Interest rate is *not* the problem

When I’m working with a client on getting out of debt, especially on student loans or credits, one of the first things they ask about is how to lower their interest rates on the loans.

Interest rate isn't the problemI understand why we go there first. Interest rate impacts the monthly minimum payment and if you can lower your interest rate a few percentage points why not? It’s low hanging fruit.

However, the interest rate is only about 5-10% of your problem and therefore you should only spend about 10% of your time on lowering the interest rate.

The real problem is the actual DEBT that you owe!

Instead of spending all of our time trying to find 0% interest rate credit cards to transfer your balance to, put 90% of our time and focus into paying the credit cards off.

So often we think that lowering the interest rate solves our problem, but it doesn’t. Having student loans of $40,000 at 6.2% and refinancing them down to a 4% loan helps. But the real issue, the $40,000 of debt, is still there! Lowering the interest rate doesn’t change that fact.

Instead of spending all of our time and energy trying to save on interest, instead spend the time to find money in your budget to apply to principle reduction instead. Or think of creative ways to earn extra income on the side.

Again I’m not against lowering the interest rate if you can, but just simply lowering the interest rate and thinking that will solve your debt issues is foolish.

There needs to be more action on reducing the actual debt itself, not the interest rate.

Think of it another way when you pay the balance off, your interest rate will then be 0%  . . .forever so focus more on the real issue, paying off the balance instead of reducing your interest rate.

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