Tip #4: Replace expensive debt with cheaper debt.

Although the rates are rising, the cost of secured debts such as mortgages and lines of credit remains relatively cheap within the bigger scheme of things. One option to create capacity within your budget is to replace expensive debt with cheaper debt.

Let’s say you have a car loan with a monthly payment of $1200, and there is $30,000 left on that loan. It may make sense to pay it off using your secured line of credit and reduce the monthly payment from $1200 to $118—which is the interest payment at prime (4.7%) on a $30,000 loan.

Now you have extensive capacity to handle a rise in payments somewhere else in your portfolio, and, overall, you are at neutral or better from a budget and a cash flow standpoint.

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