Following are smart steps help you to reduce debt.
PLAY YOUR CARDS RIGHTConsider Hybrid ARMS
Credit card companies make billions of dollars each year by charging high interest rates to consumers who don't take the time to understand what they are throwing away. That doesn't have to be you.
The average credit card balance these days is $9,000 and it comes with an 18% interest charge. If you are crazy enough to pay just the minimum monthly balance it will take you 31 years to get rid of the balance with more than $13,000 in interest rate charges.
First call up your credit card issuer(s) and ask for, if your FICO score is in the top range or two there is absolutely no reason to be paying 18%, a lower interest rate. Ask for 10% and then negotiate from there. If the issuer denies, just tell them you plan on taking your business to a lower rate card. That will usually get them to be flexible with you. And make sure the reduction is permanent; be alert they may be boost you back to 18% in 6 months.
If your card issuer won't reduce your rate, shop around for a lower rate card (don't cancel that card, doing so can actually hurt your FICO score, so it's best to keep it open but don't use it). Always be very careful to read the fine print. Credit card companies are marketing Guru : they'll attract you in with a super-low rate and later boost it up, also check for a rate that doesn't adjust after an introductory period, or at least doesn't goes up extremely high.
If you have multiple credit cards with balances the best move is to pay the minimum on every card and then make the extra payment to the card with the highest interest rate. Then once that credit card is paid off use all your monthly payments to paying off the next credit card. Keep doing this until you have eliminated the debt on all your credit cards. If possible it is best policy to add extra $$$ in your minimum payments.
Where to come up with the cash? We all have plenty of day to day unnecessary expenses. Cut back your phone calls, drinks, smokes use 3 a day if you tend to 5 or 7.
And please, once you are out of debt you won't turn around and build up new balances. You deserve so much more. Let's assume you were paying about $300 a month to pay down your credit card debt. Once you're done with that, I want you to keep paying the $300 -- to yourself. If you invest $300 a month in a stock or stock fund that earns 10% you will have Approx $683,000 in 30 years.
Don't Mortgage your FUTURE
With interest rates near their historical lows - a 30-year fixed runs about 6% right now. Many of you have either bought your first home, refinanced to a lower mortgage or perhaps traded up to a new home. That's great stuff, but consider that even at these super-low rates you're still going to shell out massive amounts in interest over the life of a loan.
Mortgages are a "good" source of debt, in that you are ultimately building equity in a home. But you should still make every effort to pay it off fast to reduce your interest costs.
Some money-saving tips
First, shop smart for the right mortgage. 30 yrs fixed-rate mortgages are by far the most popular type of mortgage, but what's odd is that the average homeowner is spending just 5 or 6 years in a home before refinancing or moving. If that describes you, then checking out a Hybrid Adjustable Rate Mortgage (ARM) such as a 7/1. What this means is that you get in at a fixed rate for the first 7 years before the rate can be adjusted. Right now the average 7/1 charges a 4.7% interest rate, compared to 5.7% for a 30-year fixed.
On a $150,000 mortgage if you go for 30-year fixed than you have to pay $870.60 PM, and if you go for 4.7% that can mean $92 a month in savings, or nearly $8,000 over the first seven years.
Also don't get tempted by the bi-weekly mortgages lenders love to push. They cost about $300 to set up and you can be hit with a $5 service fee each month. That's just silly as far as I see it, since sending in one extra payment a year is the exact same thing as having a bi-weekly. (Here's the math: There are 52 weeks in a year; so a bi-weekly comes to 26 payments. That's the same as 13 monthly payments.)
And by all means, if for some reason you didn't jump on the refinancing bandwagon the last few years, please check into refinancing if your current mortgage is above 7%.
Next, if you're in a home you intend to stay in, let's get serious about paying off the mortgage. If you can manage just one extra mortgage payment a year you can cut a 30-year mortgage at 6% down to about 25 years and a 15 year mortgage will be paid off in 13 years. That translates into huge savings on the interest payments. And you'll avoid paying more than $35,000 in interest on the 30-year.
The most painless way to pull this off is to divide your current monthly payment by 12 and then send in that amount each month along with the regular amount. If your monthly mortgage is $1000 we're talking about an extra $83 bucks a month (remember that personal expenses reduction idea?).
Look into Refinancing if your current mortgage rate is 7% or higher. Use the Refinance Calculator to compute your savings.
Commit to one extra payment a year and shave thousands in interest costs. Use the Extra Payment calculator on Yahoo! Finance Mortgage Center.