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

  1. Spend Less
  2. Earn More
  3. 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.

 

Interest Savings

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.

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24 Responses to “An Extremely Brilliant Way To Pay Off Debt

  • I hate seeing the gimmicks that appear in mainstream advertising. During maternity leave, I was especially offended by daytime TV commercials. First, I don’t do gimmicks in anything. They annoy me to no end. But then as you see more and more of it, your realize that it must work. And that’s when I actually get ashamed – both that folks exist in the world with such a demented sense of personal finance and that others will take advantage of it for profit. Wish we could all shout your message from the rooftops to teach others what options are available. This world certainly could use a good dose of it.
    Mrs. Maroon recently posted…Weekly Goals: November 30, 2014My Profile

    • EvenStevenMoney
      3 years ago

      I like your passion on the subject and I think learning and educating others is how we can prevent this. I think a lot of every day people are hooked in to pay day loans, title loans, fast cash type of gimmicks. The same words are used to take advantage of people, this is a mild case that just happened to be a headline grabber, but if I’m clicking to see what it is, I’m sure thousands are doing the same.

  • We refinanced our rental properties through HARP several years ago. For us, it was a no-brainer. We went from interest rates in the 6’s (can’t remember exactly) to 3.25 and 4.0. Both loans also went into 15 year loans! I did a calculation of the savings at the time and it was in the tens of thousands of dollars.
    Holly@ClubThrifty recently posted…All I Will for Christmas Is…My Profile

    • EvenStevenMoney
      3 years ago

      Here is an instance where you expect to pay your mortgage for a long period of time, going from a high interest rate to a low interest rate, these meet the eye ball test for me, glad it worked out.

  • You should be careful spouting such incredibly ingenious ideas like this in public Even Steven – one of those companies might abandon its terrible buzzwords strategy and actually catch on to this crazy smart idea, us it, and make millions from it!! You need to get this formula patented before someone steals it!

    Love your honest, direct views on the topic, the world definitely needs much much more of this.
    Jason @ Islands of Investing recently posted…Take advantage of stock market ‘hangovers’ to improve your investing performanceMy Profile

    • EvenStevenMoney
      3 years ago

      Haha thanks Jason. Well they did get me to click on the ad though…..ba$tards Over time with paying off debt, I’ve realized that you just can’t play games with debt, I’ve tried. For me it’s make big payments and repeat, forget interest rate, balance transfers, etc.

  • Haha those headlines really do pull you in. Dammit I thought you were revealling some awesome secret u didn’t know

    Oh well.

    I do understand that doing any of those things can be dangerous when you don’t have discipline, because it can give you more money to spend . but if you are discipline you’d be foolish not too. For example I got a .25 reduction in my interest rate for my student loan for signing up for paperless. It was still important for me to do it because it got more of my principle working.

    Sure you “save” more if it takes you 20 year but even in 3 you saved about 3k that’s 3 aggressive payment you saved
    The Roamer recently posted…Lets give thanksMy Profile

    • EvenStevenMoney
      3 years ago

      I do agree that my sure fire way to pay off debt is not mathematically pleasing. The lessons I have learned have taught me that Big Payments>Interest Saving Trick, I have tried these interest saving tricks and they did exactly that, trick me into thinking I saved a bunch of money. I would rather forgo the .25% interest rate reduction if instead, the student loan irritates me so much that I start making $1,000 payments and don’t stop till it’s gone forever. Old Approach: Something like I hate that I have a 7% interest rate on my loan, but now I’m really happy to be at 6.75% to save all that interest over the next 10 years. New Approach: Do you believe those a$$holes at the student loan shop are charging me 7% interest, you know what I’m going to do, get so angry and work so hard that I don’t ever have see that stupid 7% Student Loan again. I think if we started changing our approach we just might get more done. Didn’t mean that to get so rant filled;)

  • Haha… How right you are, good sir. Way to draw us in and then give us a dose of cold hard truth! 😉

  • EvenStevenMoney
    3 years ago

    Thanks J. Money, awesome to be featured on Rockstar Finance, I’m saving the picture and framing this one!

