The beginners guide to rebalancing the debts for the fresh financial journey.
Know your networth:
Just take a pen and paper please list down your list of liablities and assets. Some of the liabilities are total outstanding Credit card loan, Car Loan , Home loan etc. Some of the examples for the assets are list of stocks, bonds , mutual funds, 401K contribution amount , gold etc. Finally you will get something like this
| Assets | Liablities | ||
| Type | Amount | Amount | |
| 401(k) | $10,000.00 | Credit Card | $5,000.00 |
| Gold | $9,500.00 | Home Loan | $50,000.00 |
| Bank Balance | $2,000.00 | Personal Loan | $5,000.00 |
| House | $100,000.00 | Car Loan | $5,000.00 |
| Stocks | $25,000.00 | ||
| Total | $146,500.00 | $65,000.00 | |
| Net Worth (Assets – Liabilities) | $81,500.00 |
If your networth is postive it is shows your financial discipline. If your netwoth is negative you need to be very careful and defend the debts growing further.
Identifying the “Efficiency Gaps”:
Rebalancing is about moving debt from high-cost environments to low-cost environments.
A typical efficiency gap looks like this: You have $10,000 on a credit card at 22% APR, but you have $10,000 of “equity” in your home or a high credit score that qualifies you for a personal loan at 8% APR. By moving that balance, you aren’t just shifting numbers; you are “rebalancing” the interest drag on your net worth.
Rebalancing your Debts:
Rebalancing is a technique to find the vendor or Bank that provides you a personal loan at less interest rate.
- If you are paying more interest to your credit card you can simply repay them completely by taking new personal loan from a bank at lesser interest rate.
- Do a part payment of Home loan to reduce month on month EMI burden and convert it to the future savings
- Buy used car or avoid buying new vehicle if you already have vehicle that provide you the great comfort.
Smart Decision making:
Taking a smart decision like getting another loan at a lower interest rate will help you to save monthly few hunder bucks also provide you a reliefe from higher interest rate.
If your bank allow you to shorten the loan period.