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5 Simple Ways To Take Advantage Of Low Interest Rates

Many people are disappointed because of the low interest rates available today. They look at the fact that their bank accounts are paying pennies per year in interest, and conclude that they cannot get ahead financially. However, there are things that you can do to take advantage of low interest rates.

Refinance Your Mortgage With Low Interest Rates

This is one of the most common ways to take advantage of low interest rates. This is because most mortgages involve hundreds of thousands of dollars and span across multiple decades. Even a small change in the interest rate of your loan can have drastic effects on your monthly payments.

The best time to refinance your mortgage is when you owe at least 20% less than the appraised value of your home. This way, you won’t have to worry about private mortgage insurance when you refinance.

If you do decide to refinance, make sure you perform an analysis to see if the expected savings outweigh the points, fees, and other expenses associated with the refinance to make sure it is actually going to save you money.

A great way to pay off your mortgage early is to refinance at a lower rate, secure a lower monthly payment, but continue to pay the higher amount. This way you will be able to pay a few hundred dollars extra on your mortgage each month, without having to change your current budget. Just make sure that your additional payments are applied to the principle of your loan.

Negotiate Lower Rates

When you notice that interest rates are going lower, that should be a signal to you that it’s time to negotiate lower rates with your creditors. Give your credit card companies a call and ask them to lower your interest rate.

If you have an excellent payment history with that company and you have good credit, you should be able to get them to lower your interest rate. In fact, even if we aren’t in a low-interest-rate environment, you should be able to secure a lower rate if you have those credentials!

Consolidate High-Interest Debt

If your individual credit card companies and banks aren’t willing to give you a lower interest rate, a consolidation may be in order. Actually, depending on my situation, I may try to consolidate my debt first!

When dealing with high-interest credit cards, there are typically two ways in which you can consolidate your debt. First, you can apply for a consolidation loan. This is usually an unsecured, personal loan that you use to pay off all of your debt. The main benefit here is – hopefully – a lower interest rate, and only having to worry about making one payment each month.

The second way to consolidate your debt is to move all of your debt onto a single credit card. If you can find a card that has a balance transfer offer – such as 0% for the next year – then this can be a great move. Usually, you will have to pay a fee in order to process a balance transfer – just make sure that this fee is less than the money you plan to save by the reduced interest rate.

Refinance Your Car Loan

Many people only think of refinancing a mortgage when faced with low interest rates. However, with the price of a new car easily exceeding $30,000, you can save thousands of dollars by refinancing your car loan!

I would make the same recommendation to pay it off early. Refinance the loan in order to have a lower mandatory monthly payment, but continue to pay the same amount that you are paying today. If this amount is going directly toward the principle of the loan, you will finish paying it off much faster!

Make Prepayments To Secure A Lower Purchase Price

There are a number of financial agreements which we enter into, that will allow us to pay a reduced price if we pay the bill in full up front. The most common charge that I can think of which fits this description is car insurance. Most companies charge a fee for breaking your premium up into monthly payments; thus giving you a discount for paying the full charge up front.

Sometimes landlords will be willing to give you a discount on your rent if you pay up front. The discount may increase as you add more months to your initial payment. Paying your rent a year in advance can lead to real savings.

The same is true for many other arrangements where there is an option to pay over a long period of time versus paying the entire amount due in the beginning of the agreement.

You may be thinking to yourself, “I can make prepayments at any time! This has nothing to do with interest rates”. However, the reason why this is tied to low interest rates is because you have less incentive to put out $15 – $20,000 all at once, if rates are high.

If you can earn a high interest rate by putting your cash in a savings account or CD, then you will not be inclined to pay your rent a year in advance, unless the savings in rent are more than what you would earn in interest. Therefore, low interest rates make it financially feasible to make prepayments in order to secure a reduction in your purchase price!

photo by jscreationzs

A Few Questions About Low Interest Rates

Do you take advantage of low interest rates to reduce your debt payments?
Have you ever taken out a consolidation loan?
Do you feel more justified in living above your means (borrowing money to pay for expenses) in a low interest rate environment?

How to Create Your Own CD Ladder

By // by Kevin M

Lots of people are really disappointed with the rate of return they are getting on their savings. That’s even causing a lot of people choose not to save. After all, the alternatives are a lot more exciting. Instead of putting your money in the bank, you can spend it on things that you like, or take a chance at higher returns by investing in the stock market.

Both outcomes are the exact purpose behind the super low interest rates we are seeing. If you are out shopping and/or investing your money in stocks, you are doing exactly what policymakers want you to do with your money. But what if that’s not quite what you want to do?

If you like having money in the bank, and you want to get better interest rate returns than you are getting in money market funds and savings accounts, you may be interested in building your own CD ladder.

What is a CD Ladder Strategy?

A CD ladder is a portfolio of certificates of deposit (CDs) with varying maturity dates. The best way to explain this is with an example. Let‘s say that you have $12,000 that you want hold in your savings. You want to invest it in CDs because they pay more than savings accounts or money markets. But at the same time, you don’t want to tie all of your money up in one CD for six months or a year.

