Archive.fm

Money Girl

255 MG How to Get Out of Debt Faster, Part 2

Tactics to reduce your debt balances ahead of schedule.

Broadcast on:
22 Feb 2012
Audio Format:
other

Tactics to reduce your debt balances ahead of schedule.

In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Boebert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. You spent a over here. Now at T-Mobile, get four 5G phones on us and four lines for $25 a line per month when you switch with eligible traders. All on America's largest 5G network. [MUSIC] Minimum of four lines for $25 per line per month without a paid discount using debit or bank account, $5 more per line without auto pay, plus taxes and fees and $10 device connection charge. Phones would be a 24-monthly bill credits for well-qualified customers. Contact us before canceling entire accounts to continue bill credits or credit stop and balance on a required finance agreement to bill credits and if you pay off devices early. CtMobile.com. [MUSIC] Hi everyone, I'm Laura Adams. And you're listening to the Money Girl podcast. [MUSIC] If you want to know the personal finance and productivity tools that I use to earn more, save more and accomplish more, visit smartmoves-to-growrich.com and click the button that says tools to get all my recommended resources. This is the second in a two-part series about how to get out of debt faster. Part one gave you five tactics to reduce the interest rates on your debt, so you can make lower monthly payments and use the savings to pay down balance as a head of schedule. In this segment, I'll cover another major strategy, reducing your principal or the actual amount of debt that you owe. The easiest way to reduce your debt is to pay it down using cash savings. I realize that most people don't have a big stash of excess cash lying around. But think about what assets you have like investments, cars, boats, equipment or jewelry that you could sell to raise cash. Paying off a debt that's charging you 20% interest is just like finding an investment with a guaranteed 20% rate of return that's tax-free. In other words, parting with your cash to get rid of expensive debt is a smart financial move. However, don't use every penny of your cash to eliminate debt. It's still important to keep a reasonable cash cushion that will keep you safe in an emergency. Additionally, never take an early withdrawal or borrow from a 401(k) or IRA to pay off debt. The benefits you give up and the penalties you have to pay when you tinker with a retirement account are just too high. Many people want to know if it's smart to get rid of their home mortgage as soon as possible. Since mortgages have relatively low interest rates and come with a tax deduction, they're the last debt you should pay off. For more on this topic, be sure to listen to a previous two-part podcast called "Whether to Invest or Pay Down Debt," which are episodes number 148 and 149. However, if you want to whittle down your mortgage balance faster, here's a clever way to do it. Pay one half of your monthly mortgage payment every other week or biweekly. There are 52 weeks in a year, so you'd make 26 half payments. That's the equivalent of making 13 full payments in a year instead of 12. Making biweekly payments is a really easy way to get one extra monthly payment made each year, especially if you get paid every other week. If you have a 30-year, $200,000 mortgage with a 5% interest rate, making biweekly payments could save you close to $35,000 and allow you to pay it off five years ahead of schedule. Enter your loan information into the biweekly payment calculator at DinkyTown.com to see the difference biweekly payments can make for you. By the way, this tactic works for any kind of installment loan, not just mortgages. Just make sure that your loan doesn't include a prepayment penalty for paying it down early, and watch your statements carefully to make sure that the lender applies your biweekly payments correctly. Another way to reduce your debt is to settle it for a lower amount. This is a common tactic if you're already behind on unsecured debts, like credit cards or medical bills. In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Boebert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Read for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. He's better over here. AT&T customers switching to T-Mobile has never been easier. We'll pay off your existing phone and give you a new one free, all on America's largest 5G network. Visit T-Mobile.com/carrierfreedom to switch today. Pay off up to $650 via virtual prepaid mastercard in 15 days. Free phone up to $830 via $24 monthly bill credits plus tax, qualifying port and trade and service on Go 5G next to credit required. Contact us before canceling entire account to continue bill credits to credit, stop and balance and require finance agreements, too. