By John R. Schneider, III & David Auten
Interest rates compound on themselves and the reverse savings and investing make is harder to become debt free. As a leading concern for the queer community, here’s what can be done to lower the cost of debt and become debt free faster.
We were paying about $10,000 a year on interest payments on $51,000 worth of credit card debt. That’s a few nice vacations a year, 400 $25 bottles of wine a year or 33 pairs of $300 jeans.
When we paid off that debt, we essentially gave ourselves a $10,000 raise. We mostly used the Debt Lasso below to stop paying high interest payments and put that savings towards our debt.
Lassoing credit card debt
The Debt Lasso wrangles your interest rates down as low as possible, ideally 0%. Negotiating a lower interest rate on existing debt is possible, but hard. That’s why the second and most productive Debt Lasso step for credit cards is maximizing 0% interest rate promotions.
We first contacted all our credit card companies to lower our interest rates. Some agreed, even if it took some convincing.
Next, we took advantage of 0% interest rate credit card promotions with no annual fees. When we found such offers, we’d calculate the cost and consequences of a balance transfer. This meant reading a lot of fine print and understanding what we read.
Most 0% interest rate credit card promotions last between six and 18 months. We chose the longer terms to minimize balance transfer fees. Then, we hustled to pay off our debt as fast as possible. When one card was paid off, we put more money towards our remaining debt and repeated this until we were debt free.
Refinancing car loans
There are many reasons to refinance your car loan. The first is if today’s rates are lower than your current rate. Another is if your credit score has improved since you took out your loan.
To refinance car a loan, use a credit union. When we decided to pay off our two car loans, we looked everywhere for better rates and terms and nothing beat credit unions.
The credit unions we talked with were more interested in our personal situation and goals than banks were. Also, the credit unions were open to consolidating two loans into one.
Refinancing mortgage debt
Refinancing mortgage debt makes sense under certain conditions. People too often refinance mortgage debt and lower their month-to-month payments but pay more because of extended terms. Likewise, refinance fees can make refinancing mortgage debt cost-prohibitive.
With rates at historic lows for the last decade, only refinance mortgage debt if the refinance fees make sense and you can keep your term less than 15 years.
Once you’re debt free, don’t go into debt again. When we first paid off our $51,000 of debt, we went through a couple spells when we got into debt again – not $51,000 worth – but it took a few tries to stay 100% debt free.
Become debt free and stay debt free.