Facebook Messages: Finding Money to Save/Reducing Debt
- America Saves Website: http://bit.ly/ASaves
Messages
- The best "investment" that most people can make is to pay off consumer debt with double-digit interest, such a balances owed on credit cards. For example, if you have a $3,000 credit card balance with an 18% annual percentage rate or APR, and pay minimum payments of 3% of the outstanding balance, it will take 14 years to pay it off. Add in accumulating interest, and you will pay $5,625 in interest charges! Become an American Saver at http://bit.ly/ASaves.
- Want to save money? Get out of debt. PowerPay creates a schedule to apply payments from paid off creditors to remaining debts, thereby saving repayment time and interest. For example, let's assume someone owes money to seven creditors and one of them is repaid. The former monthly payment is applied to debt owed to the remaining creditors. For further information about PowerPay, visit www.powerpay.org. To learn more about saving, visit: http://bit.ly/ASaves.
- Maintain a low debt-to-income ratio to "find" money to save. The total of monthly consumer debt payments (e.g., credit card, student loan, and car loan payments) should be 20% or less of monthly take-home (net) pay. Actually, 15% of take-home pay is even better because it gives you more "financial breathing room." Example: $275 of debt payments divided by $2,500 net pay equals a ratio of 11% (275 divided by 2,500). For more information: http://bit.ly/ASaves.
- Pay down debt with "windfalls" such as retroactive pay, an inheritance, or an income tax refund. Debt can be hard to pay off when you are just making minimum payments because the majority of the payment goes toward interest. Windfalls provide a nice chunk of change to apply toward reducing the amount owed. For information about saving money and repaying debt: http://bit.ly/ASaves.
- PowerPay your way out of debt. List your outstanding debts and the outstanding balance, monthly payment, and interest rate (e.g., 18% APR on a credit card) for each. Then visit www.powerpay.org to do a free online calculation of the time and interest savings that can be realized by accelerating debt repayment. As each debt is repaid, remaining ones receive larger payments until all debt is zeroed out. Then all this money can be saved. For more information: http://bit.ly/ASaves.
- Double your debt payments. According to the Credit Card Smarts calculator, minimum payments of 3% of the outstanding balance with a $2,000 balance on an 18% annual percentage rate (APR) credit card will cost $1,654 in interest and take 11 years to repay. Double the monthly payment to 6% of the balance and you'll save $1,042 in interest and six years of payments. For more information: http://bit.ly/ASaves.
- Think twice before adding a new debt to existing debt balances. Consider the impact on your cash flow. Can you afford a new monthly payment? Will a new debt "crowd out" money that you could put into savings? If you need to borrow money, shop around for a loan by comparing at least three potential lenders (e.g., banks and/or credit unions). Compare the fees and annual percentage rate (APR) charged by each lender. For more information: http://bit.ly/ASaves.
- Borrow as little as possible when buying a car. When car loan payments end, continue making the previous monthly payment to yourself to build up savings for a down payment for your next car. A large down payment can keep you from being "upside down." This is where you owe more than a car is worth. Also consider buying a "new used" car that is 2-3 years old with low mileage. Lower car payment = more money to save! Fo more information: http://bit.ly/ASaves.
- Know your "float." Carry a list of credit card billing cycle dates with you when youshop. This will help you select the credit card that provides the longest "float" time between the date of purchase and the date that credit payments are due. Having "float" makes it easier to earmark money from your paycheck or freelance income to pay credit card bills and avoid interest payments. For more information: http://bit.ly/ASaves.
- Save money by paying off high-cost debt (e.g., department store credit card bills with 20%+ annual percentage rates or APRs). Paying off an 21% APR retail store credit card is equivalent to earning a guaranteed, tax-free, 28% before-tax return for someone in the 25% tax bracket (28% x .25 = 7% and 28% – 7% = 21%). No other savings or investment product can make this claim. For more information: http://bit.ly/ASaves.