Is it worth paying off your HECS debt?

Paying extra towards your HECS-HELP debt can be a strategic decision, depending on your financial situation and goals. HECS-HELP is a loan scheme for eligible students studying in Australian tertiary institutions, which is indexed to inflation and thus typically has a lower interest rate compared to other forms of personal debt.

Here are some considerations when deciding whether to pay extra towards your HECS-HELP debt:

1. Interest Rate: HECS-HELP debt is indexed each year to reflect changes in the cost of living, not charged at a typical interest rate. This indexing is generally lower than interest rates on personal loans or credit cards. Therefore, if you have other debts with higher interest rates, it might be more financially beneficial to pay those down first.

2. Financial Security: Before increasing your payments towards your HECS-HELP debt, it’s crucial to ensure you have a solid financial buffer, such as an emergency fund. This fund can cover unexpected expenses without needing to incur additional debt.

3. Investment Opportunities: Consider whether the extra money could be better used by investing in opportunities with potentially higher returns. For example, investing in the stock market or contributing more to your superannuation might offer returns that exceed the cost of your HECS-HELP debt over time.

4. Cash Flow: Paying down your HECS-HELP debt could reduce your compulsory repayment amount in the future when your income reaches the repayment threshold, potentially improving your cash flow.

5. Psychological Benefits: There’s also a psychological aspect to consider. For some, reducing debt as quickly as possible can provide peace of mind and a sense of financial freedom.

In the context of using Pearler for your investment decisions, it’s important to align your investment strategy with your overall financial health. Pe

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Hey James.

Good question.

It’ll be a personal choice at the end of the day, but I would probably lean towards investing for higher long term returns, as the terms on HECS debt seem pretty good.

The AI bot here hash some decent thoughts too :)