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science and social studies. Ixcel has interactive practice problems for topics from pre-k to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning, get Ixcel now and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixcel.com/moneygirl. Visit ixcel.com/moneygirl to get the most effective learning program out there at the best price. To settle a debt, contact the lender or collections agency and ask to speak to the accounts receivable or collections department. Never hide from a creditor when you're having financial troubles. You'll get much more favorable treatment if you're honest about your situation and express a willingness to find win-win solutions. If you have cash to pay a lump sum amount, that's a powerful negotiating tool. Offer to pay 25% of the full debt. Perhaps they'll meet you in the middle at 50% of what you currently owe. Many creditors would rather get half your debt in cash rather than risk getting nothing down the road, especially if your debt is old. If you don't feel comfortable negotiating a debt settlement on your own, there are professionals who can help. An attorney can facilitate a negotiation, help you understand the best options for dealing with debt in the state where you live, and keep a creditor from harassing you or engaging in illegal collections practices. Some credit counseling agencies can reduce your debts through a formal agreement with your creditors called a debt management plan. The idea is that the agency negotiates lower payments on your behalf and then you send the agency one monthly payment that they distribute to your creditors according to the pre-arranged schedule. There have been scams and fraud associated with some credit and debt organizations, so don't send any money to an agency until you know they're legit. Define one that's reputable, do your homework, and make sure that they're approved or certified by one or more of the following organizations. Make the National Foundation for Credit Counseling, the Association of Independent Consumer Credit Counseling Agencies, or the International Association of Professional Debt Arbitrators. Don't worry, I'll include links to all the resources I mentioned in the show on the Money Girl page at QuickAndDirtyTips.com. Just look for episode number 255, "How to Get Out of Debt Faster Part 2." To further protect yourself, always confirm a debt management plan directly with your creditors. Also track the balances on your bills carefully so you know if the agency is sending the right amounts to your debts each month. The fees charged by attorneys, credit counselors, and debt arbitrators vary widely, so always ask to see a written list of their services and prices. In many cases, you can do exactly what they do for free, but you have to be the judge. If you or a professional is successful in settling any amount of your debt, remember that canceled or forgiven debt is generally considered taxable income, so expect to receive a Form 1099C at the end of the year to use when filing your tax return. However, you can avoid paying the tax if you were insolvent at the time of the debt cancellation. Insolvency means that your total debts are more than the fair market value of your total assets. Many people who are likely to meet an insolvency exemption don't know it and they end up paying too much tax. If you're not sure if you qualify for insolvency or think you overpaid tax on canceled debt in any of the three previous tax years and may qualify for a refund, be sure to consult with an accountant. There's also a temporary exception from mortgage debt that's forgiven from 2007 through 2012. Listen to Money Girl Podcast #193, what you need to know about forgiven debt and taxes for more information. If you're struggling to pay a mortgage or have had your home foreclosed, you may qualify for relief under the new $25 billion National Mortgage Settlement. Money will help borrowers who suffered a wrongful foreclosure or who have existing loans with participating banks. This is the largest multi-state settlement since the tobacco deal back in 1998. To find out if you're eligible for a payout or if your existing home loan will be affected, visit nationalmortgagedsettlement.com. My book, Money Girl Smart Moves to Grow Rich is loaded with more tips about how to deal with debt, buy it from your favorite bookstore in print, or is an e-book for your Kindle Nook iPad PC Mac or smartphone. When you visit smartmoves2growrich.com, you can download two chapters for free. And while you're there, remember to click the button that says "Tools," then sign up for email updates, join the Money Girl Facebook page, and follow me on Twitter for more money tips, tools, and advice. All these resources are free for you at smartmoves2growrich.com. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. New Markdowns up to 70% off are at Nordstrom Rack Stores now. From perfect jackets to fresh kicks, there's always a score. Why do I rack? All the dresses? Because I always find something amazing. Because a good deal feels so good. Head to your Nordstrom Rack Store to find major deals on everything you need for fall. Great brands, great prices. That's why you rack. [BLANK_AUDIO]