Children, College, Debt, Family, Investing, Saving

September 29, 2016

It's human nature to think that making money entails investing in the stock market, bond market or real estate. But another important way to boost your net worth is to pay down your debts.

And right now is a fantastic time to focus on debt reduction. Because the Federal Reserve is moving ever so cautiously to raise its target rates, we have still yet to see any substantive rise in the variable rates charged on credit cards. That won’t be forever. At the same time, I bet your credit profile is now higher than it was a few years ago if you were struggling with a layoff during the recession. Or maybe you got a raise recently, or might be in line for a year-end bonus. That gives you some options for making a serious dent in your credit card debt.

• Use Extra Cash to Boost Your Payment. If you are paying 14% or more interest on credit card debt, using a raise or bonus to chip away at the balance is the best use of that money. There is no investment that can deliver you a guaranteed 14% return pronto. But that’s exactly what you get when you wipe out a credit card with a high balance

• Leverage Your Improved FICO score. If you’ve spent the past few years recovering from a financial hit during the recession, chances are your FICO credit score is now higher. If you have a score of at least 720 or so, and are still paying a high interest rate on your credit card, call up the issuer and ask them to lower it. If they don’t make it clear you will be doing a balance transfer to a card with no interest for 21 months. (see the next point.)

• Zero in on a great balance transfer deal. As I recently shared with you, there is now a credit card that essentially gives you a 21 month grace period to pay off a balance without owing a penny of interest.

And with home values continuing to post solid gains, anyone who wasn’t able to refinance a few years ago due to a lack of equity, should give it another look. Mortgage rates are still near historic lows. You know I am adamant that you shouldn’t extend your loan term by refinancing into a new 30-year mortgage, but right now 10 year and 15-year mortgages have fixed rates as low as 2.7%. That might make it possible to refinance into a mortgage that speeds up your payment without costing you more in monthly payments than what you’ve got on an old mortgage with a rate of 5% or higher.