Since debt became super cheap after the Great Recession, we all have taken on a ton of of it. According to a TransUnion report, nationally we have an average of $27,000 in non-mortgage debt, and according to a Manulife Bank report on average have $190,000 in mortgage debt. That's a ton of debt! A CIBC report claims that the average person expects to be paying back their mortgage debt until age 57! That is cutting a fruitful retirement real short. Here is how we all can get rid of our debt in 10 years so we can enjoy our retirements and our lives debt-free.
1. Decrease your interest rates and consolidate
Interest rates are at their lowest in the history of time. Consolidate as much of your debt as possible at the cheapest rate. Re-mortgage or consolidate your debt on a low interest line of credit to save a ton. Try to get your interest rate down to three per cent or lower. This will help you save tens of thousands in interest over the next 10 years. Interest rates aren't expected to jump higher in the next few years due to the economy, and it is easier to pay more off at lower rates.
2. Set Your Amortization at 10 years
Once you've consolidated your debt with the lowest interest rate, amortize it over 10 years. That simply means to divide the payments over 120 months. Taking the national average of $190,000 in mortgage, plus the $27,000 worth of credit card, student, auto, or other debt would total $217,000. Putting that amount of debt into a mortgage calculator at a three per cent interest rate at a 10-year amortization equals $2,044 a month. Compared to a 25 year amortization, it will save you over $57,000 in interest if you pay monthly.
3. Make Accelerated Weekly Payments
If you pay accelerated-weekly vs. making monthly payments, it'll save you another $4,000 based on the same numbers! This equates to you making an extra $2,700 in payments over the year vs. paying monthly. I love clean numbers, so if my weekly payments are $523.84 like in this example I'd set them at $525 and save a little more money while also leaving my budgeting easy with clean numbers. Do it and save a ton!
4. Make more money
Doubling your payments might sound expensive, but being debt-free in 10 years will be worth the short term pain. Plus, if interest rates or the economy don't normalize, you will be in a great position with lots of debt being paid back. Get some extra shifts, start a small business, or get a new job that pays more. It would be easier to make the bigger payments if you have extra money coming in. If you get an inheritance or big tax return, that will help, too.
5. Cut out more money
Concentrate your money on your debt and avoid the big spending trap. If you are thinking of buying a cottage -- wait until you are debt-free. Want to get a sexy sports car? Get a REALLY sexy one when you don't have any more mortgage payments. The one-off joy you will get from small one-off gratifications from dinners, clothing, or trips can all be enjoyed in 10 years with WAY more security than if you take them now. And isn't security the one thing that made us all so nervous about having so much debt?
What is the smart, responsible thing to be doing with your money? Wipe out your debt in 10 years, save tens of thousands and build the financial security and certainty we all want. Do it, and feel free like a money butterfly!
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