Good debt and bad debt for your retirement and Age Pension

There is a good type of debt and a bad type of bad for your retirement and for your Age Pension.

From the point of view of retirement, reliable income and Age Pension there are really 3 types of debts that we need to discuss:
1. Personal loans & credit cards
2. Home-loans - mortgage against your family home
3. Investment loans - loans against the investment property or another type of investment scheme

Very really I would say that having a loan during retirement is a good idea. At the end of the day, the repayments will be reducing your cashflow, therefore your income might not be as reliable and consistent as you would like to. But let's go over those different types of loans one by one to understand the difference and why some might still be a good idea.

1. Personal loan & credit cards
This is the most unaffordable type of the loan one can imagine, therefore if you cannot repay it by due dates, remove them altogether. Credit cards are great for convenience, for degree of security as you don't have to carry cash in your wallet and for collecting additional benefits such as flight points or other benefits provided by the card company.
But be sure to utilize those benefits, as at the end of the day you still pay for them. The bigger the member benefit, the higher the annual fee, so nothing is for free.
But you have to be able to pay off the outstanding balance monthly, and I don't mean the minimum amount listed on your statement, but rather the full balance you spent over the previous month.
So if you don't have sufficient cash balance of income to cover such a bill, do not use credit cards, as this will become a huge trap for you with the highest interest rate payable out of any types of loans.
Personal loans - they are really not recommended to be used during retirement. They tend to be for such purchases as buying a car, or store loan to buy furniture for home, or a holiday.

2. Home loan - mortgage against your family home.
Please try to repay your home loan before your retire. If you have any loan outstanding, but you keep funds in the bank account, the balance of your cash will be counted under Income and Assets Test while the loan will be disregarded.
the same will apply if you keep funds in the offset account. As those funds are accessible for you, Centrelink will calculate it as your asset and reduce your Age Pension payments accordingly.
If you have an investment property, never ever secure it against your family home. why? well the value of the property will be counted under Assets Test, but the value of the mortgage will be disregarded, so again your Age Pension eligibility will suffer.

3. Investment loans
If you have an investment property, any loan you have, should be against that property. I see this so very often when an investment property was purchased, but the loan has been secured against the family home. This is terrible planning, because:
1. Centrelink will calculate the full value of your investment property
2. The loan secured by your family home will be disregarded, because the family home is an exempt assets for any means testing.

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Katherine Isbrandt of About Retirement
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