Friday, October 26, 2012

3 Options to Control Your Debt

The road to getting out a debt is a long one.  Many individuals spend years trying to get their finances organized, and under control.  Here are a few options that can help to get you started.

Credit counseling is one of the easiest ways to start getting yourself organized. A credit counselor will hold you accountable for taking action.  They will guide you every step of the way so you don't feel along.  There are many organization out there that charge exorbitant fees to counsel you, and some of them do not do much for you.  The company you choose depends on your comfort level, but there are many things that you can do yourself without the need to retain counseling.  There are also several professionals out there with low fees, that will hold you hand through the entire process.

Debt consolidation is certainly an option for many people.  If the majority of your debt is high interest credit cards, this may be something for you to consider.Instead of several high interest payments in a month, you may be able to qualify for a single lower interest loan through a bank or other lending institution.  Some credit cards will also offer to transfer your balance from other cards to theirs.  If you have the room on a credit card, and there is a good drop in your interest rates, this is something you will certainly want to consider.

Along the lines of debt consolidation loans, you may choose to refinance your mortgage.  There are several reasons to do this, but if you have a large amount of equity in your home, you may be able to refinance the payments to receive a lower interest rate on your mortgage, and even borrow additional money to pay off your credit cards all together!  If nothing else, the savings that you would realize just by lowering your house payment can be used to power pay your credit card debt.

The options above are not a quick fix on the road to recovery, but you are now armed with more information to help you on your journey.

Wednesday, October 10, 2012

4 Common Refinancing Mistakes

Refinancing is a hot topic these days.  The drop of interest rates in the last couple years have lead to many opportunities to refinance debt to lower interest rates, and save money through reduced payments.  I am going to take a quick look at 4 mistakes that most people make when they refinance their debt.  The money a person is capable of saving every month when the interest rate is dropped, can allow for accelerated payment of the debt.

1.) Refinancing and not saving enough in interest.  Most experts say that you should not bother to refinance if you are not going to drop your interest rate by at least 1%.  A 1% drop in interest will amount to a reduction approximately $100 when on a $150,000 mortgage.

2)  Your hard earned money can go right out the window, and negate much of the savings from a refinance from closing costs.  There are many ways to calculate the closing costs, and the costs quoted on your application are only estimates.  So until you know how the costs are calculated, you will have no idea what kind of closing costs are in store for your refinance.  

3.) There are several different reasons for refinance.  You can save money by dropping your interest rate, consolidate debts into one payment, free up income to make a large purchase.  You should speak with an accountant to make sure that you fully understand the ramifications of your refinance.  There are some situations where your interest payments may allow you additional deductions on your taxes. You may win twice!

4.) You should make sure that you are involved in the process to select the specific products you will be applying for.  Your mortgage broker will be able to provide you with all the information that you need provided you ask everything you can about the products.  Some products have only small differences that seem negligible, but may make a rather large difference down the road.  You should consider asking for no less than three products your mortgage professional would recommend, and crunching the numbers.  You will need to make sure you know the interest rate, penalties, repayment terms, how your interest and payments are calculated.  Once you crunch the numbers you will be able to see just how much of an effect these subtle differences will have on your refinance.

Monday, October 8, 2012

What to Do With Your Debt List

So you have called all around, and found all the information you possibly can on what debts you owe.  What do you do with it now?  Remembering back to the last post (Eradicate Debt: Day One) I asked you to gather all of your debt, and put them into an excel spreadsheet on your computer.  Your spreadsheet should now be complete with creditor names, the amount you owe, and the interest rate on that debt.  Depending on how long you have neglected your financial situation you could have a pretty hefty list.  Using the excel spreadsheet you can quickly look though the debts and order them based on your interest rate.

Your interest rate is one of the most important aspects of your debt on this list.  When we look at creating a monthly budget for your household, the interest rate will determine what debts are getting paid extra out of your available income.  Lets take a look at a sample situation.  Lets say for example that you have $10,000 in credit card debt, and you interest rate is 13% (just under the current average rate for a credit card).  For the sake of this example I will also assume your credit card calculates your minimum payment based on interest + 1%.  Making only the minimum payment of $208.33, you would take 330 months to pay off that credit card!  That is 27.5 years.  Your total repayment for borrowing $10,000 would be $20, 355.17!  You would have more than doubled the amount you borrowed!  Now by making a $50 monthly additional payment, you very quickly begin to pay down the balance.  They payment would be $258.33, and pay of the card completely in only 51 months!  Your card would be paid off in just over 4 years, and you would pay back at total of $13,033.49.

You have to look at the numbers for each of your interest bearing debts, and commit to paying down the debt on that card as quickly as possible.  Make sure your monthly payment is something you can commit to. you need to maintain the minimum payments on all interest yielding debt, your monthly bills, other household expenses, and commit to an additional payment regularly on your highest interest bearing debt.

Looking at all of your interest bearing debt, you may want to speak with a financial professional to inquire about a debt consolidation loan, or possibly transferring your balances to the lowest interest yielding card you have.  You will most likely notice a reduction in the amount of extra income that you have.  Now is the time to analyze your purchasing habits and figure out what is important to keep, and what you can temporarily live without.

Friday, October 5, 2012

Eradicate Debt: Day One

The entire world is in debt, so why do so many people run away from it? The sad fact is, that most Americans in 2012 are carrying a debt balance on their credit cards of $1,000 or more from month to month. Credit card debt is only one source of debt in the United States, but there are many others. Car loans, mortgages, medical bills, and other types of notes all required payments, and are forms of debt. Most people have debt. You know that rich guy down the street? Yeah, the one with the perfect lawn in front of the monstrous house, and the awesome car. He probably has debt too! Most Americans in the United States live beyond their means. So how do we get rid of it?

The first thing you need to do, and your homework for today is to get a list together of every single debt you owe. Making a spreadsheet on your computer can really help with this. You want to be able to list the creditor, the amount you owe, the interest rate, and your minimum payment each month. You may want to include any past debt that is in collections also, even if you have not made any payment arrangements. You should list all the same information and include how many days past due the debt is. Once you have a complete list, now you can formulate a plan of attack to wipe them out. Don't be afraid at this number. People have a tendency to feel ashamed, when they see everything accrued in black and white on the paper. The number can be staggering. Most of us, toss the bills either in a pile on the counter, or throw them away and never get a good look at how much our debt has piled up. You may find you have $500 in debt, or that you have upwards of $20,000. Have hope that you are a step further than most of America just by deciding to take the bull by the horns and takle your debt head on. Not worrying about your debt is most likely how you landed here in first place. So determining that you are going to face it, list it, and work at it is already a step in the right direction. Once you have this list done, go do something you enjoy for the evening.

Like most of the county you are probably already getting collection calls several times a day. If you have not already done so,  Click HERE to claim your free Eradicate Debt Special report on how to Eradicate Collection Calls!

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