The Top 10 Best way to Pay Off Debt – Part 1

by Justin Weinger on June 13, 2015

You can throw your bills into the garbage or hide your head under her pillow but there’s no way to make debt go away. You certainly can’t wish it away and, with compound interest and 20%, it builds extremely quickly.

That being said, there are a few excellent ways to pay off your debt and, lucky for you, we’ve put together the Top 10 Best ways to do it. Enjoy.

  1. Use the “snowball” debt repayment method.

This is a strategy that more and more people using. What you need to do first is figure out which of your credit cards has the lowest interest rate and cross your fingers that you haven’t reached the limit on that card. If you haven’t, transferring money from a high interest credit card to a low one is an excellent idea.

If that’s not possible because your balance is too large to fit on the card with the low interest rate, start paying the minimum on all of your credit cards except one of them and funnel the majority of your money into paying that card down as quickly as possible. Once you pay it off, do the same thing with the next card, continuing with this aggressive plan until all of them are paid off.

It’s called “snowballing” and, as the amount of debt that you have decreases, the amount of cash that you have to pay off the others begin to increase, snowballing until all of your debt is paid down.

You can do the same thing if you take advantage of a promotional offer on a credit line from your bank. For example, moving your money from a card with 18% interest to another one with 6% interest not only makes sense but allows you to apply the money you saved in interest towards the principal, reducing your debt even more.

Of course banks don’t generally give money away, so make sure that you read the fine print closely. For example, the interest rate that you might be forced to pay after the introductory period has ended might be higher than the one you’re paying now. Banks have caught onto people who “card hop” and many now have a stipulation that says they can’t transfer any balances off of their new card for 12 months. If they do, the normal interest rate will begin retroactively. Again, read the fine print.

  1. Paying more than just the minimum for your credit cards and other bills.

Millions of consumers pay the minimum on their credit cards and other bills every month, which is exactly what their banks hope that they do. The reason is simple; the longer a consumer takes to pay off their bills, the more interest banks make.

Rather than playing the bank’s game, do your very best to pay more than the minimum whenever possible. If you’re on a budget (and you should be) you should be able to see where some extra money can be taken to do this. If it means skipping some luxuries like eating out or giving up your daily Starbucks latte, just bite the bullet and do it.

Those sacrifices will give you the extra money you need to decrease your debt dramatically and, over time, save you hundreds and maybe even thousands of dollars in interest payments. It won’t be fun but, if you’re truly determined to pay down your debt and stop living paycheck to paycheck, it’s worth it.

Those are the first 2 Best Ways to pay off your debt. Make sure to come back and join us for Part 2 and, if you have any questions, drop us an email or leave a comment and we’ll get back to you ASAP with answers and info.

Share

{ 0 comments }

Many homeowners in the United States were cut off from one of the most popular sources of funds during the recent housing bust, the equity in their homes. As home prices begin to recover however, many have started to once again Into their home’s equity in order to do things like consolidate their debt, pay for home renovations and also pay for other “big ticket” items that they need.

In fact, over the last 12 months, there was a 27% spike in home equity lines of credit according to Experian, the financial services company, and experts predict that many more people will soon be following that lead.

That being said, there are 5 factors you need to consider before taking out a home equity loan (HEL) or a home equity line of credit (HELOC) or refinancing, to determine if it is really the best financial choice you can make. Those 5 factor are below. Enjoy.

Factor 1) Rates. In the last few years almost 9 million borrowers got 30 year fixed mortgage loans at the rate of 4% or lower due to the fact that mortgage rates were at near historic lows. Now however, those same rates are expected to increase. Keith Gumbinger, who represents mortgage information firm HSH.com, says that “we may be in for a more volatile period,” and he’s probably right, when you consider that the Federal Reserve is ending a number of programs that they had in place to keep rates low under their quantitative easing monetary policy.

Factor 2) Costs. Simply put, if you get a home equity loan or HELOC, the price that you’ll pay up front is going to be cheaper than if you refinance. That’s because when you refinance most lenders will force you to go through the entire underwriting process and, when you do, they hit you with all sorts of fees at the same time.

Those include attorney review fees and inspection fees for example, along with having to get new insurance and a new title search. Typically this can cost you over $1000 or more, depending on your mortgage of course and, in the end, the cost of refinancing could actually increase to $2000 or $3000.

On a home equity loan or line of credit many lenders don’t have any upfront costs, however the higher interest rate that you pay will cover the application, appraisal and any other fees.

Factor 3) Time. When you refinance a loan the clock “resets” but, when you take out a home equity loan or a HELOC, the payments you make are made on the same schedule.

If, for example, you’ve paid 60 months on a 30 year loan and then you decide to refinance, it will be as if you just started at day 1 again with your 30 year term. You could roll the 30 year loan into a 15 year loan, which would reduce the number of payments but would increase the cost of each monthly payment instead.

Factor 4) The reason that you need the loan or credit line. Most financial experts will tell you that the best reason to get a home equity loan is that it will positively impact your finances. If you use it to renovate your property, adding value to said property, or to go back to school and advance your degree, a home equity loan makes sense.

On the other hand, if you use your home’s equity to purchase a sports car or take a luxury vacation, that money will soon be gone but, unfortunately, the debt won’t, and you’ll be paying it off for quite a few years into the future.

Factor 5) Tax benefits. When you get a cash-out refinance you might not get any tax benefits but, just like your first mortgage, many home equity loans and HELOC’s allow you to deduct up to $100,000 of the principal on your mortgage in interest paid.

And there you have it. 5 Factors that need to be seriously considered before using the equity in your home to get any money that you might need. If you have questions about refinancing or getting a home equity loan, please let us know by sending us an email or leaving a comment. Thank you.

