There Is No Secret To Debt Relief – Simply Do This
Keep Your Debt Payments Up To Date And...
If you're able to keep your debt payments current, or even make extra payments, you'll be able to get rid of the debt faster. This will help you save money in interest while limiting the financial burden you carry. Let's discuss some information about limiting your overall debt.
- Reasons to Make Additional Payments
- Pay Your Home and Debt Off More Quickly
- Pay Off Credit Card Balances
- What to Do When You Cannot Make Payments
Reasons to Make Additional Payments
The more money that you owe, the more money that you'll pay each month in interest. If you miss making a payment, the interest on the amount you owe will still add up, leading you to pay interest on your interest.
When you keep up with your credit card or a home loan or make additional payments on them, you can pay off your debt faster and save even more money on interest. If you have more than one debt to pay off, opt to either pay off the one with the highest interest rate or the smallest balance first.
If you've selected a loan at a fixed rate, it may not be possible to make additional payments without paying a fee to do so. Ask the lender if you have the ability to make additional payments on your fixed rate loan without incurring a penalty.
Pay Your Home Loan Off Quickly
There are a few things you can do in order to pay your home loan off more quickly.
- First, look for a lower interest rate.
- Shop around a bit to find a home loan that has a lower interest rate than you are currently paying. A loan that offers a low intro rate may be a good option, but you'll need to be sure that it's the right choice for your finances. Savings on this type of loan tend to only last for a short time, and after that time period is over, you may wind up with a much more expensive payment.
- Ask your lender if they'll consider matching the best deal you've been able to find, or if they can offer you a better loan than the competition so that you can avoid the cost of refinancing.
- Consider asking the lender if they'll waive fees in order to keep your business.
- Ask for a discount on the loan
- Don't cave to the pressure from brokers, loan experts, or sales staff to switch home loans until you've completely compared all the fees, charges, and interest rates and decided what's right for you.
- Make additional regular payments or larger payments on your loan.
Unless you have a loan that's interest-only, you typically wind up paying both interest and principal on your home loan. On a standard 25-year mortgage, anything that you pay extra in the first 5-8 years, will cut your interest bill and shorten the life of the loan overall.
Smart Tip:As interest rates go down, keep paying the same amount each month. This will allow you to pay your loan off faster with no extra effort.
Be sure to check the paperwork to see if you're allowed to make extra payments and if there is a fee to do so. You may not be allowed to make additional payments if there is a fixed rate, or there may be a limit to how much extra you can repay throughout the life of the loan.
If you're able to, making additional repayments can cut years off your loan, and may save you thousands of dollars.
Be sure to investigate to see how much money and time you could save. If you are having issues with keeping up with your mortgage, this is what you can do.
Case Study: Bob and Susan save $100,000 on their mortgage.
Bob and Susan saved up around $70,000 for a deposit on a two bedroom apartment. They used an online mortgage calculator to determine what the monthly payments would be. They determined that they could likely afford to borrow $380,000 over a period of 25 years.
First, they pondered a loan with a variable interest rate of 6.5%, but after researching rates carefully, they found a loan with the features they needed with a rate of 6%. This one adjustment will save them about $35,000 through the life of the loan.
They also realized that if they made two payments a month that were slightly higher, they could make a full extra payment each year. This meant that they could pay off the loan 4 years earlier and save nearly $65,000 in interest fees.
These two easy changes will save them around $100,000 over the life of their home loan.
Pay Off Your Credit Card Balance
Do your best to pay off the full amount you owe on your credit card every month. This allows you to utilize any interest-free time period that is offered.
If you only pay the minimum amount each month, you'll pay more interest over time, and it will take you much longer to pay off the balance. Your monthly card statement will contain information about how long it will take you to pay off your entire balance if you only pay the minimum payment each month.
Case Study: Alison Saves Money
Alison has a balance of $1,000 on her credit card. The interest rate on the card is 16%, and accumulates from the date of the purchase. Her minimum payment is 2.5% of the total amount she owes. There are no additional fees.
Alison makes the decision to stop using the credit card until her debt is fully paid off. She calculates that if she only pays the minimum amount of $25 per month, $12 of that money goes toward the debt, and $13 goes towards interest. It will take her over 11 years to pay this card off. In that time, Alison will also pay $862 in interest, for a total payback amount of $1,862.
She decides she'll pay $50 additional each month towards this debt. This lets her pay off the same debt in 1.4 years, while only paying $109 in interest and saving $753.
What if You Cannot Afford Repayments?
If you have trouble making repayments, you'll need to act quickly. See Handling Issues with Debt for more details.
If you'd like to pay off your debt more quickly, select loans that have low fees and charges, and pay as much as you can afford on the bill each month.