  • Your three steps are so good in their simplicity and so true (though the Davil is in the detail). I used them to pay off $157,000 consumer debt in three years. It was a lot of learning on the way and all put to good use :). (Btw, I also get very annoyed by the kind of rubbish that the Landing Tree is a good example of).

    • EvenStevenMoney
      3 years ago

      I am filled with joy that you used “rubbish” in your comments, thank you. Congrats on paying off $157,000 that’s awesome!

  • “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”

    – I completely get why you got heated, but I can’t say I just agree like some other commenters. Refinancing can save thousands upon thousands after the crossover. Asking your CC to just lower your interest rate is incredibly smart and most people never do it! Plus it is free. A balance transfer to a zero percent card could provide you with some real room to nail principal vs just interest.

    Again, I get why the anger against stupid ads, but don’t throw out the baby with the bathwater.
    Evan recently posted…December 2014 Net Worth UpdateMy Profile

    • EvenStevenMoney
      3 years ago

      Thanks for bringing that up. What’s funny is I refinanced my student loans, did a CC balance transfer, lowered my student loan payments with income sensitive payments, and asked my credit card company to lower my rate. You know what happened? NOTHING. It did nothing because I didn’t follow the simple rules I laid out and the most important one of making really Big Payments over and over again.

      I do think refinancing is a smart move if you plan to keep your loans for an extended period of time, like a mortgage for example. However as I mentioned in previous comments. I would rather you get really pissed off that you have a 12% interest rate and make $1,000 payments instead of a balance transfer and small payments. Here’s a really good question why do credit card companies offer 0% interest(although there is a transfer fee)? Because they know that a very large percentage are not only going to not pay off the debt, but they are going get you using the new shiny credit card and starting all over again racking up debt. My message is don’t do a trick and expect the debt to go away, instead make BIG PAYMENTS!

  • I dunno. I think your brilliant plan is a wee bit radical for me!

    But seriously, yeah the same old headlines with the same old ideas — many of which just don’t apply, depending on your situation — drive me crazy.

    One note, though: If they say “most” it automatically means more than 50%. Which is still a pretty big range, but not as big as you’re thinking. “Many” is the real killer. I’d assume 30% or more.

    But yeah some figures would be nice.
    Abigail @ipickuppennies recently posted…Microwave suggestions?My Profile

    • EvenStevenMoney
      3 years ago

      I’m glad you feel that way;) I’m turning into that radical guy, I can live with that…..follow like sheep and you just might be going to slaughter. I like that you quantified some of the phrases they use, not that I’m lining up for what they are offering, but at least it gives you a clue.

  • I believe that debt should be attacked like someone trying to take your wallet on the city streets. Just grab him and break him into a thousand pieces.

  • Whoa whoa whoa, so you’re saying that if I spend less than I make, I can put that into paying down debt? That’s crazy talk!

    Seriously, though, the debt lesson is one that Americans constantly need to re-learn, it seems. What’s common sense to personal finance bloggers doesn’t apply to a lot of the country, sadly.

    It reminds me of fitness goals. The steps really are simple; it’s the execution and lack of patience/respect for the process where most folks fall down.
    James recently posted…4 Great Ways to Ruin Your FinancesMy Profile

    • EvenStevenMoney
      3 years ago

      Execution is one of the most difficult items in finance and fitness or maybe it’s more repeating the execution over and over.

  • I’ve noticed more adds with this exact Hook of a headline now. My very favorite sort of misinformation tactic is the one Discover Finance has been sending to my snail mail box for many years – it’s a revolving credit line offer, and I’m not joking when I say it reads as follows “Reduce your debt with a Discover Line of Credit”. Their premise is you borrow money from Discover (this must not count as debt, I’m sure they explain that thinking to you after you accept the money) and “Pay Off” your debt… Seriously??? As commented on here, I feel sad that they would present it this way and ashamed that it must work on some of us humans – undoubtedly those feeling mostly desperate…

    • EvenStevenMoney
      2 years ago

      They make it sound like they are making payments for you or something. Reduce your debt, yeah your debt gets reduced with big payments, it doesn’t matter who your loan is with!

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