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Debt Paying Tips

 
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GnarShredd
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PostPosted: May 04, 2010 12:52 pm    Post subject: Debt Paying Tips Reply with quote

Does anyone have any helpful tips on paying down debts? I'm looking for kind of the not-so-obvious stuff that comes from experience (because yes, I CAN use google).

I've got a couple student loans and of course my mortgage. No credit cards except for a Lowes store card with a really low balance that I'll pay off this month. I do everything in cash since I know if I get a credit card It'll just be an extra thing that I might forget to pay at the end of the month.

Thanks in advance!
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pet575
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PostPosted: May 05, 2010 7:41 am    Post subject: Reply with quote

My practice has been to budget out what I can afford to pay extra while also making an actual difference. For example, if I can only afford to pay $100 extra on my mortgage then that is $1,200 K per year off the principle and that is significant enough to do. But, if I can afford to make $800 or $1000 extra then that is when it becomes a lot more meaningful and useful to do. I guess what I'm saying is, paying an extra $25/month on a LARGE balance like a mortgage or student loans doesn't amount to much so make sure you've got enough to make a dent.

So, once I make that determination, I set up a budget in which my mortgage/student loan payment is listed as whatever it is + the amount extra I want to pay. So, if it were $350 and I wanted to pay an extra $800, I'm listing it in my budget as $1,150 and it never changes. This helps me have the discipline to do it every month instead of saying, "Oh, I'll just not pay extra this month and will do it next month." That strategy NEVER works because "next month" usually never arrives.

In my mind, it is all about laying out your plan and having the discipline to follow the plan. Kinda like setting your clock 5 minutes fast and then living by it v. setting the clock and then always thinking, "I've still got 5 more minutes." From experience, the discipline is the most difficult part of it. I pretty much have to fool myself into thinking that the loan payment is really $1,150 instead of $350.

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Red57Bird
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PostPosted: May 05, 2010 11:31 am    Post subject: Reply with quote

Although I carry very little debt, when I was younger I used two financial strategies that worked for me.

First, live well below your means. When I moved to Florida years ago, my income tripled for the 3-4 years I lived there. I could have afforded a big house, country club membership, a boat, new car, etc. Instead I bought a small, but nice house with 1st time home buyers money, drove the same Honda Accord, went out on my friend's boat (and paid for all the gas), and saved the rest.

Second, when I get yearly raises I would automatically increase my 401K contribution by the same amount. I eventually maxed out my contribution but it helped me build a nice sum to use for retirement.

Bottom line, only spend what you have while keeping an eye out for your financial future.

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Wakebrad
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PostPosted: May 05, 2010 1:38 pm    Post subject: Reply with quote

GnarShredd, what debt are you trying to pay down if you don't have CC debt? Your house and your student loans?

If that's the case I would look into the interest rates your paying on them. They are typically pretty low. I don't pay my mortgage down because I can make more interest on my money than I could by paying it lower at a tax deductible 5%.

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pet575
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PostPosted: May 06, 2010 9:16 am    Post subject: Reply with quote

Good point by Wakebrad re: interest rate comparisons. Also forgot to mention that I also follow Red57Bird's 401(k) practice with each raise I get.

And living below your means is absolutely a great idea for making a dent in debt.

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GnarShredd
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PostPosted: May 06, 2010 9:48 am    Post subject: Reply with quote

Wakebrad, Yeah, I'm not so worried about my mortgage. Just kind of wanted to get rid of my student loan debt if I could. I'm going back to school when I feel like I can afford it (hopefully soon) and I just don't want things to stack up too much. Do you find it better to just add to student loans rather than waiting a bit until paying down the existing ones?

My plan was to just start putting a little more each month in to the one that has the highest rate and work down the line from there. Just wasn't sure if that was something I should actually persue right now or not.

I'm already making 401k contributions so I'll have that in the future but of course I'm young and dumb and just want to be able to afford fun stuff now (just a new kiteboard, is that too much to ask? Cool )
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brew
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PostPosted: May 09, 2010 5:38 am    Post subject: Reply with quote

If you're looking at going back to shool, I would set aside the money you are talking about paying additional on the loans and try and pay for a portion of the school. Keep paying the outstanding loans as you are, but put a little back for the next round of schooling.
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imshirazy
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Joined: 01 Jul 2008
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PostPosted: May 18, 2010 2:20 pm    Post subject: Reply with quote

I always feel as though I notice threads in this section a little late..
Anyways, here's a bunch of great tips on paying off your loan.

1.) Paying biweekly on a mortgage significantly reduces the maturity by decreasing compounding. For example lets say you owe $600/mo on a mortgage, by paying $300 biweekly (yes, the same you'd be paying anyway), you actually cut the compounding completely halfway through the month, which can cut your mortgage 8 - 9 years down on a 30 year mortgage. Paying biweekly also adds a half payment per year. Now if just splitting your normal payments works so well, imagine if you add a few extra dollars to each biweekly payment. (this will also work on student loans)

2.) Refinancing is a wonderful thing. Mortgage rates have hit record lows (currently 4.875 for a 30 year). If you can afford to (considering closing costs etc) then it can be a good thing. But, if closing costs are too much to be worth it, make sure you are aware, then don't do it.

3.) Consolidation is key. A lot of agencies will offer to pay off all your debt for you, in turn for paying back just one loan to them that is the equivalent of all your old loans. Sometimes the rates on these are lower than what you would pay on a credit card for example, or even a car loan. Make sure you do look at the rates, though, I have yet to see a rate lower than the rate of a mortgage.

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