5 Simple Ways To Take Advantage Of Low Interest Rates

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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.

Low Interest Rates

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

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

 

Sponsored Video – When Credit Cards Can Help You

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The following post has been sponsored by Capital One, but all thoughts & experiences are my own. In fact, the great thing is that I’ve been a very happy customer of Capital One for years – with my business account (the account/card mentioned in the video below)!

As most of you already know, I’m no stranger to expensive car repairs. Keep in mind that anything over about $150 is expensive in my mind (one of the consequences of being broke and in debt). Well, we had to spend another $600 recently – this time on our SUV. Since we are trying to use every extra penny to pay off our debt and also build up an emergency savings account, we were putting off the repairs until they were absolutely necessary.

We had to get the air temperature door actuator replaced on our Ford Explorer – apparently, this is a common problem. We were originally told that it would cost about $750; mainly due to the labor involved – the center console and part of the dashboard had to be removed. Going through the winter without any heat is difficult in New Jersey, so once the temperature dropped down to the low 20s consistently (hitting the teens on a couple of days), we knew we couldn’t put it off any longer.

We have a credit card that is dedicated for car repairs. If our repair bill is over $299, then we have 6 months to pay off the balance before any interest is charged. So, in this case, our credit card has saved us from prematurely depleting our emergency fund or taking from our monthly budget, while allowing us to put heat in our vehicle!

We definitely plan to pay off the credit card before the 6 months are up – something that we have done each time we’ve used it – so we aren’t expecting to pay any interest for this loan. If we aren’t able to save enough in the 6 months by reducing our expenses (not likely since we don’t have many variable expenses), then we will still be in a better position to take money from our savings.

If we weren’t in debt, we would probably use credit cards for everything. We already use it for any online purchase (for security) or any other payment where we aren’t completely comfortable (like some gas stations, restaurants, etc.). Between the added security, the rewards, and the possible cash back, I am a big fan of credit cards.

Now obviously, this love only goes as far as the benefit gained combined with the responsibility of the user. To be fair, this can be said about most good things. Too much or a misuse of a good thing can easily make it detrimental. Someone once said that a credit card is like fire…useful, but handle with care.

photo credit: freedigitalphotos.net

Cash – Your Best Defense Against Identity Theft

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Amid all the internet clamor over the lowest rate credit cards, zero interest transfers, and of course, rewards points, it’s often easy to forget the fact that good, old fashioned cash is your best defense against identity theft. That alone is a compelling reason to use it as much as possible.

Sure credit and debit cards offer various forms of fraud protection, but cash keeps identity theft from happening in the first place.

Theft Of Money Is Nothing Compared To Identity Theft

Identity Theft Protection

We can agonize over the potential for the loss of cash in a bank account as a result of a lost or stolen debit card, or of the potential for a thief to tap out the remaining balance on a credit line. But neither of those potential losses comes close to the outright theft of our identity. And each carries a limit of loss anyway.

If all we could lose in an identity theft situation was a limited amount of money, it wouldn’t be nearly so terrifying. But if access to a single account is stolen, a thief could take over and plunder every account we’re connected with, and a whole lot more.

With sufficient information, a thief could become “you“ – for financial purposes – and do some or all of the following:

  • Empty your bank accounts and investment accounts
  • Max out your credit cards and credit lines
  • Get employment in your name
  • Obtain new credit in your name
  • Apply for government benefits in your name
  • File a fraudulent income tax return and obtain a huge refund in your name
  • Commit other illegal acts in your name
  • Sell your identity to a third party for immediate cash

Sure, eventually you will remedy that situation, but it may take months or years, and that is disruptive. And if the theft is severe enough, you may even need to get a new Social Security number, and transfer all of your financial information from what ever the source. In a financial sense, that’s like having to create a whole new you!

[Find out how to protect yourself from identity theft while using Facebook & other social media!]

Credit And Debit Card Paper Trails

A generation or so ago, no one worried about identity theft. There are various reasons for this, but one of the most significant is the widespread use of credit and debit cards. Every time you use plastic in a transaction, a paper trail is created! That paper trail is a rich target for identity thieves.

As a result of a single transaction, a thief will know your bank, your account number, your signature and other important information, which may be all that’s needed to gain access to your account, and ultimately to your entire identity.

Back when most transactions were conducted in cash, this threat was non-existent. After all, cash leaves no paper trail. There’s a lesson in there somewhere.

“Inside Jobs”

A large percentage of identity theft is “an inside job” – it isn’t initiated by some shady looking dude with a wide brim hat hanging out in a dark corner of the store, but by an employee of the establishment. In fact, it is estimated that as much as 65 to 75% of identity theft is committed by employees.

And why not – employees are the ones with access to the paper trails! When we do business with any company, we’re supplying them with personal information that could be used to perpetrate identity theft. We’re relying heavily on the integrity of the employees of that company and on the hope that they won’t use that information to steal our identity or commit some other form of fraud.

