Posts Tagged ‘Debt’
Attacking Your Debt: What’s the Best Approach?
You may know the feeling: You’re at the bookstore and spy a wonderful new reference book that’ll help with your art….or you’re at the clothing store to pick out an outfit for an audition, and the perfect fit is just outside of your price range.
What’s a little credit card debt, right? You’ll be able to pay it off later. Hopefully.
Whether you took on debt by overspending on your craft, or your job doesn’t pay enough, debt is a weight that’s hard to relieve. That said, getting rid of debt is the first step when creating the Abundance Bound mentality. According to financial site NerdWallet, the average household in the U.S. carries $15,422 in debt. Ouch. More meaningful is the fact that once people have debt, they’re likely to use credit more and more often. The flip side? 53.3% of the American population carries no debt at all.
We can’t solve the American debt problem, but we certainly can help add you to the 53% without debt, can’t we? How should you pay it down?
Much has been made in the financial press lately about how you should attack your debt. Researchers recently concluded that often what people think of as the smartest option hasn’t been the most effective way to pay down debt. Let’s look at two popular methods and review why you might want to choose the sub-optimal method to pay down your debt.
The Mathematically Sound Method To Pay Debt
If you want to take the fastest path to debt relief, and can stay on it, here’s the obvious solution: (more…)
A friend recently said, “I don’t know how you keep all of this straight…what the Dow Jones is doing, what’s a good rate on a credit card, how a will works, the right type of life insurance. Ouch! It makes my head hurt.”
You may feel the same way about your financial picture. Between your craft, family, friends and obligations, it seems like a huge hassle to remember everything you need to know.
But there’s good news: it’s not that difficult.
I imagine you might be thinking, “Ha! Easy for you to say. You do this every day.”
I understand that it’s a whole new world for many of our readers, but I’m serious: it’s not that difficult.
Sure, you might not understand every point about finalizing a mortgage or how to tell a good mutual fund from a bad one, but like any task, if you organize it correctly, it’s easy to see what you really need to know now and what can wait for later. (more…)
Here’s a trick I like: round your debt (including your mortgage) to the next round number. If your minimum payment is $45 on a credit card bill and you can’t pay more toward the balance, just round the bill to $50. Sure, it isn’t much, but most people can afford a few dollars extra toward debt repayment. What feels like a small amount can add up to much quicker payoffs.
Should I pay extra on my mortgage? I’m making a little extra money right now and I’m thinking paying off my house is a good idea.
This is an intensely personal question. Certainly, less debt is always a step in the right direction, but there might be better choices to grow your net worth more quickly.
Here are a few areas to think about before tackling extra mortgage payments:
- Is your credit card debt paid down? If not, this is a greater priority. Credit card debt is more harmful to your credit score and is usually at a higher interest rate.
- Do you have an emergency fund? If not, put extra money into a savings account so that if you have financial trouble down the road, you’ll have funds available.
- Are your long term goals met? If you’re saving enough for retirement, college or other priorities, then pay down your mortgage.
A mortgage is tax deductible, low interest debt in most cases. Because money paid into a mortgage can’t be used for other goals, I usually look toward other options before paying it down.
Interest rates are low. Most of the time it’s wise to ignore anyone who tells you “you really need to….”, but believe me, you should check the interest rates of all your debt before interest rates rise.
…and when are interest rates going to rise? That’s the problem; I don’t know. Therefore, I recommend you do it right now.
Before We Begin
Make sure you read my post from two weeks ago: How to Take Advantage of Low Interest Rates. It lays out the simple steps to check your credit. You don’t want any surprises if you end up filling out applications to lower your interest rate.
Today, we’ll focus on three areas: your home, auto and credit cards.
How to Refinance Your Home
1) Compare rates through several lenders. This is done easily through a mortgage broker or an online comparison site. While many lenders appear to have different rates, you’ll find those with lower rates generally have higher fees. On the inverse, those with higher rates often have lower refinance costs. Generally, I prefer lower cost mortgages (which often means a slightly higher rate).
2) Gather information about each type of mortgage. Home lenders offer two basic types of mortgages: fixed or adjustable. While there are many iterations of each type, here are some you’ll see regularly during your search:
a) A basic fixed rate mortgage comes in a 15-year and 30-year variety. Usually, a 15-year mortgage will have a slightly lower interest rate than a 30-year option.
b) Adjustable rate mortgages often keep the rate stable for 1, 3, 5, or 7 years, before changing. Usually the rate will change annually after the short fixed period.
Part 1 – Check Your Credit
It’s time for some good news, isn’t it?
Don’t look now, but interest rates are at record lows. Whether you own a home, car, or have a credit card, it’s a wonderful time to begin exploring ways to lower your interest rate. Here’s the really, really good news: a lower interest rate will probably mean lower payments. This can give you financial breathing room to focus on your craft or pay down debt more quickly.
Today, I’d like to make sure you can participate in the interest rate game. Once we’ve solved that problem, we’ll talk later about how to refinance your debt. Sound good? Great!
Let’s move on these steps to check your credit report:
Ah, late January… a time of colder temperatures, snuggling around a warm fireplace…and December’s credit card bill waiting like a bomb in your mailbox.
Did you overspend during the holiday season? If not, many people you know made up for you. According to this Bloomberg Businessweek article, consumer debt rose more in November of last year than it had in 10 years.
Although analysts call this a “good sign” for the economy, doesn’t this statistic frighten you? Weren’t we just talking recently about many people losing their homes because of too much debt? People in the arts, especially, shouldn’t take on debt they can’t afford. In many cases, our income streams bounce around enough that we shouldn’t be spending next month’s paycheck that may never arrive.
But, if you overspent over the holiday season, there’s nothing to do now but clean up the mess. It won’t be easy, but with a good plan and the right tools, you’ll be back on your financial feet in no time. Here are my four steps to curing your credit card hangover: (more…)