Fight against your loans

Can you save if you have outstanding loans?

It is possible but preferably eliminate these debts because the interest we are paying are higher than we think (if you have a credit card with an outstanding balance of $ 2,000 and are paying every month for delayed payment $ 50 , the interest you pay the bank in one year is almost $ 400 )

Basically, we have three types of debts: 

1. MORTGAGE: It is the most important and the most dificult debt to cancel. For all this, it's worth to do a lot of effort to snap out of it. For instance: 

• $ 250,000 mortgage over 30 years. Average interest rate over the life of a mortgage 4% (we are generous). The total interest paid to the bank are almost $ 180,000, so that the house cost us $ 430,000. Not worth making an effort not to pay so much interest?

2. PERSONAL LOANS:  from loans to buy a car, going on loan to furnish the house, pay our wedding or even to go on holiday. Absurd, right?

3. CREDIT CARDS:  money spent on credit without it. Expenditures are basically whims. Even more absurd, is not it?

The average mortgage is around $ 800 month, a personal loan to buy a car is $ 300 month and the monthly payment on a credit card could be $ 100 month. A total of  $ 1200 each month to pay off debts, A lot of money or a slab?

What insights can we do about these three types of debt?

1. The mortgage is there and is what it is, but we can "fight" against it. Do you really want to return to the bank $ 180,000 in interests? Would you do something if I tell you you can save $ 50,000? And if they were $ 100,000?

2. Because we buy a car if you have no money. So need a car to be the first big spending ahead of the home purchase? How often do you change car? Why not do otherwise than other people? It is usual to buy the car, borrow and pay $ 300 month for five years. It would be better to save those $ 300 during all months and 5 years, and then with the money saved, bought the car.

3. How many cards do you have? Why use them? Why buy if you have no money to spend? A credit card should be for cases of extreme emergency. A tip: Do not carry it, be tempted to use it. Want to know how to design a repayment plan card? Sign up here to receive the best tips to save.

Break your credit card

1. If we spend what we earn, we can never have an emergency savings fund.
2. Furthermore, if we spend more than we earn, then we will need to borrow money to finance the excess spending.
3. If these costs are recurrent we have to return the borrowed money in ever smaller amounts and longer term.

In each of these situations, creating a pool of money that allows us to save for contingencies can be impossible.

Therefore, before creating a short-term savings, we have to solve our problems with credit cards.

If you're in the situation (1) , I recommend you do a detailed analysis of your expenses and to differentiate those that are essential expenses (mortgage, school children, food, household supplies, etc ...) of those who do not are. Only by adjusting the latter, we can start saving.

It is true that not all months are going to spend the same and that there will be months that expenses exceed our revenues slightly (2) . The problem here is the easy to use (credit card) rather than creating an emergency fund.

The problem with credit cards is that they have a perverse effect on our finances, since any money you have our card (unless you have payment later this month) we will have to return with their interests (such interests vary depending on the card and the interest rates, but usually around 20% APR)

Imagine a person who has a debt in his credit card of $ 2400 and he pays $ 120 each month to cancel the debt, broadly speaking, the client will take more than 2 years to repay the loan and will pay more than 500 € in interest.

Could you create a short-term savings if you pay € 500? As this amount is what you save in the event that you had the savings and did not have to resort to credit card under the above conditions.

Have I convinced you to break your credit card or at least not have it at hand?