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Tonight I’m bringing you a guest post from Mrs. LLC of Lovely Life Cents. She’s relatively new to the game of personal finance and still looking for her voice. Check out her new blog if you want to get a fresh take!
It’s on everyone’s mind mainly because everyone’s got it. At this point in society, the average joe is going to take on debt if they want to move forward in life.
For instance, if you want to buy a house, you’ll have to take out a mortgage unless you’re Mr. Money Bags. Want to go to college? Your typical college graduate is laden with tens of thousands in student debt after four years of higher education. Need to buy groceries every week on a biweekly paycheck? Well, take out a credit card and start spending on credit.
At any rate, the process is clear. Assume some form of debt in order to move forward in life whether it’s for a house or college degree, and then you have to pay it back in any way you can. There are plenty of ways you can do this, and there are a couple of tricks that the average joe should know. I’m going to go over a few of those common now.
While it isn’t the largest source of debt in the United States, it is certainly one off the most common forms of debt out there. Most consumers have credit cards, and plenty of them carry a balance from month to month. This is a problem because credit cards are notorious for high interest rates, so it is easy for the average consumer to get stuck with interest payments, leaving them with mounting debt.
Well, there is a way to fix that specific problem; in fact, you could apply for ANOTHER credit card. That might not make sense, but just wait. There are balance transfer credit cards that offer low or zero APR on balances for a set period of time. Therefore, one solution is to apply for one of these cards, transfer the balance over to a lower or no interest rate, and start paying down the principal balance! While a balance transfer card isn’t the only way to reduce the interest rate on your debt, it is one of the most popular. If you can reduce your rate, you will have a better chance at paying down credit card debt in general. Watch out, if you can’t pay down your balance before the low APR period ends, then you may be stuck with more pesky interest payments.
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Mortgage debt takes first place as the leading form of collective debt in the United States. If you want to live in a house, then you’ll more than likely need to deal with mortgage payments. It’s plain and simple. You’re going to need to pay this down diligently, but if you want to save some money over time, then you should pay attention to market interest rates for an opportunity to refinance your mortgage.
In mortgage refinancing, you essentially sell off your mortgage to another lender who offers you a new loan at hopefully a lower interest rate. In essence, you are RE-financing your current mortgage for a new set of loan terms and conditions. The theory is very similar to a balance transfer card because you are looking for a way to reduce your interest rate. If you can lower your rate, then you can save money on interest while devoting more funds to the principal balance. This will hopefully expedite the repayment process. Keep in mind that you also have the ability to extend your repayment term. If you do this, then you could end up spending more over the life of a mortgage.
Millennials love this one. And why not? They’re all in college, and lucky for them, student loan debt recently surpassed credit card debt as the second leading form of debt in the United States. Since the price of a college education has soared in recent decades, it’s only logical that student loan debt was going to soar right along with it. That being said, oftentimes students are forced to take on additional high-interest, private student loans in order to cover that pricey tuition. Like before, the issue here is high interest debt.
Read more college savings strategies here!
Similar to mortgages and credit cards, the trick here is to find a way to lower your interest rate. Very similar to mortgages, there are private companies that offer refinancing for student loans. It works in basically the same way as a mortgage refinancing deal. You apply for refinancing, and a company buys out your debt by offering you a new loan with new terms. If you’re creditworthy enough, then you’ll be able to get a new loan at a lower interest rate. With a lower rate, then you’ll be able to pay down the principal balance more easily and hurry on your way to being student debt-free!
This advice is certainly not exhaustive. There are plenty of ways to pay down debt aside from lowering your interest rate. One way is to simply make more money. More money means larger payments, meaning faster repayment. People find all sorts of creative ways to pay down their debt, so get creative!
Have any outside-the-box ways you’ve paid down debt? Please share with us in the comments!