An Extremely Brilliant Way To Pay Off Debt
Ever come across one of these headlines on Yahoo Finance or even a fellow blogger out there, now unless you are numb to figuring out how to pay off credit cards, student loans, or your mortgage you will do a double take and maybe even click on the link, usually sponsored link. The one that sparked my interest today was from Lending Tree*, but honestly it could be from just about any financial institution. Here’s a little snip-it that can apply to almost every single loan, this one happens to be talking about refinancing a mortgage and the HARP program*, see my responses in blue.
- The average monthly savings for most eligible Americans is $345. Can you use an extra $345 a month? If you refinance you can save money, thanks jerkface I had no idea, sarcasm noted. Then comes the “get them saying yes question”, why yes I could use $345, sign me up. This would be like me saying only true red blooded Americans sign up for my emails, you are American right? Right under my Republic Wireless link if you want to subscribe, Mr./Mrs. American!
- Many homeowners not only save every month, but depending on their current rates, they can also shorten their term. Here is the problem(s) with this statement, 1) Many by definition means “a large number of” so the definition is subjective, many could mean 4 out of 100 or 95 out of 100, my guess is because of this vague statement “many” is closer to meaning 4 than 95. 2) They can shorten their term is something that my guess for most homeowners is actually the last thing on their minds, especially if they are refinancing, which most people do because they are looking to reduce the payment and here’s the magical point I will make a few times, if they wanted to pay it off sooner, they should make Bigger payments.
- This is why it’s a no-brainer – you will likely lower your payment, possibly shorten your term, AND can also get cash. This says you are an jacka$$ if you don’t do this or taking the positive approach you are making a sound financial decision an easy one at that, great job for not using your brain and listening to us. This is how powerful that little word called “interest” is. The middle class never sees “breaks” like this. So this is your chance to get “in”. I would agree if they changed the word “interest to “compounding”, they are right. The last two sentences are garbage key words that most broke people say to other people, “I just need a break” and then honestly get “in” I’d fire the guy/gal who wrote that, unless they are referring to a VIP club with Britney Spears waiting to serenade me with the song Toxic, then yes I want to be “in”(I’m a little eccentric,stop judging me). This choice of words is on my pile of “please use another word”, I mean how about the word “approved”, I don’t know I’ve spent 13 seconds thinking about it.
- This often overlooked method to lower your payment (and continue to make the higher payment by directing the excess to the principal) is a great way for you to pay off your mortgage in a shorter period of time, all the while saving more money in interest over the life of the loan. Refinancing is not exactly an overlooked method to lower your payment, pretty sure anyone who could refinance their mortgage did so in the last 5 years. They go against what they said earlier, if you refinance your loan to lower your payment in almost all cases you are extending the life of your loan, it’s just the way the math works, unless your interest rate is “credit card high”, then yes they have the magic potion that lowers your payment and pays off your mortgage in less time. They think we know nothing and just want to throw words at us to buy in like: lower your payment, pay off your mortgage, shorter period of time, and save money.
My Extremely Brilliant Way to Pay Off Debt in 3 Easy Steps by Even Steven Money
- Spend Less
- Earn More
- Take #2 minus #1 and apply to your debt
The more you earn in #2 and the less you spend in #1, the Bigger the debt repayments are and the faster the debt goes away. I know everyone wants a magic pill, an easy answer, something that takes $60,000 in student loan debt and makes it go away. I’m like you I wanted it to, I wanted everything to go away, just like that. Here are just a couple of things I tried to make them go away:
- Balance Transfer to a 0% or lower Interest Rate Credit Card
- Consolidate and Refinance my student loans
- Ask the Credit Company for a lower rate(0.25% lower, I could have punched them in the kidneys)
If you think these are the answer to paying off debt, you are sadly mistaken. I would say they are just a sliver of the solution to paying off debt and only affect the outcome in extreme situations(refinancing from a very high interest rate to a very low interest rate). In a recent blog post I read about paying off $54,000 in student loans, Kapitalust refinanced his loans with his parents for 2% less, he saved 1 payment, that’s it 1 payment, you know what actually paid off his loans? He made Bigger payments, starting at $1,000 and in some cases $8,000, that’s how he paid off debt.
The only way doing a balance transfer, refinance, or negotiating a lower interest rate helps is if you plan to take years and years to pay off your debt, wrong solution. If you have a plan to pay off your student loan in 20 years and refinance from 6% to 3% on your $60,000 balance then you will save money because for the love of all things personal finance 20 years to pay off a loan is a long frocking time. Here’s an example below of what I mean.
The real question is why would you take 20 years to pay off your student loans, credit cards, or personal loans? Not if only I could refinance to a lower rate. Here is my crazy financial advice**. Don’t refinance. Don’t do a balance transfer. Don’t ask to lower your payment. Don’t ask to lower your credit card interest rate. Instead Spend Less, Earn More, and Kick the $hit out of your loan. Do it as fast as possible, make a $3,000 payment so the loan can’t breathe, then just when it gains it’s breathe make a $1,000 payment, to only make a $6,000 payment the next month. That is my Extremely Brilliant Way To Pay Off Debt.
*My response to this sponsored advertisement from Lending Tree may seem a little harsh and is not an attack on this company or specific program since I did not take part in the HARP program or work with this company. Lending Tree might be great or the worst thing since the leaf blower, I have no opinion.
**Like many things on this site, you need to decide if this works for you, I’m not a licensed finance professional. In many cases they may tell you the exact opposite of what I suggest. Put on your big boy/big girl pants and think a little and decide what you think is best for you.