But not all employees have integrity. Access to personal financial information – in combination with an employee’s need (or greed) for cash or other benefits – could cause them to cross the line to the dark side.

Transactions completed with plastic increase the possibility of this outcome. But if you pay with cash, there is no personal information supplied on your part. Identity theft thwarted!

Using Cash To Minimize Identity Theft

By paying in cash – especially for small purchases – you lower the chance of being a victim of identity theft. The last thing that you want to have happen is to become a victim of identity theft as a result of a purchase of a bottle of soda at a dollar store! Paying cash for small purchases is a way to minimize that outcome.

Plan to carry a certain amount of cash with you at all times, and establish guidelines for payment methods based on the amount and type of the purchase.

For example, you could decide that you will pay cash for any purchases under $50 – that would probably eliminate most credit/debit card transactions. Any transactions of a higher amount could be paid by either credit or debit card.

If that strategy cuts your use of plastic by 75%, it will also lower your chance of being a victim of identity theft by 75%!

Paying cash is a way of disarming would-be identity thieves. Cash is virtually “invisible” – it leaves no record of it’s users. That’s your single best protection against identity theft.

How common is cash as a payment method in your life?

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photo credit: freedigitalphotos.net

How To Stop Infrequent Payments From Destroying Your Budget

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The topic of infrequent payments has been on my mind for the last couple of weeks now. My wife and I had a couple of infrequent payments, within our finances over the last month, and I even saw a video today from someone who’s debt snowball plan was sidetracked because of a couple of infrequent payments which she failed to account for in doing her budgeting.

Important Deadline

Infrequent payments, as the name implies, are any payments which are not due biweekly or monthly and so we tend to forget about them. These can be insurance premiums that are annual or semiannual, this can be quarterly tax payments, subscriptions to roadside assistance or magazines or other services, or even software license renewals.

So here are a few ways that I found works best for me to remember these infrequent payments, depending on what system I am using for my finances.

Set Up The Payment In Your Electronic Checkbook Register

I use Quicken Home & Business in order to manage our finances and in the software, I am able to go out into the future and set up a payment in the checkbook register. It is not as hard as it sounds – all you do is go to the first available space and type in the date, even if it’s a year in the future.

So what this does is every time you look at your finances, you are able to see this payment at the bottom of the current transactions, and you are even given what the available balance would be if that payment was to come out without any other transactions happening.

This is extremely helpful as you get closer to the payment date.

For a while I was actually using a Microsoft Excel spreadsheet that I set up to look like a checkbook. It will be no different in this case except you would have to cut and paste the transaction each time you wanted to insert more recent transactions. But the basic idea stays the same; you always have that transaction in your records so that as the date approaches, it becomes more relevant and it’s staring you in the face so you won’t forget.

Set Up A Recurring Expense In Your Software

Again, if you’re using financial software, you can set this up as a recurring payment the same thing should happen as in the case above when you manually enter it each time, except that you only have to enter it once.

It should still show up as you get closer to the date of that transaction and you should be able to modify your budget based on the reminder that set up the software. The great thing about setting it up this way is that if there are any changes to this payment (such as your auto insurance premiums increasing, decreasing) you can make the change one time and it will affect all future payments.

Set Up A Recurring Appointment In Your Calendar

Calendar Reminder

When I noticed that my wife and I were forgetting that we had a payment due every May for our auto club expenses, I decided to set up a recurring appointment on our calendar.

So this way every time we look at our calendar – when we look at May 23rd, for example – it always shows up that there is a payment due to the company that provides our roadside assistance.

With so many people using smart phones and also having Microsoft Outlook and other e-mail, scheduling, and calendar programs available to them, this can be done in a matter of seconds and you can have multiple people alerted to each payment due.

It was great the other day when my wife sent a message to me to say don’t forget that this payment has to be made as I was getting the same reminder on my phone and computer. So this way whether one of us switches phones, change email accounts or something happens to one of our computers, we still have the reminder in multiple places.

It will show up on both of my computers, my phone, my wife’s phone, and it will show up on her computer as well. There is a very, very small chance of all of those things failing at one time.

Set Up The Reminder Manually

If you don’t like any of these methods, you can always leave yourself a note. If you have a date book then you can go to the month before the infrequent payment is due and write a reminder for yourself telling you that the next month will include one of these expenses that seem to throw off most monthly budgets.

That way, not only are you reminded the day that the payment is actually due when you finally turn to that date in your calendar, but you’re also reminded in advance so that you have time to adjust your budget for the next month.

No matter which way you choose to manage your finances, make sure that you have reminders letting you know that the annual payment for your credit card, you quarterly insurance premiums, your gym membership, (this is actually an expense that should be put on the credit card because it makes it easier to cancel), or any other infrequent charge is due so that it does not throw off your budget.

 photo credit: Freedigitalphotos.net

Reader Questions

  1. What methods do you use to manage your finances?
  2. How do you keep track of these infrequent payments?
  3. Was there ever a time where you forgot to account for them and had to adjust your budget on the fly?