How to Smartly Cut Interest Expenses
If you make the majority of your purchases with your credit cards, you may have interest expenses. How can you smartly reduce interest expenses if you also have a mortgage on your home? The main question is to ask yourself how much are all these debts costing you.
Did you finance the purchase of your car with any loan?
I imagine so, and there is nothing really surprising in all this.
Indeed, this is the reality of many people who are like you.
In general, you have 3 major interest expenses in your daily consumption:
- your credit cards;
- your principal residence mortgage;
- personal loans and lines of credit.
Obviously, with each of these loans, you have different solutions to reduce your interest expenses smartly.
How to reduce your interest expenses intelligently with your credit card
Did you know it can take you up to 109 months to pay off a $5,000 balance on your credit card?
Absolutely. With a credit card at 20% interest, and if you only make your minimum payment of 2%, an amount of $100 per month, you will have this debt on your head for more than 9 years!
And during this time, you will also have to pay interest of more than $5800 in interest , more than your initial loan.
Your credit cards are known to be the worst way to get yourself into debt.
Interest rates are usually astronomical and the minimum payment to pay them back is very low.
This really encourages you to defer your debt over time, but above all, to pay a lot of interest that leads you to a situation of over-indebtedness.
If possible, your credit card should only be used as a payment method of last resort, especially if you are in this situation.
Also, to succeed in reducing your interest expenses intelligently, try to use credit cards that have low interest rates.
Some credit cards even charge rates as low as 1% for a certain period.
Why not use these types of cards to help lower your interest charges?
Visit the Protégez-vous website to help you choose the best credit card for your needs.
Your mortgage debt
You will agree that buying a house with cash these days without using a mortgage is virtually impossible.
Fortunately, for the past few years, interest rates have been very advantageous and allow access to property to a greater number of families.
However, pay attention to the future. You should plan for a possible increase in interest rates in your scenarios.
A mortgage of $200,000 at 3.5% interest over 25 years will require monthly payments of $1000 and the real cost of your house after 25 years will be $300,000.
On the other hand, if the rate increases to 6% one day, your monthly payments will no longer be the same. Quickly, they could now be $1,300 and the real cost of your house will climb to $385,000.
That’s an 85% increase in your interest expense!
There are 2 lessons you need to take away from these scenarios.
First, you should always plan for the impact of a possible increase in interest rates on your budget.
Second, you should always make sure you have the best mortgage interest rate available so you can reduce your interest expense wisely.
To do this, consult a mortgage broker. He is the best person to guide you in this area .
Succeed in reducing your interest expenses with your personal loans
Today, and more than ever, your financial institutions are trying to offer you multiple personal loans to purchase various consumer goods such as:
- a car;
- the motorbike;
- trips and vacations;
- make renovations to your home;
The lower interest rates of recent years make it easier to make decisions about your debt because the costs are low.
Without preventing you from making these various purchases, I suggest that you shop around for your rates and negotiate them. This is the best advice to reduce your interest expenses with this kind of debt.
It’s probably hard for you to imagine, but you can negotiate with these big financial institutions. If you lower your interest rate by just 1%, that can translate into savings of hundreds or thousands of dollars in your pocket.
What more can you do to reduce your interest expenses?
Of course, it is virtually impossible for you to survive in our society without using credit in one way or another.
The important thing for you is to know the risks and the real costs associated with it and above all, to know how to plan your budget well.
Know that over-indebtedness can affect you one day too.
Caution is required to avoid your financial troubles.
It’s the only thing more to do in my opinion. Pay attention to your purchases, stick to your budget and try to lower your interest costs as much as possible.