Lower Debt Obligation Costs

tips to reduce debt costs

Page Topics:

Managing Your Credit Cards

The business goal of credit card companies is to entice you to maintain a credit balance each month

Credit card debt is the fasted growing debt among American households. Understand these basic facts:

  1. According to the American Bankruptcy Institute, nearly 85-90% of bankruptcy filings were due in part to excessive credit card debt.
  2. Households receive on average 20 credit card offers per year.
  3. Credit card companies make money when you become a "revolving" credit card holder — which means the holder maintains a balance from month-to-month.
  4. Credit card companies make money when you pay only the minimum required amount — which minimum amount is interest plus a small percentage (around 0.5%) of the balance outstanding.
  5. Credit card companies make money when you accept and then spend up to the credit limit offered.


With this in mind, the card company's business strategy is to get you to:

  1. accept their card using pre-approval offers;
  2. charge out the maximum credit limit awarded;
  3. pay interest-only payments each month;
  4. and maintain a credit balance from month-to-month.

Now consider this. If you paid just the minimum payment on a $4,800 credit balance at the average annual rate of 17% plus 0.5% for principal reduction, it would take you a little over 21 years to pay it off your balance (considering that you did not have any other charges).

That means paying $13,376.35 in interest charges alone, for a total repayment of $18,176.35 for the privilege of charging $4,800!

No wonder that credit cards are one of the lender's most profitable product lines.


Credit card debt could be major repayment expense every month. You may consider consolidating and paying off that debt.

try this FREE card debt worksheet to estimate savings

The challenge is managing your credit card use. We have complete information on credit card management and debt consolidation: credit card management module


Credit cards in the hands of the right people can reduce costs for buying a car, traveling, purchasing gasoline, or simply taking in cash.

There are a number of rebate credit cards that can earn you awards simply by charging everyday expenses on the card.

Rebate Card Rules:

  1. On average, consumers spend 112% more on a credit card purchases than on cash purchases. You must limit your credit card purchases for budgeted items only.
  2. Use your rebate card to purchase groceries, clothing, utilities, fuel consumption, and all other budgeted living expenses.
  3. With each purchase, deduct from your money account the dollar amount for the credit card purchase. Place that money aside in a ledger account using PFM software.
  4. Upon receiving your monthly statement from your credit card company, pay off the entire credit card balance with the money set aside under Rule 3.

    view our guide on maximizing rebate award

top of page

Reducing Student Loan Payments

If you currently pay multiple student loan payments, you might consider consolidating these payments into one, low repayment plan.

Federal student consolidation rates are at low levels. You may lock-in a low fixed consolidation rate for the repayment term of your loan.

There are a number of repayment plans to fit your monthly budget:

StudentLoanConsolidator: click to calculate your potential savings

top of page

Consolidating Personal Loans

We have a debt consolidation worksheet to illustrate how you can reduce your monthly expense

You may have a number of personal loans — such as auto, retail, furniture, recreation loans — that take a bite each month out your take home pay.

You may consider consolidating these balances under a debt consolidation term that allows you to manage your monthly budget.

try the FREE debt worksheet to estimate savings
view our debt loan management module

top of page

Managing Your Mortgage Loan

$100,000 mortgage loan at 7.50% for 30 years gives you a mortgage monthly payment of $699.21

If you paid $25 extra each month ($724.21), you will payoff your mortgage in 26 years and 8 months, saving you $20,663 in mortgage interest.

If you paid $100 extra each month ($799.21), you will payoff your mortgage in 20 years and 5 months, saving you $56,312 in mortgage interest.


Paying a little extra

Paying an additional amount each month will reduce your mortgage balance over time where you can pay it off anywhere from 1-30 years (depending on the amount you prepay over time).

This "pay a little extra" option allows you to budget your finances so that you can prepay when circumstances allow.

The prepayment option is for homeowners who have the discipline and budget to prepay a little extra each month in order to take full advantage of the reduced cost.

You can discipline yourself to making extra payment by using one of the automated payment features discussed under our debt management guide

view our managing your mortgage loan


No more PMI

Private Mortgage Insurance is required for all home buyers who cannot raise the minimum 20% or more for the home purchase.

Lenders will make loans with less than 20% down provided that the home buyer gets Private Mortgage Insurance (PMI).

Private mortgage insurance is an added cost to the monthly mortgage payment. That cost is about 0.5% of the total loan balance. If you mortgage loan balance is $200,000, your annual PMI cost will be approximately $1,000 ($83.33 per month).

PMI is an expense that can be eliminated under some circumstances.


When does PMI stop?

If the value of your home increases due to the rising valuations of the neighborhood or home improvements, or if you make enough payments on your mortgage to reduce your balance to 80% of the appraised value, you can cancel your PMI when the lender can be assured that the appraised value of the home has met the 80% threshold.

You must initiate the cancel order — unless one of the these factors take place:

  • you purchased your home after July 29, 1999
  • you reach 22% of the original property value

This could be substantial savings each month. We have more information:
view our managing your mortgage loan module

top of page

Maintaining Good Credit

Applicants with good credit scores save on credit costs

Credit management means successfully managing your credit by paying your debt obligations on time for the amount required.

Any time that you fail to make a payment on time may be reported to the credit agencies.


Why good credit

Your credit information is maintained for other parties to review when you make an application for a loan, apply for insurance, and in some cases, seek employment.

Some lenders may not approve your application for credit if your report has any "1X60" or greater on your report. Other lenders may not give your the best interest rate if your report shows any "1x30".

Likewise, employers who see more than 3x30, or 2x60, etc., on your credit report may consider you at risk since your credit history shows that you fail to meet your credit obligations.

That is why maintaining a strong credit report is extremely important.

More information available:

maintaining good credit
check your credit report

top of page

How Much Charity

On average, Americans give between 5-10% of their total income to charity

The challenge is twofold:

  1. giving enough charity that does not exceed your living budget;
  2. making sure the charity is donated to a worthy cause.

    understand the questions you should ask before giving


Giving your time

If your budget is tight, you may consider donating your time in lieu of a cash contributions.

Charities biggest budgets are staffing and administrative work. Your 1 hour of donated time may be worth in similar dollar amount if the charity had to purchase your service.


Organizations to contact

your local church
lds foundation (100% of donation distributed)

united way
salvation army
red cross

top of page