First, pay off debt

Jeremy Tauri.

Every so often I encounter something that just seems weird.

Lately it has been people who've been advised to carry significant amounts of debt, even though they have the money sitting in the bank to pay most of it off.

Typically, these are people who might be close to retirement and have other entities of some sort, say a family trust or a company that might be holding property or interests of some kind where the debt resides.

They might be paying loan rates of 5per cent or more and earning less than half that amount for the money they have in a savings account.

Makes sense for the bank - it is making money on the deal - but it doesn't work for the borrower who is paying to service debt they just don't need.

I can understand some are worried that if they pay off their loan they may find that, if they need the cash, it might be difficult to borrow to replace this sum in the future.

But there are ways that the deal can be structured so that, even if you use savings to pay off a loan, the ability to access the money is still there even if other entities are involved.

If you are worried that you have not structured your borrowing and bank accounts properly, it is important to get some independent advice.

Talk to an accountant or financial adviser who can discuss where you should put your money to get it to work at its best for you.

There are cases where it might make sense to maintain separate loans and savings accounts - such as when you are in business with someone else or a new relationship where assets are wanted to remain separate.

These should also be backed up by agreements.

But it is always worth reviewing things that may needlessly cost you money. Even if the difference is only a few per cent, it all counts in the long run.

- Jeremy Tauri is an associate at Plus Chartered Accountants.