HomePersonal FinanceInterest is your biggest obstacle to becoming debt free

Interest is your biggest obstacle to becoming debt free

A lot of people get bogged down with the little stuff when it comes to budgeting. If you’re like me, you recognize that while a small hole can sink a big ship, a large hole can sink it faster. Instead of worrying about avocado toast and a daily latte, tackle pricey interest costs to save big bucks today.

Why bother?

Most people don’t worry about interest charges – the finance company, or car company or credit card company can charge whatever they want and, if the payment is low enough, people will simply sign on the dotted line without worrying about the total interest cost.

That can be a huge mistake. Take a $10,000 car loan at 13%, for example. Sure, the payments might be affordable month-to-month but, if you take out a 5 year loan, that $10,000 car will end up costing you almost $20,000!

The big picture

The solution to any debt problem is to lower the interest rate. However, almost no finance companies will allow you to lower your rate once you’ve taken out the loan. Instead, you’ll have to do something called refinancing, usually through personal loans.

With a personal loan, you can negotiate a lower interest rate on your credit cards, car loan or store cards. Instead of having five loan payments to make each month with various interest rates and payment amounts, a personal consolidation loan will combine everything into one payment with a lower rate. Depending on the company, this consolidation payment could even be lower than the combined amount of all your payments before. Talk about a deal!

Let’s look at an example. Remember that $10,000 loan from before? Let’s imagine the interest rate has fallen, from 13% to 4%. Instead of paying almost $20,000 over 5 years, you’ll only pay $12,200. Same amount of time, lower monthly payment, less interest paid. Win-win.

A lot of people look at budgeting the wrong way. Instead of cutting out all the fun luxuries of life, look at places where you can save big bucks. For many people, that means lowering the interest rate on your debt.


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