Writing this piece at the end of 2016, the Australian HECS system (which I’m for better or worse, part of), is probably the cheapest form of debt that you could ever acquire.
Find me a form debt that is cheaper to maintain than a HECS debt and I’ll happily change my tune.
Currently being matched to the Australian Consumer Price Index (CPI), having a HECS debt is the cheapest form of debt available. The list below gives a high level comparison of the interest rates being charged on different forms of debt:
1. HECS: 1-3%
2. Personal Loan (from a traditional bank): 10-15%
3. Personal Loan (peer-to-peer lending): 7-10%
4. Mortgage: 3-7%
5. Credit Card: >20%
What does all this mean?
It means that you should prioritise your debt repayments. If you have a choice, HECS is the absolute lower priority to repay. The next sentence that you’re probably expecting to read is that your credit card debt should be the highest priority, due to the interest levels. Whist, I agree with this and I’m happy to acknowledge that this is most definitely an expensive form of debt; I do have a contention to add to the mix with respect to credit cards……you should NEVER find yourself in a position where you can’t make complete repayments on time. To put this in another light, if you can’t make your credit card repayments on time, you should not have a credit card.