Share

{ 3 comments }

On a Budget? Don’t Let These Triggers Sabotage You

by Justin Weinger on May 10, 2015

If you’re on a budget, the first thing you should do is congratulate yourself. The fact is, millions of people across the country still haven’t figured out that using a budget is the best way to build wealth, increase their savings, fund their retirement and avoid going into debt.

That being said, sometimes being on a budget can be mentally tough and, with spending “triggers” everywhere, there can be times when your budget is in danger of being busted. Below are a number of triggers that can do this, and advice on how to avoid them. Enjoy.

Trigger 1: Not knowing the difference between “need” and “want”. Humans have a way of justifying something that they want by saying it’s something that they need. For example, a person might say that they “need” the newest smartphone because they have to keep up with technology, or need to go out to dinner with friends because everyone is going to be there. In reality however these “needs” are actually just a justification for overspending, and the desire to “keep up with” everyone else. Your best bet is to simply focus on what you actually do need, not what you want. If the smart phone you already have is functioning correctly, purchasing a new one isn’t necessary.

Trigger 2: Rewarding yourself. Okay, sticking to a budget can be difficult, we know. Cutting back every day on everything can wear on you after a while and, if you’ve been diligently sticking to your budget, you may feel that it’s time to reward yourself. Many times a person who has just started a budget will feel this way and, in response to those feelings, overspend on something and throw their budget completely off. If that’s you, you would best start by cutting back on things slowly and working on your willpower, and your bank account, rather than jumping in to the deep end of the budget pool.

Trigger 3: Spending on vacation. Let’s face it, when you’re on vacation there are so many triggers around it’s ridiculous. Excursions, drinks out by the pool, spa treatments and more are around every corner, and keeping yourself from purchasing them can be quite difficult, especially since you’re on vacation to “relax”. If you’re planning a vacation, the best way to avoid these triggers is to set aside extra money to pay for the things that you know you’re going to want, so that you don’t break your budget and regret it when you get back.

Trigger 4: Purchasing something on sale that you don’t need. Oftentimes you’ll be in a department store and see something that’s on sale, maybe even at an excellent price. If you truly need it, and you have the extra cash, make the purchase. On the other hand, if you have to purchase that item using a credit card, or you simply don’t have the extra cash (or you truly don’t need it) that “bargain” might be a budget breaker instead. Even worse is if you purchase it and don’t pay off your credit card immediately, because then the extra interest you pay will end up negating any savings that you might have gained.

Trigger 5: Overspending because of a party or celebration. Let’s face it, there’s always some type of celebration happening in the average person’s life. Baby showers, birthdays, bridal showers, weddings, job promotions, anniversaries etc. etc. The fact is, there are an endless number of reasons to spend on a celebration but, if you destroy your budget doing it, those great feelings you have won’t last for long. One way to avoid this is to use your creativity instead of your money to give a nice gift to your friend or relative. Besides costing you much less, the sentiment that it creates will no doubt last longer than most things you could have purchased.

Using a budget, as we mentioned, is the best way to build wealth, increase savings, fund an emergency savings plan and also fund your retirement. That being said, the occasional splurge, if it doesn’t go overboard, is fine, especially if you’ve been diligently sticking to your budget. It’s really just a matter of balance and, the longer you use a budget, the more balanced you will be.

Share

{ 0 comments }

Good News for Consumers Who Love Their 401(k)

by Justin Weinger on May 3, 2015

There’s good news from the Internal Revenue Service (surprise!) for people who stuff as much money as possible into their 401(k) retirement accounts; starting this year the contribution limit has been augmented to $18,000, an increase of $500.

Even more good news for American workers who are 50 years of age and older is that the “catch-up” amount that they can contribute to their 401(k) plans will also increase $500 in 2015, meaning that they can put an extra $6000 into their 401(k) or $24,000 in total.

That being said, the truth is that most American workers unfortunately can’t afford to meet those maximum amounts. For example, of the more than 3 million participants in Vanguard’s 401(k) plan, a mere 12% maxed out their contributions in 2013 according to their annual report “How America Saves”. (Those figures don’t include monies from any employer matching programs.)

For consumers who use their 401(k) plan and earn over $100,000 a year, Vanguard found that 36% were contributing the maximum amount of money. That number fell precipitously however for consumers earning between $50,000 and $74,999, where only 2% were maxing out their contributions.

The IRS increase is connected to, and reflects, the increase in the Consumer Price index. This is the index that measures inflation but, interestingly enough, the IRS did not increase limits for contributions to traditional IRAs and Roth IRAs, which will stay the same and a limit of $5500.

Another bit of good news is that the income levels determining which consumers will get a full deduction on their IRA contributions are increasing in 2015 as well.

For example, a single taxpayer with a 401(k) plan will see their income level raise from between $60,000 and $70,000 up to $61,000 and $71,000. The deduction will phase out at incomes of $98,000 up to $118,000 (up from $96,000 to $116,000) for joint filers who have one spouse making IRA contributions as well as participating in a workplace retirement program.

It was also announced that, as far as Roth IRAs are concerned, more people will be able to contribute to them and take advantage of their after-tax contributions.

One last bit of good news is that, in order to qualify for the “savers credit” of up to $2000, the IRS has made it slightly easier for consumers. In 2015 this credit, which was put in place to help low to middle income retirement savers, will be granted to single filers with incomes of less than $30,500 as well as married couples with incomes of less than $61,000.

So, as you can see, not all news coming from the IRS is bad news, especially if you do your best to put as much money as possible into a 401(k), IRA or Roth IRA retirement plan.

Share

{ 0 comments }