Are You Stuck in the Debt Cycle? Here’s Your Way Out

Woman breaking her debt cycle.

Okay, so this article isn’t our usual fare.  We mostly cover celebrity wealth, but we get a lot of people asking about some of the older articles we published on the site – which are mostly about debt – so here goes.

Did you know that the average US citizen has about $38,000 in personal debt, excluding home mortgages? Only 23 percent of Americans can say they carry no debt. Both of these numbers have gotten worse in the last year.

Unfortunately, this results in a debt cycle that has few people staying afloat. 2 in 10 Americans spend 50-100 percent of their monthly income on debt repayment. This leaves little leftover for savings, emergencies, and daily living expenses.

Some age groups, like older millennials (25-34), have even more debt, with numbers rising to $42,000.

Are you stuck in this debilitating cycle? What is a debt cycle exactly, and how can you get out of it?

We’re here to show you there is a light at the end of the tunnel. Keep reading for some strategies on getting out of this vicious cycle.

What Is a Debt Cycle?

Anyone can get caught in a debt cycle—TV celebrities, baby boomers, college graduates, even our nation as a whole. Debt knows no bounds. How does this happen?

Let’s look at an example. Say you’re a recent college graduate with about $30,000 in debt from student loans. To pay off those loans, you borrow more money—increasing your debt.

As your debt rises, it could start to negatively affect your credit rating score. Soon, you owe more money than you’re making- every paycheck goes to paying off that $30,000. But now, your debt has increased with your borrowing, and you owe even more than you initially did.

If you don’t pay attention, your debt gets larger and larger, and you just can’t make enough to pay it off. Your money goes to paying off your debts rather than to your savings account. This is the vicious debt cycle.

How to Get out of Debt

Knowing that debt Is Not A Life Sentence, you can make efforts to get out of the debt and also reclaim your financial freedom.

First, pay more than you ‘have to’, if you can.

Every month, you get a statement that tells you how much you owe. If you keep paying this dollar amount, you’re paying the least amount possible over the most extended term, and paying more interest in the process. If you can afford to pay more than the minimum, you’ll pay it off sooner—with less interest.

Next, lower your spending and increase your earnings.

This is perhaps the most obvious, and yet challenging, thing to do. Take a good hard look at your budget and come up with a viable debt repayment plan you can stick to. Cancel your many TV subscriptions, skip that fancy latte, and perhaps pick up a second (or third) job.

Last, consider consolidating your debt, which can help lower interest rates.

In turn, your money is going to the principle, not the interest. Debt consolidation combines your various debts into one single payment, making it more manageable. This tactic also turns high-interest debts into a low-interest amount you can actually afford—that way, you can pay it off even faster.

Keep Your Money!

Getting caught in the vicious debt cycle is difficult. It can take a toll emotionally, mentally, financially, and otherwise.

But there are ways out—and we hope you can see the other side. But make sure once you’re out of this cycle, you should take measures to avoid falling in the debt cycle again.

If you’re looking at reading more about debt, we recommend these websites:

Our Debt Free Family – A great narrative about one couple working hard to pay off their debts.  Recommended for great examples of paying off large amounts of debt.

Blogging Away Debt – A team website of men and women who are paying off their debts.

 

How to Pay Off Mortgage Early: 5 Tips for Paying Off Your House Early

You’ve finally found the home of your dreams, and you’ve taken out a mortgage to help you finance it.

You’ve always had clear and realistic financial goals, but lately, you’ve realized that the length of your mortgage will likely make it much more of a challenge for you to achieve them.

You’re interested in learning what you can do to pay off mortgage early — without getting yourself into financial hot water.

This post is here to help.

When you’re ready to learn how to pay off mortgage faster, and how to do so the right way, keep reading.

1. Prioritize Your Debt

It might seem counterintuitive when it comes to understanding how to pay off your house faster, but often, it’s smart to make your mortgage debt the very last kind of debt you pay off.

The average American citizen currently has about $38,000 in debt — and that number excludes home mortgages.

It’s tough to pay higher amounts if you still have to worry about things like credit card debt, short term loans, your student loans, and any other personal loans you’ve taken out in the past.

Plus, most mortgages don’t have nearly as high of an interest rate as other kinds of debt. You also need to be certain that you’re saving for retirement and other life goals.

In other words?

Start the process by determining if paying off your mortgage early is both feasible and the smartest financial decision for you right now.

2. Start Small

Especially at the beginning of your new commitment to pay off mortgage early, we know it’s tempting to make extra payments whenever you can.

But you want to ease yourself into these extra payments so that you can adjust to how losing a bit more of your disposable income will fit into your overall budget.

Start by committing to make one extra payment for the first year. This will help you to increase your home’s equity, lower your overall loan term, and of course, knock down that principal balance.

Check with your amortization schedule and use this amortization calculator.

This will help you to understand how even just making that one extra payment will impact your mortgage schedule and payments.

If you can afford to make payments more often, excellent — but still, go slow. We suggest making one extra payment every fiscal quarter and increasing from there if possible after the first year.

Of course, you absolutely need to be certain that you’re making your extra payments towards your principal balance.

3. Refinance Your Mortgage

Whether you’ve applied for loans for mixed use developments, or if you’re trying to pay off a standard mortgage, remember that refinancing is always an option.

Often, it’s a good idea to refinance your mortgage to a shorter-term loan.

For example, if you’re currently working with a 30-year loan, consider making the switch to a 15-year mortgage or even a 10-year option.

Yes, this means that your monthly payments will be higher. So, as always, take a hard and realistic look at your finances before you make this move.

But it also means you’ll be able to pay off a mortgage much earlier than you initially thought.

However, if you are considering refinancing your mortgage, do make certain that it will give you a lower interest rate. If it doesn’t, then it likely just isn’t worth it.

4. Consider a Lump Sum Strategy

Have you recently inherited some money from a relative? What about that end of the year bonus you got at work? Maybe you’ve generated some nice returns on an investment in your portfolio.

And of course, think about the income you may get from a tax refund, too.

Before you “treat yourself” to designer clothes or that luxury vacation?

We suggest that you consider making a lump sum payment to your mortgage, instead.

Sure, it means sacrificing your week on a yacht, but it also means much less financial anxiety in the long run.

The only thing you need to think about here is that your payoff date will likely remain uncertain. After all, most of us can’t exactly pin down when we’re likely to come into some extra cash.

Still, anything that knocks down your principal balance is always a good thing.

5. Budget

If you want to avoid taking out a second mortgage, or if you just want to pay down your mortgage early, budgeting is both the easiest and the hardest way to make it happen.

Start with the basics. Get rid of subscriptions you don’t really use. Resolve to cut your entertainment budget by 1/4 of your usual spending each month. Consider getting a side hustle, or even selling some of your old belongings.

Print out your bank statements and learn what you’re spending your money on — and how you can save more of it.

Pay off Mortgage Early with These Tips

If you want to pay off mortgage early, remember that it will take both sacrifice and calculated planning.

In many cases, one of the best things that you can do for yourself is to meet with the lender or a professional financial advisor. Together, you should sit down and prioritize your debt, look for ways you can slash your current spending, and understand the financial benefits and consequences of paying off a house early.

Are you interested in getting additional financial advice?

Want to know what you should look for when you’re ready to meet with a mortgage lender for the first time?

We’re here to help you with all that and more.

Keep checking back in with our blog to ensure that you continue to make smart financial decisions — and get closer to finally being debt free.