You can have a huge impact on your finances by taking some very small steps with your debt.
Warren Buffet called compound interest the “eighth wonder of the world” because it can make a huge difference in how much you pay…or how much you make.
A 1% difference in APR (annual percentage rate or interest rate) can make more than $50,000 difference on a 30 year $250,000 loan.
What could you do with that extra $50,000?
Even though credit cards tend to have lower balances, they can have a much larger impact on your savings because the APRs can easily be 25-30%. You can find out the total cost by running the numbers through an online mortgage calculator.
Action steps:
1. Find out your interest rates on every debt you have. Write them down.
2. Call your creditors. Ask if there are any options for lowering the interest rate.
3. Run the math. Especially when it comes to mortgages, make sure the cost of reducing the interest rate more than offsets any fees involved.
4. Think outside the box. You may be able to borrow money at a lower rate and pay off high interest loans and credit. Just make sure you have a system in place to ensure you will not run the balances back up on any credit cards you pay off. You do not necessarily want to close the accounts, but you may want to consider ways to make it less convenient to use them or work on the mindset/beliefs that caused the high debt to begin with.
5. Be strategic. Focus on paying off the debts that have the biggest impact in your life. This may be mental (you love the “high” of paying a debt off so you start with the smallest), mathematical (paying off the one that is costing you the most in interest), or whatever works for you.