The Importance of Reviewing Our Debts

Debt Reduction

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I'm a Financial Coach, NFEC-certified Financial Educator (CFEI), and café-con-leche fanatic with a passion to help CLOSE the gap in Financial Literacy through my business Wear Your Money Crown™. I am also a children’s author who loves sharing my culture and experiences through the power of stories.

HI, I'M ANNA!

With rising interest rates, we must be more vigilant than ever!


An important part of our financial wellness is understanding where we are in order to set the necessary GOALS to get us to where we want to be, this includes taking action and REVIEWING OUR DEBTS frequently.

You see, if you have a mortgage, credit card, and/or personal loan you will be charged INTEREST by the lender and with interest rates going up as central banks fight inflation, you must be mindful as your monthly payments may increase.

However, depending on your circumstances, you may be able to REDUCE the amount of interest you are charged and therefore the amount you pay monthly.

In this article, we are going to be focusing on a few main ways that you can lower your monthly mortgage and/or credit card payments.

Let’s dive in!

MORTGAGES:

There are various ways in which you can save money on your mortgage. However, it usually involves one of two things:

1. Refinancing (remortgaging)
2. Making extra payments towards the principle balance

Of these two options, I want to focus on REFINANCING because it is a “hot” topic at the moment. I will cover the bit about making extra payments in a future blog post.

What does Refinancing mean?

Refinancing your mortgage is when you basically take out a NEW LOAN to pay off what you owe (balance). The goal is to have a new smaller monthly payment.

What I’m going to say next may seem “obvious” to many, but I’ll say it anyway…

Friends, be aware that rates are on the RISE, so refinancing ONLY makes sense if it will actually SAVE you money.

IMPROVED CREDIT:

For instance, in the current environment it may make sense to refinance your home if your CREDIT has improved significantly. This is because the better your credit, the lower interest you will be charged on your loan.

In fact, a strong credit score may end up saving you thousands of dollars (or pounds) a year in mortgage interest.

If you think this may be your situation, I want you to go check out your credit report & scores.

You can request a free copy of your credit report from all three major credit reporting agencies (known in the UK as credit reference agencies) – Experian, Equifax, and TransUnion – by contacting them directly or if based in the USA by going to https://www.annualcreditreport.com/index.action.

Also, keep in mind that no matter where you live, many credit card issuers and banks offer FREE access to your credit score online and/or via their mobile apps, making it easy peasy.

IMPROVED LTV:

Another potential reason you may look to refinance is if your HOME VALUE has increased, as this may lower your LOAN-TO-VALUE (LTV).

LTV is the financial ratio which compares the size of your mortgage relative to the value of your property.

You can simply calculate your LTV by dividing the amount you still owe on your mortgage by the property’s current value. For instance, if you had a mortgage outstanding of $200,000 and your house was worth $350,000, that’s a 57.1% LTV.

There are many FREE LTV CALCULATORS available online, which you can use (literally just google “free mortgage LTV calculators”. Or check out this one from goodcalculators.com which allows you to input different currencies: https://goodcalculators.com/ltv-loan-to-value-calculator/.

Why does an improved LTV matter?

The LOWER your LTV = the more equity you have in your property = less risk for the lender if you default = lower interest rate you will be charged when remortgaging/refinancing.

Anna Orenstein-Cardona

Separately, you may look to refinance your mortgage if you are on a variable mortgage and wish to secure a fixed-rate one for peace of mind.

However, keep in mind that REFINANCING may NOT make sense if:

1. You have a prepayment penalty, so make sure to check out if you do. If that is the case, it may be worth asking your lender if they would waive it.

2. You have an existing HEL (home equity loan) – speak with your lender to figure out options.

3. Fees are too high! Refinancing a mortgage can be expensive, so keep ALL the fees in mind (mortgage application fee, origination fee, appraisal fee, etc)

4. You don’t have many years of payments left! This is a BIG one. Remember, when we have a mortgage, usually in the early years, most of our payments go to cover the INTEREST and only later on does it focus on the PRINCIPAL. However, when you refinance this all starts again!

👑 Reminder: As always, you must do your research and read the FINE PRINT. There are many options available out there when it comes to refinancing/remortgaging, but you must choose the option that makes sense to YOU and your personal situation. One of the best ways to find clarity is by speaking to a mortgage professional and/or mortgage brokerage that specializes in your region.

CREDIT CARDS:

In some cases, a simple way to reduce the monthly cost of your credit card payments is by doing a BALANCE TRANSFER.

A balance transfer is when you move your credit card balance from one provider to another for an INTEREST-FREE period.

I want to highlight something VERY important.

This ONLY works if you are focused on clearing your debt during the 0% interest period and are committed to NOT adding more debt.

I mean it!

There is no point to do a balance transfer if you keep accumulating further debt.

IF you are 100% certain that you set yourself some strong boundaries to avoid using that card for new expenses, then a balance transfer could make sense for you.

That said, I’d like you to keep the following TIPS in mind:

1. Research the different types of balance transfer credit cards to understand which one you qualify for and which may suit you best.

2. Clarify if there are any fees to transfer balances and what they are (I’d rather you aim for a card that has ZERO transfer balance fees but that isn’t always possible).

3. Make sure to be clear on the end date for the 0% interest period and set yourself a solid BUDGET to pay down the debt within that timeframe.

4. Find out what the interest rate will be once the 0% interest period ends. Again, the goal is to pay the debt beforehand, but we should alway have a PLAN B when looking at our personal finances.

5. Don’t use the card for new expenses. Period. Do NOT add further debt to it.

👑 Reminder: If you do not want to do a balance transfer, you can call your current provider and try to negotiate a reduction in your current % rate. Another consideration could be to take out a personal loan in order to pay your current credit card debt, given that the interest rate will be likely be MUCH lower.

Friends, remember that by understanding our current debts and financial health that we can take the necessary plans to reduce them.

It’s all about taking ACTION.

From my crown to yours, I salute you!

XOXO,

Anna

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GET MY FREE GUIDE TO FINANCIAL HEALTH!

Download my Top Tips for Financial Health guide and start ruling your finances today!

GET THE GUIDE

I'm a Financial Coach, NFEC-certified Financial Educator (CFEI), and café-con-leche fanatic with a passion to help CLOSE the gap in Financial Literacy through my business Wear Your Money Crown™. I am also a children’s author who loves sharing my culture and experiences through the power of stories.

HI, I'M ANNA!

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