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Updated on Friday, December 11, 2015
Wouldn’t it be great if we could all have a personal finance genie by our side every day to help us make those hard financial decisions and to whisper in our ear when we’re about to make a financial mistake.
MagnifyMoney’s co-founder Nick Clements is no genie, but he did work in banking for 15 years before leaving to launch his own business, and he does know a lot of tricks when it comes to finance. Here are five good ones.
For mortgages: Pay more than your minimum mortgage payment in the first couple years.
How it works: Qualifying for a mortgage loan is just the first step — once you buy your house, your payments must begin. The thing to recognize, says Clements, is that in the first three years of a typical 30-year mortgage, almost all of your monthly payment goes towards the interest of the loan. “In the first three years you will only pay off 5% of the principal balance,” he said. “To get the best bang for your buck, you should try to get out of the first three to five years as soon as possible by making extra payments early on to accelerate your debt repayment.”
For credit cards: You only need one transaction a month to build a credit score.
How it works: When it comes to credit cards, just because you use them a lot doesn’t necessarily mean you’re building up a good score — in fact, the opposite could be true. One trick to help build a credit score is to limit transactions to one a month in the beginning, and pay them off on time. “When my wife moved to the U.S., I set up her monthly mobile phone payment to automatically debit from her secured credit card, then we set up an automatic payment” says Clements. “Within 12 months she had a good score, and within 18 months it was excellent.” Her score rose so quickly because one, she was keeping her utilization low (aka her spending compared to how much available credit she had), and she was making on-time payments each month, both of which reflect positively on credit score.
For student loans: Make bi-weekly payments and consolidate one loan at a time.
How it works: When it comes to student loan payments, dividing the amount you pay each month into two equal, bi-weekly payments instead, could save you thousands in interest and shave months off the life of your loan. The reason? Since the year is made of 52 weeks, you’ll be making 26 bi-weekly payments, and will essentially end up making 13 full payments a year instead of 12. (See exactly how it all plays out here.) Then, when it comes to student loan consolidation, consider consolidating one loan at a time, as opposed to all of them together, so you can preserve the previous interest rates, rather than creating a new, larger weighted one. This will enable you to aggressively chip away at the loan with the highest interest rate and work your way down, instead of increasing your lower interest rates. Learn more about how this hack can save you here.
For finding a good interest rate: Use a tool to help, then do your own research.
How it works: If you’re in the market for a mortgage, your first stop should be the CFPB tool to find the lowest interest rate available to you based on your credit score, LTV and zip code. “Unfortunately this is a government tool, so they don’t make it easy by telling you who offers the lowest rate,” says Clements. Instead, Google the interest rate to see if you can find the provider yourself, or take that rate to the bank and see if they can beat it. “A friend of mine used that upon my advice, and Citibank matched the lowest rate in the zip code.”
For dealing with banks: Don’t be afraid to threaten to leave.
How it works: If you’re having trouble with your credit card company, start by keeping your cool, but then feel free to tell the customer service rep that you’re willing to either close your account or call the CFPB. “If you threaten to cancel your card, you will likely be transferred to the retention department, where the deals and offers are usually much better,” says Clements. “And if you’re still not getting anywhere, you can always threaten to complain to the CFPB. But only do that if you have a real complaint. The CFPB should only be used for legitimate complaints, rather than attempts to get extra rewards.”
Read this for more information on how to best put in a complaint with your credit card company.