Interest Rates and Rainy Days

With July starting in two more day, many are patiently waiting for summer to finally get started. A lot of people find themselves with a little more free time than usual this year while they sit indoors and wait for the storms to pass.

Good news, I have a simple idea for you to pass some time! Your next rainy-day project is to lower your interest rates on any debt that you pay. It helps to be prepared so during the next big thunderstorm, sit down and get started on a plan.

Before making any calls, you need to do your research. Compile a list of all of your debts and loans including what interest rates you pay on each one. Be sure to confirm which loans are locked in and which ones allow for early or penalty free repayments.

Go online and find out what the best available rates are for the type of loan you are holding (mortgage, line of credit, car loan, etc). Request a free copy of your credit score and see if there are any easy ways to boost it up a little higher.

Once all of your research is done, it’s time to formulate a plan of attack. Depending on the flexibility of your debts, you may need to wait for a certain period of time with some accounts, but many changes can be done right away.

If you are able to prepay your mortgage, or if it’s up for renewal, your advanced research can be very important. You need to know what others are paying right now. Securing a rate reduction of 0.5 per cent can mean knocking an extra $7,638 off your principal owing on a $500,000 home after five years! People do this all the time, but you often need to fight for it.

Setup an appointment with your current mortgage provider and start by asking them what options they have for reducing your interest rate. If they don’t come down enough, you can next show them your research with the best options out there and ask them to match it. If they’re not willing to match, it might be time to start looking elsewhere.

Your approach to your line of credit should be similar. Book an appointment with your lender and ask them what they’re willing to do. The more prepared you are for this meeting, the better your odds of coming out with a lower rate. For those that find the research and meeting preparation too difficult or overwhelming, speak to a Certified Financial Planner to help you build your game plan.

With credit card debt, you have two main options. Much like above, you can consider contacting the lenders and negotiating rates, but you may not get very far. A better plan could be to construct a debt consolidation plan and pay off any higher interest loans first while making only minimum payments on the rest. The common approach of “paying a bit down on every debt” is hurting you more than you know.

Regardless of what approach you take, any small interest rate reduction can have a significant impact on your overall finances. Sometimes all it takes is a bit of effort to prioritize which debts to tackle first or moving a higher interest debt to a lower interest solution.

It’s amazing to me that people will drive across town (and spend a couple of bucks in gas) to save $5 on the price of a small item but won’t put any effort into lowering their interest costs. For the same amount of effort that it takes to save that $5, you could save thousands of dollars per year in wasted interest.

So on the next rainy Okanagan afternoon, set aside an hour to construct your own interest rate reduction plans.