Debt Free

All of you that are slaves to your mortgage every month will love this. Did you know the term “mortgage” actually has its roots in the French words “mort” (death) and “gage” (pledge)? HaHa! You've signed up for a death pledge. I bet you really want to pay it off now. If you're fortunate enough to live Down Under, you can take advantage of a special bank account known as an “offset account”. It can be a savings or checking account. This financial vehicle allows a savings account to be linked to your mortgage.

The effects are very powerful. Instead of the mortgage interest being calculated on the entire balance of your mortgage every day, they're calculated on the balance of your mortgage minus the amount in your offset account. For example, if you had a mortgage with a $150,000 balance and an offset account with a $20,000 balance, you'd only pay interest on the $130,000 difference. Depending on your mortgage and savings balance, you can easily cut your mortgage repayment time and total payments in half, and this with an offset account balance only about 10% of your beginning outstanding mortgage balance. To make it even more attractive, the interest savings are not taxed as is the interest income in a regular savings account. Wow! Kylie Minogue and 100% linked accounts. Those Aussies have it all. Obviously, such an account would be extremely attractive to U.S. mortgage holders as well. Contact your congressman/woman ASAP. Your linked account would be a great use for your emergency fund.

Create a debt reduction “Count Down”. This will allow you to see exactly how long it will take you to become debt free, as long as you don't increase your debt any more. It's great to watch as the magical day gets closer and closer. To do this, you must make a chart with all your debts. Put the highest rate obligations at the top. You'll tackle these first. Pay the minimum payment on all your debts except the one at the top of the list. Set aside as much of your disposable income as possible after paying all your bills as you can. This is the additional contribution you'll make toward the top debt on the list each month.

As soon as the first debt is completely paid off, you can shift all the money you were previously paying toward that debt to pay off the second debt on the list. These monies will be in addition to the minimum payment you were paying already. When the second debt is paid in full, you shift all the money to the third, and so forth. You keep going in this fashion until you're completely debt free. You can include your mortgage or not in this program. Your inclusion of your mortgage depends upon weather you subscribe to theory of using your mortgage as relatively cheap investment funds or you'd like to completely debt free. That argument could probably start a war in some circles.