Debt

Loans and Interest
Being aware of the different types of loans and interest is a crucial part of planning your debt reduction. Some types of loans - such as most mortgages or simple interest loans - are considered "standard" or "acceptable". Other types are designed to appear advantageous to the customer, but may actually be financially dangerous.

These days, it seems that there is a new mortgage type to fit just about anyone's situation. Here is the rundown on some of the more popular mortgages seen today:

• Fixed-Rate: One of the most common and conservative type of mortgages. The rate never changes for the life of the loan. Usually requires a better than average credit score to qualify for lower rates. Being a bit on the conservative side myself, this is what I feel safest with. If you can get a low fixed rate mortgage, grab it.



• Adjustable Rate (ARM): These are often attractive to young and first-time homebuyers. Rates for the first couple of years are very low, making the buyer feel that they can buy more house than they can afford. Reality sets in after a few years, when the interest rate rises significantly above standard fixed rates. Unfortunately, many people have lost their homes when they could no longer afford the significantly higher mortgage payment. I could see ARMs being a good idea under two circumstances: a) you know that you're going to sell before the rate gets too high; or b) you plan to refinance within the next couple of years.



• Interest-Only: To me this is simply another lure to get people to qualify for and buy more house than they can afford. As it's name implies, you are required to pay only the interest portion of the loan - making your payment very low. The mortgage broker will typically sell you on the loan by saying "just make some principal payments when you feel like it". Unfortunately, many people shopping for this kind of mortgage don't have the extra money for principal payments. Two more problems eventually arise: a) you find that you have little or no equity in the house; and b) the principal is going to be have to paid some time, meaning that your payment will eventually go WAY up.

Credit Card Debt
Credit cards are one of the most convenient purchasing tools available to consumers. When not managed properly, they can quickly become the cause of many consumers' debt and credit problems. The primary reason people get into trouble is that credit cards provide a means of immediate satisfaction, often used to purchase unnecessary items. Soon the balance goes up and the revolving interest starts to really kick in.

Eventually, even the minimum monthly payment is almost out of reach. And that's right where the credit card companies want you - making only the minimum payment. That's how they make their money. Because most of the minimum payment only covers the monthly interest, the principal balance remains high. At this rate it would take you years to pay off the balance. Meanwhile, the credit card company has made thousands in interest.

Getting control of your credit card debt means attacking the issue from two different approaches:

• Change your spending habits: Stop using your credit cards to buy things you really don't need and can't afford.
• Prioritize your budget: Use any extra money in your budget to pay off the cards as quickly as possible.

Mortgage Amortization Calculator
The link below will link you to one of the slickest mortgage calculators you'll find. It provides some features not seen on most mortgage calculators; in particular, the effect of extra principal payments. Enjoy!

Free Mortgage Analyzer