May 2009

Getting in Debt the Right Way

Are you focused on eliminating debt from your life? Maybe you should instead be focusing on having the right kind of debt.

So when is debt ever a good thing? Debt is a good thing when it adds to your investment profile; when it gives you an opportunity to build your long term wealth. There are many ways you can use debt to secure your financial future.

Before you rush out to borrow money on your credit cards, take a moment to realize that some debt is good, and some debts are bad. Credit card debt will never improve your life, but there are several types of loans that will help you out long term.

The two best types of debt are mortgages and home equity loans. In the past, many homeowners focused on paying off their mortgage as quickly as possible, and home equity loans weren’t even a consideration.

But times are changing. Nowadays, a mortgage or a home equity loan can add to your net worth. The key to this philosophy is using your mortgage or home equity loan to improve your assets.

Think about how most people hurry to pay off their mortgage. Usually, they take out a 15 year loan, or opt to include extra money monthly to be applied to the principle. The idea is the faster you pay off your mortgage, the more secure your retirement will be.

That will certainly pay off your mortgage quickly, but at what cost? If you are fairly young or middle aged, your retirement is far enough in the future that you don’t have to be focused only on it. Instead, when you pay more each month, you have less available money from your paycheck.

Heard the Latest Mortgage Industry news?

While there’s a lot of buzz about the mortgage industry right now, you may be surprised to know the vast majority of people can still get a great home loan with a great rate.

It’s true the problems in the sub-prime market “loans for those with poor credit” have led to a tightening of guidelines for conventional home loans. That’s why it’s more important than ever to maintain good credit. If you have solid credit and you’re able to fully document your income, the good news is that mortgage interest rates are very attractive.

What’s the best way to stay atop of your finances right now? Here are a few tips:

Know your mortgage

Understanding what kind of mortgage you have and the terms you’ve accepted is crucial. For example, if you have an adjustable-rate mortgage that’s about to expire or your initial fixed rate is about to become adjustable – it’s important to call me as soon as possible.

Just because your mortgage rate may be adjustable, however, doesn’t necessarily mean that you must refinance right away. Depending on what your rate adjusts to, you may be safe to stick with your ARM until the market settles down a bit. On the other hand, it may make sense to refinance into a fixed-rate mortgage. Overall, know where you stand and what makes sense to do next.

Take care of your credit

In today’s market, some people can’t qualify for a loan because of poor credit. Avoid the pitfalls by paying your bills on time.

Keep an eye on your monthly spending and credit card statements. Try to only put on your credit card what you can pay off that month. This helps pay off your card sooner and eliminate the possibility of digging yourself into a hole of debt.

Despite the fact home loan options today are more limited, mortgages are still available and rates are still historically low. By maintaining good credit, you can get a great deal and stay atop of the curve.