9 Steps to Get Out of Debt - Part 4
Step 4 - Reducing Your Interest
If you have read the previous articles, so far you have learned
how wide spread of a problem debt is, the true impact it can
have on your life, and how to determine exactly how much debt
you have and how much it will actually cost you. The next step
is to attempt to reduce your interest rate. There are several
ways you can accomplish this.
We'll start by looking at what are typically known as the
highest-interest debt, credit cards. Believe it or not, one of
the easiest ways to do this is to simply call your credit card
issuer and ask them to reduce your rate. This sounds laughable
at first, but quite often it actually works. Credit card issuers
typically charge customers much higher interest rates for the
money they loan than what they pay to borrow it from others.
This leads to huge profit margins, which means they really want
to keep you as a customer, especially if you regularly pay your
bill on time. They know you have plenty of options available,
and are likely to switch to another credit card issuer if you
feel you can get a better deal, so they're happy to make a
slightly smaller profit and keep you as a customer by lowering
your rate.
If that doesn't work, a second option is to find a lower-rate
credit card and roll your balance over to it. You may be tempted
to go with a card that has a 0% introductory rate. This is
probably not your best option though, unless you plan on paying
off the card within six months. What you want to look for is a
card with a low permanent rate. There are several sites
available to where you can compare credit cards from multiple
issuers such as Creditor Web, http://www.creditorweb.com/.
There are also several broader options available for credit
cards and other types of debt. One of which is to look into
refinancing any loans you have. Interest rates go up and down
over time, and it's quite possible the rate you can get now is
lower than what it was at the time you originally financed the
loans. Often there will be a refinancing fee involved, so use
the amortization calculator from the previous article to make
sure the amount you are going to save is greater than the amount
you will have to pay.
You can also get a debt consolidation loan. You need to be
careful when considering this option though, because although
there are several legitimate companies offering debt
consolidation
loans, there are also several companies trying to
make a quick buck at the expense of others. I highly recommend
checking out any company you consider getting a loan through
with the Better Business Bureau, especially if it's not a
reputable bank you are familiar with. In addition, once again
use the amortization calculator to make sure you are actually
saving money with the loan. Just because your monthly payments
are lower doesn't mean you're saving money. $300 per month for
10 years is going to cost you more than $500 a month for 5 years.
The last option I want to suggest is for those of you who own a
home. There are actually two options here, you can take out a
second mortgage, or refinance your home for its current value
and some additional funds, to pay off other debt. As with the
one before, this can be both good and bad. It can be good
because these loans typically offer the lowest interest rate
because they are relatively safe loans for banks. That is also
the same reason they are bad; if you do not pay them off, the
bank can repossess your house. The other built-in benefit is by
refinancing, you can often get a lower interest rate on your
house, which can save you a bundle. As with the previous option,
there's often a refinancing fee, so use the amortization
calculator,
http://www.destroydebt.com/calculators/AmortizationCalculatorJs.a
spx to make sure you are saving money by doing this.
With all of these methods let me stress that you should be very
careful not to fall into the same trap many others have. Too
often families will take out a second mortgage or debt
consolidation loan to pay off their credit cards, but instead of
using this is a means to reduce their debt, they charge up all
the credit cards again and end up in a worse situation than they
were before. Don't let this happen to you. Once you have
refinanced to eliminate any credit card debt, close those
accounts. Just keep one open for emergency use only until you
get to a later step in this guide where you can destroy that
one, as well.
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