Explore the low-risk benefits of Term Deposits while understanding potential pitfalls. Discover factors like liquidity risk, opportunity cost, and bank stability that might impact your investment. Ensure you make informed choices for your financial future.
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“Hi all! I have what feels to me like a complicated question and no idea how to work it out. Basically – I have a car loan ($13400 balance @ 16.95% interest) that I am trying to pay off asap. I’m sick of being in debt and watching my money disappear on that. (Min payment is $460 a month and I’ve been paying 1k per month this year to decrease it).
I was wondering – it is worth putting a hold on my kiwisaver payments and sticking this on the loan as well to further decrease it? What would the benefits of keeping the kiwisaver payments going look like? Thinking a 6 month hold on them just to get it done. Any suggestions and ideas welcome! Thanks!!
(Original question on Reddit)
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Hi there! It’s fantastic that you’re seeking ways to pay off your car loan and improve your financial situation. However, deciding whether or not to temporarily pause your KiwiSaver contributions and allocate the funds towards your car loan is a choice that requires careful consideration. To help you make an informed decision, here are some factors you should take into account:
Interest Rate on the Car Loan:
The 16.95% interest rate on your car loan is relatively high. Paying it off faster would save you a significant amount in interest payments.
KiwiSaver Benefits:
KiwiSaver is a long-term savings plan for your retirement. It offers various benefits, including employer contributions, government contributions, and potential investment growth. Consider how suspending contributions may affect your retirement savings and future financial security. Especially If your employer matches your KiwiSaver contributions, suspending them means you’re missing out on “free money.” Employer contributions can significantly boost your retirement savings over time. Perhaps consider reducing your contributions to the minimum to get Govt contributions rather than stopping them completely.
Government Contributions:
The New Zealand government provides annual member tax credits to KiwiSaver members. By suspending your contributions, you may miss out on these government contributions.
Investment Growth:
KiwiSaver funds are typically invested in various assets, and they can potentially grow over time. Suspending contributions means you miss out on the potential for investment growth.
Here are some steps to consider:
Calculate how much interest you will save by paying off the car loan faster. This will depend on the remaining loan balance, interest rate, and the duration of the suspension.
Assess the impact of suspending KiwiSaver contributions on your retirement savings, taking into account employer contributions, government contributions, and investment growth.
Determine your financial goals and priorities. If getting rid of the car loan debt quickly is a top priority and the interest savings outweigh the potential loss in KiwiSaver benefits, suspending contributions for a limited period might make sense.
Consider a compromise, such as reducing your KiwiSaver contributions instead of suspending them entirely. This way, you can allocate more money to paying off the car loan while still benefiting from some KiwiSaver contributions.
Seek advice from a financial advisor, as they can provide personalized guidance based on your specific financial situation and goals.
Ultimately, the decision to suspend KiwiSaver contributions to pay off your car loan faster should align with your short-term and long-term financial objectives. Weigh the pros and cons carefully and consider how it fits into your overall financial plan.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
