Consumers Looking to be Debt Free

Consumers Looking to be Debt Free

AsAmerica’s debt crisis looms, some people are finding ways to not only save money, but to become debt free.  Part of the plan reducing spending, but to actually pay off debt requires planning.

Debt Free

An obvious way to pay down debt is to increase the amount you pay on the bills.  Many credit card companies offer a payment calculator to show how long it will take to pay off the debt and how much interest you will save.  A mortgage calculator will allow you to do the same thing.   When you pay extra on your mortgage or on a car payment, be sure to specify that the extra is to go on principal.  The more you pay on principal, the less you will pay in interest.  Also, you may want to check to be sure there are no prepayment penalties on your loans.

Interest Rates

Depending on your interest rates, it may make sense to take out a home equity loan to pay off your credit cards.  Usually, the interest rates will be lower on a home equity line of credit.  But, once you do that, put the credit cards away!  If you choose that route, take the money you save on the credit card payments and apply that to the home equity loan.

To pay off a mortgage sooner, try refinancing it for a shorter term.  The payments will be higher, but they may not be as high as you think.  Here’s where playing with a mortgage calculator is fun.  If you have a $150,000 mortgage at a rate of 8%, your payment on principal and interest is $1,101.  If you were to refinance at a rate of 5% for 15 years, your payment would be $1,186.  If you’re not sure you could consistently make those higher payments, don’t refinance, but make payments as if you had.