Tactics to reduce your debt so you can pay it off faster
Money Girl
254 MG How to Get Out of Debt Faster, Part 1
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 end if you pay off devices early. C-T-Mobile.com. [MUSIC] Hi friends. Thanks for downloading the Money Girl podcast. [NOISE] I'm Laura Adams, the author of Money Girl Smart Moves to Grow Rich. If you're like most people, you want to ditch your debt as quickly as possible without having to take a second or third job. Having too much debt can be a real burden that holds you back from improving your financial life. When it comes to getting out of debt, there are three basic strategies. Number one, don't increase it. Number two, reduce the interest rate, and three, reduce the principal balance. In this podcast, I'll cover specific tactics to reduce the interest rate on your debt. Next time, you'll learn how to reduce your principal balances. The interest rate is the cost of borrowing money. It's the amount you're charged in addition to the principal amount you borrow, and it depends on several factors, including the current market interest rates, your credit score, the length of the loan, the amount you borrow, and the type of credit account. Say you get a car loan for $20,000, with a 15 percent interest rate over a five-year term. Your monthly payment would be about $475. If you got that same loan at six percent interest, instead of 15, your payment would be about $385, saving you $90 a month, or more than $5,000 over the life of the loan. Think about what you could do with that money. If you invested $90 a month for five years and never added another penny to the account, you'd have over $30,000 in 20 years, assuming an 8 percent average annual rate of return. So, how do you reduce the interest rate on a loan that you already have? Well, one way is to refinance it. Refenancing allows you to replace a debt with another debt. You get a brand new loan with a more favorable interest rate and pay off the old loan at the same time. The new loan could come from your existing lender or from a different one. Loans that are commonly refinanced are mortgages and auto loans. You can pay less if interest rates are lower now than when you originally took out the loan. Additionally, if your credit score is better now, that could also make you eligible for a much lower rate. However, getting a lower interest rate may not save money if your refinance also stretches out the term of the loan. For instance, if you have 20 years remaining on a 30-year mortgage and you refinance it back to 30 years, increasing the length of a loan will decrease your monthly payments, but it typically costs you more interest over the life of the loan. Plus, a longer term doesn't help you pay off the balance any faster, which is what I'm focusing on here. Therefore, to save the most money and pay your debt off as quickly as possible, refinance it for a lower interest rate using the existing payoff schedule or a shorter one. There are fees involved in doing a refinance, as well as equity requirements on home loans, so speak to your current lender and shop around to find the best deal. There are many online calculators at sites like mortgagecalculator.org, dinkytown.com, and bankrate.com to help you crunch the numbers and take a closer look at whether refinancing makes sense for your situation. But what if you can't refinance a mortgage because you're underwater and own more than your home is worth? Well, a loan modification might be the solution. A loan modification is typically an option when you demonstrate that you have a long-term hardship or inability to repay a mortgage. It's similar to a refinance but with no fees. 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. He's better 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. 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 and 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. I love learning and anything that makes learning easier. 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Get Ixcel now and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. A loan modification may reduce your interest rate, extend the length of the loan or change the type of loan like from an interest only to a fixed rate for instance or a combination of these solutions. In general, a lender would rather keep you as a paying customer with a modified loan than to foreclose on a property if you default. Starting in May 2012, the federal government is rolling out a new and improved home affordable modification program to help more people. If you're employed but struggling to pay your mortgage, this program can reduce your monthly payment to 31% of your gross or pre-tax income even if you're underwater. Lenders will have all the details about the expanded program in February 2012. So be sure to contact them now to discuss your options. You can also visit makinghomeaffordable.gov for more information. What if you have multiple debts like student loans or credit cards that are weighing you down? Refenancing multiple debts into one is called a loan consolidation. Not only can consolidation save you money when the interest rate is reduced but it makes managing the debt easier because you only have one payment each month. Private and federal student loans can't be combined so they must be consolidated separately. Also note that any special repayment options included in your original student loan may be canceled if you consolidate it. To learn more about your options for federal student loans, visit loanconsolidation.edu.gov. If you have private student loans, contact your lenders for refinancing and consolidation options. If you have debt on several high interest credit cards, save money by consolidating them with a low interest personal loan that you take out from an online lender or a local credit union. Anytime you can substitute high interest debt for lower interest debt, you'll save money that can be used to pay down the principal debt balance faster. Another way to slash the amount of interest you pay on debt is to move it to a balance transfer credit card. This is a special type of credit card that offers low or no interest during a promotional period if you transfer existing debt to the new card. Just like with any credit card, your credit score determines the credit limit and interest rate that you're offered. Balance transfer terms and fees vary widely, so be sure to read the fine print. To learn more, listen to a previous podcast called "Should You Use a Balance Transfer Credit Card?" which is episode number 146. Do you need to raise your credit score? Get three top strategies to boost your credit when you visit smartmoves2growrich.com and download my free credit score survival kit. You'll also learn how to get your credit score for free, so you can see when your score goes up or down as often as you want without paying a dime. Better credit means a brighter future. Again, that's the credit score survival kit at smartmoves2growrich.com. If you have a money question posted on the Money Girl Facebook page, just log in to Facebook and do a search for Money Girl. You can follow me on Twitter where my username is @lauraattoms with no space. Or send a confidential email to me at money@quickanddirtytips.com. I'm glad you're listening to change. That's all for now. Courtesy of Money Girl, your guide to a richer life. In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Beaubert, 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. 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