You can create a CD ladder by investing $1,000 each month in a one year CD. Since you have $12,000, you can purchase one $1,000 CD each month for a year. After one year you will have a portfolio of CDs, with one renewing every month.

In effect, you will have created your own high interest rate money market fund, complete with FDIC insurance. Since you will have a CD renewing every month, you’ll be able to take advantage of higher interest rates as they become available. Should rates drop (which is hard to imagine considering how low they are right now) you will still have a large number of older CDs drawing higher interest rates.

Why Should You Want To Build One?

The reason for building a CD ladder is simple: money market funds and savings accounts are paying interest rates that are a low fraction of 1%. Because they are time deposits, CDs have higher interest rates. By laddering several CDs you avoid tying your money up in a single security.

Using A CD Laddering Strategy For Liquidity

In the example above, we described a CD portfolio in which one CD will be up for renewal every month. That will enable you to have access to at least some of your cash each month, with more coming available with every passing month. This will enable you to earn higher rates of return than you will get in savings accounts and money market funds, while still preserving some measure of liquidity.

If you want to increase the liquidity of your CD ladder, you can always invest in short-term CDs. You can build your ladder using three months or six months CDs, rather than one year CDs. That will improve your liquidity but it will also cut down CD rates of return, since shorter-term securities pay lower rates of interest.

CD Ladder Strategy For Interest Rate Return

You can also extend your CD maturities in order to increase the rate of return. You can do this either by investing in longer-term CDs, such as 18 month or two year CDs, or you can build a portfolio of CDs with various maturities.

As an example, you can make a CD ladder that includes maturities of six months, one year, two years and five years. Longer-term CDs will generally pay higher interest rates, while the shorter-term CDs pay less. The blending of the various maturities will create an even higher rate of return than you will get on a ladder composed entirely of short-term CDs. But with the longer term CDs you will also be losing liuidity, since longer maturities also mean slower renewals.

How Complicated Is It To Develop A CD Ladder Strategy?

Building your own CD ladder isn’t that complicated. In fact once you get it going it’s a completely passive undertaking. You can set up your CD ladder, then authorize your bank to automatically roll the CDs over as they mature. Typically, you will have them rolled over into CDs of the same term.

You can purchase CDs out of your savings account or bank money market fund. You can make your monthly purchase, or purchase a portfolio of CDs with varying maturities, either of which is a simple process. There will be little to do, and higher interest income to collect.

It will be like creating a high interest money market fund, but one that you control.

photo credit: Freedigitalphotos.net

Why A Consolidation Loan May Be Worth Considering

By // by Khaleef Crumbley

I know that many of you may think I’ve gone crazy with the title of this article – especially since I am trying to pay off debt myself – but I can assure you that I have not.

With interests rates being as low as they are right now, this may be a perfect opportunity to take out a loan in order to refinance debt or start up a business.

Don’t get me wrong, I still despise being in debt bondage, and I would still advise all of my clients, family, and friends to avoid debt whenever possible; but I also understand that taking out a loan isn’t always the worst option.

Here are a couple of situations for which getting consolidation loans might be the answer.

High Interest Credit Card Debt

Some people get into credit card debt because they decided to live above their means. For others, it may have been due to a few acts of desperation. Some may have even tried to take advantage of credit card benefits, and for some reason, were not able to pay off their debt.

No matter what the reason, if you are stuck with high-interest credit cards, it’s time to take action. First, call your bank(s) and try to negotiate a lower rate. If that doesn’t work, see if you have a card with a zero balance and a balance transfer offer. If your savings are higher than the transfer fee, do it!

If none of these options work, it may be best to take out a loan – be sure to take advantage of a personal loans comparison first from sites like http://www.comparethemarket.com/loans/ – and consolidate your credit card debt.

Student Loans

There are a growing number of people who are financing their higher education with the help of student loans. Unfortunately, many of those former students are then put into a difficult financial situation because of their high monthly student loan repayments.

Depending on whether you took out subsidized versus unsubsidized Stafford Loans (or some other instrument), you may end up owing a lot more than you realize once you’re out of the grace period.

Sometimes, the only option in these cases is to secure another loan, which will help you to lower your interest rate and/or extend the amount of time that you are given to pay back the loan – lowering your payments in the process.

Of course, your goal should always be to pay back any debt as quickly as possible, so don’t use your lower payments and a license to go wild with your spending!

Consolidation Loans For Your Car Note

Most people only think about refinancing their mortgage when overall interest rates in the economy drop. However, you can still save yourself thousands of dollars if you can get a new loan for your vehicle.

Don’t forget to compare any fees that you might have to pay with the amount of money you stand to save by refinancing.

The same exact things can be said about refinancing your mortgage – besides, people write about that so often that it gets boring! 😉

photo by Omar Omar

Reader Questions

Have you ever had to take out consolidation loans for one or more of the reasons listed above?
Do you think it’s a bad idea to try to fix a debt problem with more debt?