A big thanks to Edwin at Debt Syndrome for putting together this guest post for Finance Footing.
Every time you turn around, it feels like you owe somebody else money.
$20 here or $100 there but the interest keeps adding up. If you’re like most people, you’re looking for a way to lower your interest and put more coin back into your pocket.
Here are a few ideas you might not have tried before.
Refinance With Credit Cards
Most people know that refinancing their debt can save them a bunch of money. But most people overlook refinancing a credit card balance. If you can get your hands on a zero percent interest card, then you can drop your interest rate to 0%.
Of course, this sounds easier than it is. You do need to have decent credit for this to work. But introductory rates are not impossible to get. Even if you only get 12 months of interest-free financing, that may give you enough time to pay off the entire balance of the debt.
An alternative to 0% rates is an introductory rate that lets you defer payments or carries a lower rate than what you’re paying now. For example, even if your normal interest rate is 17%, lowering your credit card rate to 7% or 3% percent would still save you a ton of money.
Put More Down On Your Loan
If you put more down on a loan, you’ll get better financing terms. Most people intuitively understand this, but few actually do it.
Buck the trend. Put at least 20% down on your next loan and negotiate for a lower rate. Watch what happens.
The more you put down, the bigger the benefits. If you put 50% down, you may be able to get a ridiculously low APR.
Overpay and Refinance
If you make extra payments against your loan, you will pay it down faster. But many people don’t realize they can refinance their loan mid-way through repayment
If you are carrying a large debt, like a home mortgage or a car loan, you can work the principal down to half of the original loan amount.
Then you can refinance it and save yourself even more money.
How does this work?
When you start out with $20,000 and you pay it down to $10,000 and refinance, your new loan amount is $10,000. You’re no longer get charged interest on the $20,000.
As a result, you save yourself interest on the other $10,000 that you originally took out. It’s a no-brainer.
In order for this to work you do have to have decent credit. If you start missing payments, your lender isn’t likely to give you a refinance unless you break out some serious negotiation skills.
A couple of missed payments on a mortgage loan may not be a big deal. But, for a car loan, it probably is.
Nip Trailing Interest In The Bud
This is interest that accrues on an existing balance between the time you get your statement and the time your lender receives payment.
This is a problem with credit cards, home equity lines, a business loan or any revolving line of credit but not fixed loans.
You might not even be aware that this is happening if you don’t normally carry a balance on a charge account. The way to ride round this problem is to call your lender or card issuer and have them calculate the amount due on the day you call. Get them to give you a “payoff amount” that is good for at least 7 days, preferably 15.
This is the true balance you owe.
Note that the amount you owe will change as the date moves. So, for example, if you have taken out an automobile loan, the final amount you owe will change based on the date the lender receives the money you owe.
So, if you get a 5 day payoff, it will be different from a 15 day payoff amount.
As soon as you get the payoff amount, send in your payment. Choose the quickest method possible. If you mail in payment, pay for a certified letter so you know when the lender receives the payment. And, don’t let the lender spin a yarn about not being able to apply the payment “on time” or not receiving the payment.
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