Your Questions Answered: How to Free Yourself From Debt

My husband and I sought financial counselling last year. We had a LOT of debt. Subsequently my husband has gone bankrupt and I have consolidated my debt into my home loan (in my name only).

We need to eventually buy a bigger home as our 5th child is on the way. Now that our finances are more manageable we can now save. Our financial goals are:

  1. To save $5000 in savings
  2. To save for a home deposit in the next 3-5 years
  3. To pay off our mortgage (long-term goal).

Would it be better to put our savings into a high interest online savings account or open an offset account? Our mortgage is modest $285,000. Our combined taxable income is $140,000 pa.

I am also considering investing in shares once I have a savings nest. Would you recommend this?

Cheers, S


Hi S,

Thanks for writing in. Libby and I love this question because you and your husband have already proven you’re prepared to make the tough decisions when it comes to money.

It’s not always going to be easy to rectify bad habits and past mistakes, and you have to be prepared to make sacrifices, but we can tell you’ve got it in you!

Now that your debts are consolidated and your husband’s bankruptcy is in the past, you are quite rightly looking to the future and thinking about how to build wealth.

Your financial goals make a lot of sense, but we think you can go one better. Set a deadline for when you want to have saved that $5,000 emergency fund, and a specific date to have that home deposit. Once you set these dates, put a savings plan in place to help you get there, and make sure you stick to it.

The best place to store those savings at the moment is likely your mortgage offset account. Money in your offset account offsets your loan principle and saves you interest, meaning you’re earning an effective return equivalent to your home loan interest rate.

Not only is this rate likely higher than the rates on offer in high interest savings accounts, it’s also tax free, whereas interest earned in a savings account incurs tax at your marginal tax rate. The money is also readily accessible if you need to use it.

In regards to shares, we’d suggest looking into this when you have some savings behind you given the increased risks of investing.

Finally, good on you for going to see a financial counsellor, these people do an incredible job in the community.

Financial counselling is a free service offered by governments and some charities that connects people in financial difficulty with a money expert. It’s an invaluable service which has helped countless people, and you can find out more about it here.