In our prior blog post, we talked about what rising interest rates mean for Columbus home buyers. As we mentioned, rising interest rates will also impact anyone who is carrying variable-rate debt, which commonly includes credit cards. Today we’re sharing debt reduction strategies that can help you save money, while putting you in a stronger position for future home ownership!
1. Know where you stand. List all of your debt payments and balances. Include medical bills, student loans, installment debts and credit cards.
2. Know what you have to work with. Create a household budget that itemizes your income, monthly expenses and debt payments. Include your costs for groceries, clothing and prescriptions. Use estimates when necessary.
It can be helpful to use a spreadsheet. Try this budget worksheet from Kiplinger or select one from Microsoft Office. If you’re looking for an all-in-one online budget and payment tool, try Mint.com.
3. Choose a debt reduction strategy and budget for it accordingly. Here are two main strategies to consider:
Pay extra towards the highest-interest debt first. Find the ugliest credit card you have; the one with the highest interest rate. Apply extra payments towards this card while making the minimums on everything else. In the long run, this strategy saves you the most interest expense. But you must be patient; results take some time to show, and payoff of a large balance can take years.
Just remember that when you pay extra (known as pre-paying) you are basically investing your money at the interest rate of the account. So if you have a $1,000 balance at 7% and a $200 balance at 4% it still makes more sense to pre-pay on the 7% account. Be disciplined!
Free up cash flow by paying off smaller debts first. This strategy provides a faster sense of accomplishment. It also frees up money to help you attack other, larger debts. Begin by paying all you can towards your smallest-balance account, while making minimum payments on your other debts. Once the smallest account is paid off, apply the monthly sum you were directing to it, toward your next smallest account, along with the minimum payment you were already making. And so on, from there. The snowball effect of improving cash flow makes the bigger bills easier to tackle!
4. Put time on your side. Creditors will accept smaller payments, as long as they amount to your minimum required payment by the monthly due date. In other words, if you’re paid bi-weekly or weekly, start breaking the monthly payments down accordingly. Making smaller payments more often translates to making more payments over time! This improves the amortization of the debt, helping reduce the interest accrual, and resulting in faster payoff.
5. If you are struggling with debt, don’t be afraid to seek help! The National Foundation for Consumer Credit, or NFCC, is a nonprofit financial counseling organization. They can work with your creditors to negotiate lower rates, stop collection activity and reduce your monthly payments. Find a credit counselor in your area by calling 1-800-388-2227, or visit NFCC.org.
When you are ready to find a mortgage lender or buy a home, we’ll be here to help you! As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
Andrew Show
Broker, CEBA, CEBA-M, CNE, CSP, ABR-M, e-PRO, GREEN
Buyer’s Resource Realty Services
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
614-888-4110 | 888-888-4110 Toll Free | 614-839-4110 Fax
