How To Pay Your Loan Off FAST!
My Property Investment Tip #30
Method 3 of 7. Live Off An Interest Free Card
Ok! Method number 3 of 7 to smash a loan is to live off an interest free card. Why on earth would you do that? I’ll explain.
Firstly, how do interest free cards work?
Most cards are up to 55 days interest free. Some can be lower (check with your bank). Now the key words there being ‘UP TO’.
What that means is basically this…
You pay for everything on your card for the month, say the 1st to the 31st day.
Then on the first day of the next month the card company sends you a bill to pay them back the money which is the sum of all the transactions you made last month. Let’s say it was $3,421.17 for the sake of an example.
You then have up to the 24th day of the following month to pay the money back for the previous month’s transactions, or you will get charged interest for it. Why the 24th? Because if you have an ‘up to’ 55 days card, the 24th is 55 days after the 1st day of the previous month which had 31 days. Make sense?
Now of course some months are shorter than 31 days. And not all cards necessarily work on a monthly cycle starting on the 1st, so check all that with the card provider.
Now why would we go to all this trouble? Well in my last tip I suggested washing all your wages through your mortgage via a redraw, LOC or Offset account. So while you’re living off the interest free period of the card, where is all your money that you would have normally spent sitting?
The answer: Against your loan!
…reducing the amount of interest charges and thus helping you pay the loan off faster as more of your payment is going to the principal element, and less to interest charges.
Now I have heard of people using several cards in a cascading manner where one card pays off the next to buy as much time as possible before your real money goes out the door, but I must stress I DO NOT recommend that strategy. Fun in theory, but a potential disaster in practice. And having too many cards chews up your borrowing capacity to buy more properties.
Now the easiest way to manage the repayment of the card so that you don’t get caught out paying it back too late, is to set up what’s called an “auto-sweep”. On your designated day each month, the bank automatically debits your nominated account for the exact money owed on the card from the previous month. Simple.
Another nice little advantage of living off the interest free card, is you rack up a lot of frequent flyer miles (if your card has that feature of course) and that can equal a free trip interstate a few times a year, or the odd business class upgrade.
Now this strategy does make a difference off the life of a loan, but if you are useless with credit cards and lack the discipline to do this properly, DO NOT use this strategy.
Also, keep your limit as low as you can. Just enough to cover a month’s worth of transactions. Excessive credit card limits are a big trap, and chew up your borrowing capacity to buy more properties. Which is ultimately where you’re going to make your millions (buy owning several properties in the next boom, not just paying off just one) ?
– Daimo
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Daimien Patterson is the CEO of Integrity Property Investment, a property investment company based in Australia. He regularly produces books, blogs and videos on the topic of property investing, helping thousands of people create financial security and freedom through education and property investment. Get started today.
