Posts Tagged ‘mortgage interest’

HOW TO BECOME DEBT-FREE

If you become debt-free, you can save hundreds of thousands of dollars in interest payments over your lifetime and therefore have much more money to do those things you really want to do.  If you agree, how do you actually go about becoming debt-free?  That’s what this post is about.

Many people, including those with very high incomes, are simply conduits for money, receiving it and spending it, none of it staying with them after paying all of their expenses each month. Wealth is the money you have in the bank and in investments and other assets.  A high income can speed up your journey to wealth but only if you handle your money prudently.  However, most people that have accumulated wealth have average, or lower, incomes; basically their wealth came mostly from the appreciation of their home.  

One of the quickest routes to becoming poor is throwing your money away on credit card interest.  Therefore, one of the best investments you can make (for saving 8% to 30% interest every month) with little effort and with no financial training or education is to pay off your credit cards.  So before you invest money at today’s  pitiful rates, consider putting money you’d like to invest towards paying down and ultimately paying off your credit cards, starting with the highest interest rate card first.  Where do you find the money to do that?  You need to find an extra 10% of your income to then devote solely for paying down your debt each month.

After paying off your credit cards, focus on paying off your mortgage.  Since today’s mortgage interest rates are so low, why pay off a mortgage?  If you get from your bank a copy of the payoff schedule for your mortgage loan and compare  the principle of your mortgage loan against the interest due each month, you’ll see that even a small mortgage interest rate results in interest being most of each month’s mortgage payment, basically because you pay interest on the entire mortgage loan.  A relatively easy way to pay off your mortgage much faster is to pay at least an extra $100 or more towards your mortgage principle each month.

Finally, since most new cars depreciate by about 50% in only 3 years after purchase, you can save a huge amount of money by either buying used cars, or if you buy new ones, keep the car until it would cost more to fix it than the car is worth. I usually buy cars 8-10 years old.  Before the advent of cell phones, an older car could get you stuck in the middle of nowhere if it broke down.  But with an AAA card and a cell phone, you should be fine, unless your car ever breaks down in a bad neighborhood.  Moreover, older cars are generally safer than newer cars since older cars are much heavier than newer cars (that’s primarily how newer cars get better gas mileage).

For those with children going to college,  think seriously about your state college and compare its in-state tuition with tuition of other colleges.  Money should be borrowed only as a last resort with your overall financial goal being to live within your means.  Living within your means is not a goal in-and-of itself.  Living within your means is important in that it enables you to do those things that you wouldn’t otherwise be able to do because you couldn’t afford to because you’re not wasting money on needless interest.

Because I didn’t have a mortgage, for example, I had the funds to achieve one of my passions while living in Denver, Colorado: trap, neuter and return (TNR) about 100 cats (in accordance with the nationwide TNR program), maintain a  “come-and-go-as-you-please” cat shelter for feral cats, put out food and water for 30+ cats and a few dogs/day, and adopt and take care of 10 homeless stray cats, for a total cost of $5-10,000/year.

Whatever your hobby or passion, you’ll be much better able to pursue it if you are debt-free, as well as retire one day without being forced to live in near-poverty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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