while saving you interest on your loan!
I'd keep your offset and just train yourself not to use the savings you put into it - unless you have an emergency like a loss of job, etc.
As you mention, if you turn your PPOR into an IP at some stage, you will be happy you took the offset route as then you will be able to use the cash from your offset as a deposit on your new PPOR and the loan from your old PPOR (now IP) will be tax deductible.
I know its hard at the start - and I was exactly like you - wanting to 'pay off' the PPOR as quickly as possible. My wife and I did that in the space of two years and I stupidly paid down the loan and retrieved the title from the bank.
That was before I knew anything about investing!!
Regards Jason .
Thanks Jason,
I know i'm overthinking this whole offset thing.
I know that extra money should go into it to reduce the interest etc. but i'm not a high income earner and it's only me that's paying for this house!
I know this will change as my sons get older.
These "savings" that will be in my offset aren't going to be in there permanently.
When I decide to take a holiday, buy a car or whatever, this is where the money for that will be coming from.
So because I know there won't be 200,000 just sitting nicely in my offset anytime soon it confuses me as the offset is a savings account....this savings account will be dipped into for life expenses that i would normally save for in a savings account.
I know i'm overthinking this whole offset thing.
I know that extra money should go into it to reduce the interest etc. but i'm not a high income earner and it's only me that's paying for this house!
I know this will change as my sons get older.
These "savings" that will be in my offset aren't going to be in there permanently.
When I decide to take a holiday, buy a car or whatever, this is where the money for that will be coming from.
So because I know there won't be 200,000 just sitting nicely in my offset anytime soon it confuses me as the offset is a savings account....this savings account will be dipped into for life expenses that i would normally save for in a savings account.
As long as you don't spend more than you otherwise would you will be saving more interest than with a non offset account loan. This is because your savings will be offsetting the loan meaning less interest is charged.
As Terry said, the place where you will gain the best return for your savings is in the offset account. Have a look on Cannex and compare the interest you will receive from an online savings account such as Ubank for instance with your mortgage rate. I am sure the interest that you are being charged for your loan will be higher and this is effectively the amount you will save by placing your money in an offset account.
But if in 5years time you decide to pay it off you can transfer the offset amount into the loan. Bingo you now owe xx less. Meanwhile the offset gives a lot of flexibility for future while keeping tax man happy.
Personally I use my credit card as my "day to day" account and pay it off on payday every 4 weeks. If I hit the limit I have spent too much for that month and its basics only. The CC limit is a lot lower than monthly income deliberately.
We have the package with Commonwealth bank that has the offset account and credit card. It works for us. We are disciplined in our spending habits so use the cc just like we would actual cash. Then we pay off the cc bills on the last day they are due, maximising the amount of time the extra cash sits in the offset account.
The points are not too bad either. We averaged about 2.5K of spending per month. In the first 2.5 years of us having the card we managed to redeem the points for a $500 Coles voucher. So we had free shopping trips for a while after that.
Oh and someone mentioned we get free travel insurance, however we only used it once for our late honeymoon trip.
The points are not too bad either. We averaged about 2.5K of spending per month. In the first 2.5 years of us having the card we managed to redeem the points for a $500 Coles voucher. So we had free shopping trips for a while after that.
Oh and someone mentioned we get free travel insurance, however we only used it once for our late honeymoon trip.
Yes if you buy the tickets for the trip with the credit card you automatically get travel insurance cover in case of illness etc.
discipline is the key with CC, also I use my points to reduce my expenditure rather than to buy more stuff eg fuel vouchers or kmart/target vouchers to buy essentials
can you elabotate please.
can you elabotate please.
To answer the opening question - yep - all the time. Only really use the CC for any expenses. Discipline is key, as others have pointed out, and we pay it off always inside the interest free period.
The net benefit, almost all expenses are well documented, AND, every 6 months or so I get a good 5-600 bucks in Bunnings Vouchers out of my rewards program!
The net benefit, almost all expenses are well documented, AND, every 6 months or so I get a good 5-600 bucks in Bunnings Vouchers out of my rewards program!
I dont believe you can spend less with reward credit card than you could with cash. that is, the stuff you were buying at kmart, would be cheaper, if paid for in cash, somewhere else, the fuel would be cheaper, in cash at a discount unaligned petrol station etc etc.
