The Road to Becoming Interest Free
July 10, 2018
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U.S. consumers pay millions in interest daily. Mortgage loans, personal loans, home equity loans, auto loans, credit cards, and of course student loans.
We make monthly, affordable payments to these products each month and in turn some of us pay hundreds if not thousands in interest each year.
How much do you pay in interest every month on you mortgage, credit card, student loan, home equity, or auto loan? These are numbers we need to be looking at.
This is your challenge and goal for today to look at each of your interest bearing accounts and tally up the interest to find out what you’re paying on a monthly and annual basis. Heck, why not just calculate it out for the remaining terms if you’re really feeling challenged.
I can say for myself with having just student loans, a mortgage, and auto loans in the past, I have paid thousands in interest over the years.
I wish I could say I knew what my monthly mortgage interest payment was off the top of my head. I needed to login while writing this to jog my memory. $600 a month. What could you do with $600 a month? That’s with a very competitive interest rate.
Say my interest payment stays about the same for the next year. So I still pay roughly $600 a month the next 12 months in interest for my mortgage. That is $7,200 I am paying just in the next year only. That doesn’t include the 27 years I have left on my term.
What do you get for all that interest? Time to pay. Why do you need time to pay? Because you didn’t have all the money upfront to pay for what you needed or you chose not to put additional money down.
Yes, I know this is the American way.
I want to help you think outside of the box to maximize your savings. And if you can cut down on any of the interest, do it!
Saving money is not just about putting money in a bank account and letting it accumulate small amounts of interest. It’s finding ways in your everyday life you can save on what you need or want.
Do you really want to be paying potentially thousands in interest for time? I know there is not always lots of options when it comes to student loans and mortgages. And it’s very common to get a mortgage when you want to buy a house unless you saved up.
Here are my top tips for getting out from under all that interest.
Finding lower rates
Yes, this is essentially refinancing. You don’t have to stay in the interest rate that you got when you originated your loan unless of course you already have the lowest rate available.
It doesn’t have to be overwhelming. Start with your biggest balances like your house, then move on to smaller balances like your equity loan, student loan(s), then car(s).
If you don’t want to do that approach, start with your highest interest rate and work your way down.
However you decide to start refinancing, it will make a difference and that is what matters.
The lower you initially spend when getting your loan or making purchases on your credit cards, the better you will be. Always be thinking about how this purchase will affect you long term.
To keep that student loan at a minimum, try living on campus, going to school in-state, bunking with roommates, or attending a community college for the first couple years.
If you are doing a home equity loan, get at least three quotes from various contractors. If buying a car or house, be certain to negotiate. For a house specifically, don’t spend up to your max budget which isn’t as easy as it sounds.
I love credit cards because of rewards, but there was a time I wouldn’t have always said, “I love credit cards…”. My thoughts are they are great to have if you pay them off every month and reap the rewards.
If you can’t pay them off every month, then I really don’t suggest having them. There is talk with credit cards you spend more than you would if you were to use cash. I definitely think there is some truth to that.
However, I think you need to be conscious of that every time you spend money whether you use cash or credit card.
Think of alternative options
This may require some creativity!
When it comes to college, you have scholarships you can take advantage of instead of taking out a full loan. Parents or grandparents may help with the bill and require little to no interest when paying them back. And yes, you should pay them back.
For a home equity loan, try separating out certain jobs. For example, some flooring and window companies will offer their own 0% financing for a set term. Look at individual companies in your area for the projects you want to tackle and see if it is a possibility to get 0% financing.
Tip: Always apply for a home equity prior to applying for smaller, individual credit cards. Also, try to avoid applying for other products while your loan application is in progress. This will help to ensure your credit is clear and the application doesn’t present a risk to the creditor.
You don’t have to keep that mortgage for 30 years or student loans for 20 years, or auto loans for 6 years. You can get rid of them earlier! As soon as a balance starts to get lower, I’m itching to pay it off and get rid of it.
When the balance is within a couple thousand, I’ll come up with a strategy like using a tax refund to pay it off or an extra check on a biweekly pay schedule. I’m sure you can think of many more. Be creative!
You may ask yourself why am I paying all this interest? Well, it’s simple. We fulfill our wants and needs with what we are taught to do and what we see others doing.
Is the road to interest free possible? Yes, of course it is. As consumers, we tend to want more and that is where we will always continue to pay interest. Our paid off car is getting older, I’d like to “update” the house, or I want a vacation home. The list goes on…
I hope you found this helpful and maybe I caught you in time for your next big purchase. 🙂
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