Adviser says 'rethink client debt'

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Parinity primary adviser Lance Cheung understands how good debt management can make a huge difference in a client’s life.

Cheung has discovered a way to restructure clients’ debt so that they become more engaged with the budgeting and cash-flow process. Instead of running the common standard home loan and offset account, Cheung and his team establish a portfolio loan with a line of credit.

“Whilst the interest saving is the same in terms of money sitting in an offset account versus money going directly into a line of credit, the psychological effects are vastly different as clients see the loan amount diminishing over time,” he says.

“Most mortgage brokers don't align with this thinking (which may be linked to the reduced commission payable on lines of credit) and as such, not many clients get structured this way from the get go.”

Cheung says that it is also argued that clients pay a higher rate for lines of credit, but that there are facilities out there that charge the same rate as a standard variable home loan, and advisers should not leave all the decisions up to the banks or mortgage brokers.

“I do believe advisers should have a thorough understanding of the current benefits, facilities, and costs of loan products in the market so they can help advise the client in making an informed decision.”

It’s also important for advisers not to make assumptions – not everyone knows how to use a credit card efficiently, and not everyone is comfortable borrowing to buy an investment property, says Cheung.

Another one of his favourite success stories was from a client who had grown up in a household where you live today and don't worry about tomorrow. It meant that personal gratification was justified and there was no sense of delayed gratification normally seen with good savers.

“This client started with approximately $46,000 of personal and credit card debt, had no assets other than two vehicles, and was going backwards. Through our advice, planning and keeping them accountable, they eliminated their debt over a 7 month period and we are now in a position to focus on building the foundations to achieve their next goals.”

Cheung recently received an email from the client, in 216pt red font, with the words ‘I’M TOTALLY DEBT FREE! :)’

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