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Debt Management
Managing your debt can be just as important as sound investing.
Paying off the major debts in life-credit cards, mortgages, car
loans-gives you "the freedom to make changes and choices that you
can't possibly make if you are chasing the tail of debt
liability," says Marc Eisenson, author of the book The
Banker's Secret.
Managing your debt can be very rewarding because you avoid paying
the interest on the debt. Say you have a four year, 10% car loan
for $15,000, you would pay a total of $2500 in interest, or 16%
of the total loan. If you had paid cash for the car, you would
have saved $2500, or 16% of the car value. Because you didn't
have to pay $2500, you basically had a positive 16% return on
your $15,000 investment.
Credit card is probably the most expensive type of loan because
the interest rate runs from 17% to 22%. It is probably the
easiest way to get money in an emergency. It's also a great way
to use the bank's money for free for a month if you pay off your
balance every month. By paying off your balances, you save the
20% interest you would have been paying. If you just can't pay
off the balance in full, at least pay it off as fast as you
possibly can to avoid paying interest.
A high-return, low-risk investment most homeowners can take
advantage of is paying off their mortgage early. On a 8%
mortgage, by paying off early, you are basically earning a 8%
return on your money, a quite handsome return. A New York couple
had a 30-year, 10% mortgage on their $69,000 home. They were
paying $605 a month for a total of $217,978, of which $148,978
was interest! By cutting back on smoking, they paid $69 more a
month. The are going to pay off the mortgage 11 years early for
$62,400 less. So they save $62,400 in payments by putting in an
extra $15,732!!!
Next to a mortgage, a person's biggest debt is probably a car
loan. Again, paying off early is a great high-return, low-risk
investment.
If you ever really have to borrow, look at a home-equity loan.
It's usually the cheapest source of loan for two reasons: first,
the interest rates are very low because you have collateral(your
home) to back the loan; second, the interest you pay is usually
fully deductible for loans up to $100,000, which means you are
really paying an even lower rate. As with any type of debt, you
should still try to pay it off as fast as you can.
Online Resources
Business Logic Corporation-Download shareware programs
with features including mortgage loan analysis, mutual fund tracking and analysis, legal document creation
such as wills.
Mercantile Bank Loan and Investment Calculators-Find out
what you will need to achieve your savings goals. See if you can afford to take out a loan with the loan calculator.
HomeOwners Finance Center-Learn the
latest interest rates, compute your mortgage payments, find information on mortgages.