Your Debt Threat

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Nobody likes to feel that they are drowning in debt, yet, sadly, all too many people are faced with that feeling every waking hour of their day. A struggling economy certainly doesn’t help the situation. You may feel as though you are at the end of your rope with little hope, but don’t despair. There is good news out there. There are debt relief consolidation solutions available to you. Once you start looking at the various solutions available to you, you will see that they typically fall into three main categories: balance transfers, credit counseling agencies and consolidation loans. Let’s take a closer look at each of these.

Balance transfers are normally used for credit card debt. The card companies will lure you in with a low rate for any balances you transfer from another card. they do this because they would rather get some of your money than none of it.

At first, this can sound like a great choice. After all, if you can transfer your balances from a card charging 19% interest to one charging only 5%, you could save thousands of dollars over the life of the debt. You have to be careful, though, and read the fine print. The lowest rates are usually good for a few months, and then you will be charged the regular rate, which may be higher than what you’re paying now. that doesn’t mean balance transfers are a bad form of debt relief consolidation, it just means you have to pay attention to all of the terms.

Credit counseling agencies do things a bit differently. They do not give you a loan of any kind. Instead, they will work with the people you owe money to, to give you better rates, forgive late fees, or otherwise reduce the amount you owe. It is best to go with a well-respected agency, as they will tend to have more clout with the bigger creditors.

Once they have made the arrangements, they will present you with a detailed plan of what those arrangements are. You will then either honor them yourself, or send the credit counseling agency the full amount. When doing the latter, the agency will allocate the money you send in as per each agreement they have made. Most will charge a fee of some kind, but this will almost always be much lower than the next option.

Debt consolidation loans are usually taken out in one lump sum to cover all of the debt owed to various creditors. The problem is that the very fact that you need some form of debt relief consolidation means you are a higher risk borrower, which translates into higher interest rates. It can also make it difficult to find a lender, but with some perseverance you should be able to find one that meets your needs. However, this is a major loan, and you have to be extra careful that you read and understand all of the terms of the loan. Regardless of what you choose, the one thing to keep in mind is that you want to pay less than you are now.

The mortgage debt elimination process that we’re going to share with you will, without a doubt, put you on the right path towards eliminating your mortgage payment. Once you begin putting these strategies to use, you’ll be much happier as you rid yourself of that burdensome debt.

Adjustable Rate Mortgages – ARM’s

If you get into an ARM, you’re opening yourself up to higher monthly house payments since ARM interest rates are not fixed.

Basically, the interest rate you pay on ARM’s resets at a “higher” rate in a short period of time (generally 1, 3 or 5 years). As a result, your monthly mortgage payments will skyrocket.

It’s very sad to see so many people that are struggling with these increased payments after their ARM resets; many to the point of losing their homes.

Fixed Rate Mortgages

You’ll find that a fixed rate mortgage is a better option then an ARM. In fact, you’ll find the vast majority of mortgages out there are 30-year fixed rate mortgages.

The problem with the 30-year fixed is it will literally eat a hole in your pocketbook. This is because 30-year notes will cost you hundreds of thousands of dollars in interest payments. In fact, mortgage companies love 30-year mortgages because they make them rich.

Your monthly mortgage payments are based on an amortization schedule where your monthly payment is made up of both interest and principal. Since the principal portion of your monthly payment is what reduces your mortgage balance, the great majority of your payment is “not” paying down your mortgage debt because most of this payment is being allocated towards interest.

Prepayment Penalty Clause And Mortgage Debt Elimination

You’ll want to make sure your existing mortgage does not have a prepayment penalty clause in it. A prepayment penalty is a fee assessed by the mortgage lender on the borrower who prepays all or part of the principal of the mortgage loan before it’s due.

A great many conventional mortgage loans do not contain a prepayment clause. However, depending on the lender you’re dealing with, some do. So, it’s prudent to ensure that you don’t have to deal with this clause in the event you want to accelerate your mortgage payments.

Extra Principal Payments

This mortgage debt elimination technique gives you the option to make extra principal payments towards your mortgage loan which will enable you to pay off your mortgage substantially faster. You also have the added benefit of saving several thousands of dollars in interest payments my using this method.

Starting at payment 1, you can pay off your mortgage in half the time by simply paying your regular mortgage payment plus “just” the principal amount of payment 2. By doing this you’ve basically made two payments and just avoided the payment 2 interest payment.

Another way to look at this is you’ve paid off the principal twice as fast. Because you are paying double the principal, you’re jumping down the amortization schedule two months at a time; or twice as fast.

For the second mortgage payment, you skip down to payment 3 where you’ll pay your full monthly mortgage payment plus the extra principal from payment 4; and you continue on from there.   

What’s nice about this mortgage debt elimination method is its flexibility. If you only have $25, $50, $100 for example to put toward extra principal payments, by all means you should do so. You’ll still get your mortgage debt paid off faster and save thousands of dollars in interest payments.

Refinance To A Lower Rate

This is another excellent mortgage debt elimination strategy that can certainly benefit you. To figure out whether it’s in your best interest to refinance, you need to calculate your break-even point.

The break-even point is the time it takes to make up in monthly savings (had you refinanced at a lower rate) what you paid in fees to do the refi. You can calculate your break even by simply dividing the mortgage fees by the monthly savings.

For instance, let’s say you would save $100 a month by refinancing, and the refi closing costs would be $3,000. Your break-even point is 30 months from now: the $3,000 in fees divided by the $100 a month in savings.

Whether or not to refi comes down to how long you plan on living in the house you’re considering doing the refi on. For example, if you expect to continue living in the house for more than two-and-a-half years, you’ll save money in the long run by refinancing.

But, if you plan to sell the house before then, you’re better off staying with the mortgage you have.

The 15-Year Fixed Loan

This is an excellent mortgage debt elimination strategy because with the 15-year fixed, the equity in your home is growing much faster than it would with a 30-year fixed. This is because the 15-year fixed puts the time value of money on your side.

In other words, you’re having your monthly mortgage payments weighted more towards principal, enabling you to pay yourself by quickly increasing your equity instead of overpaying interest to the mortgage company through a 30-year fixed.

Invest In An Index Mutual Fund

This is a fantastic mortgage debt elimination method; but it requires discipline on your part. Using this strategy, you would invest your extra mortgage principal payments into a no load index mutual fund.

This strategy depends on your time horizon because stock mutual funds are a longer-term investment strategy. But we’ve got to tell you that historical returns on these index funds have averaged 11%.

Compare the 11% to your mortgage interest rate, and you can see why this is a great strategy.

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