Have you ever sat on your couch on a quiet night, swirled your merlot, and looked at your house like, what a waste I can’t use this equity right now to pay off current unsecured debt in order to improve my long-term financial situation.
Well, think about it now. Your home is typically your biggest asset, and if you have equity you might be able to use it to pay off debt. They key to making this work is knowing three things.
- Decide how much you need.
- Confirm how much you currently owe.
- Figure out how your current interest rate compares to today’s interest rates.
There are two options for using home equity and your answers for the above questions decide which one will be a good fit.
When refinancing your mortgage, you take a loan of a specific sum out from the equity of your home. If interest is at least half a point higher than current rates, refinancing makes a lot of sense. Also, if interest rates are about the same it might not be worth it. Keep in mind, closing costs are about $3,000, so depending on how much you need to borrow the fee might eliminate this option.
A Home equity line of credit works like a credit card, drawing on your home equity as you pay it back. Home equity line of credits don’t have closing costs. But, the interest rate is adjustable and will probably trend upwards as interest rates have been rising.
Used smartly, your home can be a great tool in your long-term financial plan.
Photo by Cody Hughes @clhughes21
Your credit score can sometimes feel like your weight after a long weekend of indulgence. If you never step on the scale, it never happened. Unfortunately, for both our jeans and our credit score, we all know simply refusing to know, doesn’t change the facts. Buying a home, leasing a car, or even getting a job requires a credit check—the step on the scale—and obviously, we want our credit to be in good shape so as to not risk our future. Here are a few tips to achieve a healthy score. Some of them may surprise you!
- Keep credit card balances under half of the total credit limit. Halfway and under says you know how to use credit without abusing credit. If you have more than that on your balance already, make getting under half your first financial goal.
- Stop using so many credit cards. Pay off credit card balances on small cards and use one or two cards for all purchases. Start with cards you only use once in a while and are easy to pay off, like store credit. Request a lower interest rate on the one or two cards you decide to keep. Bonus, you have an excuse for a smaller (new) wallet (budgeted, of course).
- But don’t get rid of old debt and good accounts. You can’t have good credit, if there isn’t any credit at all. Keep stable, low interest, high reward accounts open. The history of being able to use credit and repay, is what counts. Keeping these accounts can help illustrate a long repayment history.
- Pay bills on time. Many late payments will negatively impact your score.
- Review your credit report once a year in January. If you notice any errors, report these problems to each of the three major credit bureaus—Experian, TransUnion, and Equifax.
If you follow these small steps to steadily improve your credit, it will never come as a nasty surprise right when you don’t need it. Your pants on the other hand….there’s no guarantees.
Quick. Right now. If something were to happen—a car breaks down, an unexpected vet bill, the Nordstrom Anniversary sale—would you be able to take care of it without using credit? If you are one of roughly 62% of American who have $1,000.00 or less in their savings account, you are probably already aware how difficult it can be to stretch for large purchases (including those shoes), unexpected bills, and let’s not even mention your retirement. To make matters worse, cost of living in Charlotte has increased. The average house in Charlotte now cost’s an average of $188,900, and our income growth has not kept pace. It’s enough to send anyone to the sale section for a consolation purchase. Can’t get a house, but check out my new whisky glasses.
But before you click over to Nordies, consider this: financial freedom is a game of small steps, not one big one. Much like any lifestyle change (inward groan), we have to make small movements for long term goals.
First step is simple: Know where your money is going. Separate out your fixed expenses (monthly debts combined with annual debts, divided into twelve months) from last month’s extra’s (the morning coffee, restaurants, and yes, those shoes). Combine the total expenses and compare that to your monthly income. How does that look? Frightening? Having heart trouble? Or about what you expected? Either way, you can take this information and….
Second: Set a budget. And not one in your head. Turns out, we’re really good at pretending to have a budget and then basically shoving it behind mental tasks like Candy Crush. Reduce the impact of surprise bills and plan ahead for fun purchases, by making a budget and revisiting it regularly. A good rule of thumb is to revisit your previous month’s budget at the first of every month. This keeps your financial goals and how to get there, front and center.
Step three: Find ways to save. Here’s where you can get creative. Something as simple as turning out the lights when leaving a room can make a difference in those recurring monthly expenses. Other ideas include: changing all your lightbulbs to energy efficient ones, and turning off your HVAC and water heater if leaving for more than two days. Commit the projected savings to an emergency fund.
Four: Commit to automatic savings. In other words, pay yourself first. It is easy to forget to transfer money, so set up automatic savings and transfer any additional money on top of this amount.
Finally, Pay off debt. Barely half of Americans have enough cash saved to cover their credit card debt. “Even though some debts like mortgage or student loan debts are considered “good” debt because they are investments, credit card debt is seen as a problem for many Charlotteans,” says _____ of _____. (was uncertain of this quote)
Like any long-term change, where we are today decides much of where we will be tomorrow. Change your financial future by following these five steps today.