Buy Like Buffett: Ways to Quickly Achieve Debt Reduction
Debt is a problem that plagues the lives of most people. They struggle to pay down their debts while only making the minimum payment. Making the minimum payment alone can potentially keep a person in debt for 20 to 30 years or more. The best way to eradicate debt faster is to create a debt repayment plan that works.
Use these tips to slash your long term debt and interest payments.
Double up on your credit card payment
Credit card debt is one of the highest interest forms of debt out there. Home loans and auto loans typically have much lower interest rates than credit card loans. The average credit card interest rate is nearly 15%. You can get a 15% return on your money by paying down this balance. The easiest way to do this is to double up on your credit card payment. If your minimum payment is $50, send $100. If your minimum payment is $100, send $200. If you can't afford to double up, send 50% more. This will reduce your balance in no time.
Send an extra mortgage payment
A mortgage loan is the largest and longest loan that you will ever have in your entire life. It can take 30 years to pay off a traditional mortgage if you only send in the required payment. Sending in one extra payment a year will reduce your principal and can shave eight years off of your mortgage loan. You can either send in one extra payment a year or split your mortgage into biweekly payments. Instead of making 12 regular payments, you will end up making 26 half payments over a year. This amounts to one extra mortgage payments a year.
Send any extra cash to your automobile lending company
One of the good things about an auto loan is that you can send in the monthly payment anyway that you like. You can divide the payment up and make twice a month or weekly payments. Mortgage payments have to be made for the full amount. Twice a month payments make it easier to add a little extra to your payment. You can send an extra $100 a month or more and knock at least a year off of an auto loan.
All of these methods are designed to get you out of debt faster. You can increase the amount of money in your savings and retirement by paying down your debts faster.
Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.