Retiring early is a dream of many. However, one of the keys to being able to retire early is to limit expenses and get rid of debt. Once someone is debt free, he can get by with a lot less money. When people make the commitment to pay down debt, they often make tremendous progress in the beginning.
They start by selling things and funneling any extra money on the debt. However, as is frequently the case, after a few months the debt repayment slows down because there aren’t any more things to sell and all of the extra money has already been applied to debts.
If you find yourself in this position, here are some steps you can take to generate more money for your debt repayment:
1. Refinance your home. If you took out a home loan a few years ago, chances are you can likely get a lower interest rate now. Talk to a reputable company like Newcastle Permanent or another bank in your area to determine what interest rate you qualify for.
Remember, when deciding if it is worthwhile to refinance, you need to determine your closing costs. These can often run 3 to 6% of the remaining balance on your loan, so you should get a fairly significant interest rate reduction (1% or greater), to be able to justify the expense of refinancing.
However, refinancing will likely give you a lower monthly mortgage payment, and you’ll be able to apply the difference on your outstanding debts.
2. Transfer balances to 0% cards. If you have credit card debt, you don’t need to have me tell you how high the interest rates can be. If you’re lucky, you are paying 9 or 10% APR. If you’re not so lucky, you are looking at paying an APR of 14% or more.
Instead of paying this high rate, shop around for a card that offers a 0% APR on balance transfers. You will need to pay a transfer fee (usually about 3% of the total transfer amount), but you’ll usually recoup that in a few months by paying no interest. Continue to make your regular payment or more, and all of that money will go straight to the principal so you can pay it down faster.
3. Consider a consolidation loan. Your local bank may offer a consolidation loan; you can transfer some or all of your debt into one loan and pay a flat monthly rate. These loans usually have lower interest rates than credit cards, and you’ll have a set period in which to pay them off, usually 3 years or so. With a set date, you can see the end in sight and look forward to a time when you will be debt free.
Be careful with a consolidation loan, though. Some people consolidate and then run up their credit cards again, which puts them in a bigger financial bind.
If you want to retire early or you just want to be debt free, try some of these strategies to help you create more money to get out of debt faster.
photo credit: flickr Alan Cleaver