There are several ways to organize your debts so you can reduce interest payments, pay down your debts faster and better manage your cash flow:
Itemize and Consolidate Debts
- First, create a list of all your debts starting with the highest interest rate to the lowest. Then consolidate the higher interest rate loans with credit that carries the lowest interest rate, such as a line of credit or a mortgage.
Minimize Interest Rate Costs
- If you’re using a credit card with 18-20% interest rate, switch it to a card with only 10-12% interest rate.
- Take advantage of low or no-interest financing, such as 0-3% car loans.
- Use the services of a mortgage broker to obtain the lowest interest rate loan and to secure the most appropriate mortgage.
Pay Down the Principal
- Make payments on the principal of your debt (not just the interest) on a scheduled and regular basis.
- Make lump-sum principal payments on the anniversary date (if your mortgage lender allows).
- Increase the frequency of your mortgage payments to accelerate your principal repayments. Changing from a monthly to a bi-weekly mortgage payment can save you $48,348 in interest on a $400,000 mortgage at 5% over 25 years!
For more information on how you can organize your debts and mortgages, please feel free to contact a Rogers Group Financial advisor.