HECS HELP

Foreign money where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge and I'm joined by CEO Scott Parry. What is up?

Not a lot. Sky is blue and birds are singing. I, I'm, I'm fascinated. This topic today, this is something where I unfortunately am very simple boy. And so I did not finish university. I got distracted. I was an old boys school and then I got to university and there were girls there. I was like holy, there are girls here. And I, I just couldn't keep it together. I'll be honest, I got distracted. I lost my focus and dropped out of university. So I did not incur a hecs debt or help debt.

Whereas I am a perpetual learner. I think I'm just gonna, yeah, get a big kick out of it. So I have a help debt. And so this is an interesting one where the government is about to index everyone's help debts by 7.1% as of 1 June. And what that means is your help debt will automatically go up by 7.1%. So each year it goes up with the inflation level and as inflation has obviously been quite high, hence why we're experiencing these rate rises, this. Yeah, this is why it's going to jump up quite significantly. So whilst it is you're not actually paying interest on your help debt, it's an interest free debt, it's still getting indexed which basically means your interest rate is the current inflation rate. So the question is, should we be trying to pay down the help debt ahead of this 1st of June cutoff time frame?

Well yeah, it's a mathematical one where you just go look at well if I had $100 or $1,000, is it best to put that in my mortgage or is it best to put that towards the help debt? And so with the, the mortgage, the. What I like about that strategy, which obviously we've been preaching for 20 years, is that money is accessible, you can get that money back if you need it in the future for whatever reason, it's still available to you. Whereas if you put it towards a help debt and you can't get it back, call the government, hey, I'm paid my help. Just swing some back. A big Bali trip on.

Yeah, it's a tough one I think, I mean in my mind it is an instant 7.1% return, which is actually pretty good return. And if you're paying less interest on your home loan just from a purely mathematical Perspective, you would say your money is better off sitting against that help debt. But at the moment as well, we all know cash is king. Cash is everything right now. I mean, a lot of people are going to start to experience some real kind of financial stress and having that money accessible now. I mean, if you lost a job for three months, you know, expenses are going up, something's happened, a medical emergency, whatever it may be. There's a real question around, you know, is it, is it something where I just, I want the access to that money more than I want that 7.1% return? And I think as well, when you look at it, if you're paying 6% on your home loan or 7% on your home loan, it's kind of irrelevant anyway because it's only a 1% difference by paying off the help debt. So I think for that extra 1%, it's worth having access to that money, especially if, you know there's about to be a big question around. If the market starts to bottom out, if something happens to the stock market, is it a great time to invest? Is it, you know, if all these property prices start dropping in a couple of years, do you want to buy an investment property then? So there's all these reasons why money cash is going to be important over the next couple of years.

Yes. 100% going to be some distressed assets coming online. And so to be able to take those distressed assets off those people's hands, you're going to need the more cash the better. And so you nailed it. For an extra 1% saving, would you lose access to that money?

Is it worth it? Yeah. And also if you holding your HECS debt for a couple of years and absolutely, if you're at an income threshold where you don't have to pay your HECS debt back or help debt back for a little while, you've got to think about this. How long are you going to hold that debt for? Are you going to be holding it for a while and all of a sudden sudden the inflation rates start plummeting again in the next kind of two years? You've got to think about your average. You know that, that the average indexation across those couple of years is going to be less than that 7% as well? But yeah, if you've got the money sitting around, if you have no other home loan debt or personal debts that you're paying a high interest rate on, then definitely get that money in there. Instant 7.1% return is awesome. But if you have debt that you need to pay down something to think about.

What happens if you've only got investment debt? Like let's say you paid your ass off and you've got a help debt and you've got some investment probably debt. What would you do there?

Yeah, great question. I think that in my mind debt is still debt. If you have paid off your home and you're not planning on upsizing, you're not planning on buying another home at all and you're only ever going to have investment debt from now on. Start paying off one of your investments. Because a debt free investment that just pays you in retirement and you don't owe it anything is in. That's. That's the dream. That's. It's a free income stream that doesn't cost you anything with a huge return. So I'm still a big believer in paying down investment debt where there is no other debt at all and you don't plan on having any other debt at all.

So you'd pay off the investment if you had extra money around, pay off money off the investment, probably all the help debt.

Great question. Because the investment debt is tax deductible. So I would probably actually pay off the HECS debt in that situation. Again, because it's not tax deductible debt, it's at a 7.1% interest rate, in effect. So in this instance, I would pay down the HECS debt, the help debt, and then start paying off the investment property.

Great strategy. Me too.

Good. Good to hear. I'm glad we agree on that one. Yeah.

Finally. First I've got wrong. So yeah, Jess is the smart one, I'm the slow one. And us numpties don't have hex or help debts because we didn't make the grade.

One more question though. If we have clients who have a whole bunch of redraw and they have kids that have a help or a HECS debt that's about to get massively indexed, should they consider paying it off?

No, I'm. I'm. This is a great point. I've seen so many like parents who sacrifice their own financial well being for the sake of their kids. And I would just think that you need to worry like the old hair mask on the airplane trip. Worry about yourself first. The kids have got their whole working life to sort their stuff out. You've only got a limited amount of time left. You need to be hitting winners, not pay off someone who's got literally 30 to 40 years of working life ahead of them. Pay off their debt when it's interest free. That's their problem. I'm big on just making sure. If you've got a few million in super and you've got so much surplus, I totally get it. But most of the people out there, you're not in that position. You may still have a mortgage and if you've still got bad debt on your home loan, which you're going to have to use your life savings in your super to pay off if and when you retire, because 60% of people retire with a mortgage. Still no chance. Would you be or should you be paying off your kids education, university fees when the government is there to fund them? Interest rate.

Yeah. Cool. Love it. Awesome. Cool. That was great. Thanks so much, Scott.

Both thank you, Jess. Thank you, little smarty pants. I'll go back to my D.

See you, buddy.