MONITORING AND MODIFYING YOUR BUDGET

In addition to paying off your high-interest debts, you may also be able to fnd lower-interest debts to help you get out of debt faster. The following are some sources of cheaper debt.

How often do you get offers for credit cards with really low interest rates? Probably almost daily. If you've never taken advantage of these low rates (or you took advantage of them and just ran up more debt, it may be time for you to look at these offers again. Use the form supplied with the offer to transfer balances to the lower-interest account.

Of course, these reduced rates are usually for a limited time only (usually around six months if it's too short a time, look for a better offer), so check the offer to make sure that the post-hot-deal interest rate isn't higher than what you're paying now. But if the rate after the introductory ofer is the same or lower than what you're currently paying, you'll come out ahead even if you can't pay off the whole thing during the trial period.

In addition, some credit cards have a regular interest rate that's lower than the rate on the majority of cards. If you don't have a brochure for a great deal on a new credit card, you can research some of the better rates available. Just make sure to find out what the procedure is for transferring balances to the new cards otherwise you'll be unable to use your budget to pay your debts.

Home-equity loans are among the most attractive of debt vehicles because the interest rate—sometimes 10 percent or lower—is more reasonable than that for most credit cards. In addition, the interest charges on home equity loans may be deductible for tax purposes, depending on your personal situation.
The catch, of course, is that your house becomes collateral for the loan; if you default, you can be forced to sell your home to satisfy the debt. In that situation, most loan agreements specify that the loan be paid off before you receive any proceeds that may remain. Thus, if you default here, you could be without your domicile and without any immediate cash to show for it. That’s known as a bad day. Think twice about a home-equity loan if you envision any problem with payments.

The equity you invest in your home is a valuable resource. It can finance improvements to your current domicile, increasing its value, and it can be the means for a down payment on your next home. These are excellent uses of equity that have major benefits down the road. The bottom line on home equity loans is that they can be used as original debt or to help pay off existing debt, much as a debt-consolidation loan. What do you do with your credit cards once you’ve paid off the debt? See the preceding section for “desist and destroy” instructions.

The faster you get out of debt, the less you pay in overall finance charges. In addition, as money is freed up and available for investment, it will be working productively for you. The idea of reducing your monthly payment or payments can be seductive, but if you’re forced to continue making those payments month after month, what have you gained? If you decide to consolidate your debt, don’t be lured by the fool’s gold of low monthly payments; be concerned instead about how quickly you can get your debt paid off.

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