Archive for August, 2007

The Debt Payoff Myth

August 31, 2007

There has been much written about how to payoff or eliminate your debt.

Most of the techniques recommended are OK but lack the true mechanics about how most people handle their finances.

The common theme is to gradually payoff each debt by paying a little extra each month onto the smallest debt obligation.

OR

To totally payoff everything immediately by re-financing your home mortgage to lower the overall monthly payments.

Neither of these are necessarily bad ideas except they do NOT take into account the lost “opportunity cost” or what to do with the excess income you have now once your monthly payments are lower. (It also does not take into account something I talked about in an earlier post, the tendency for most people to turn right around and create new debt outside of the mortgage so they end up in the same “hole/position” again.)

 One of the common misconceptions is that paying off ALL of your debt is good.

However, there is: Good debt AND Bad debt.

It would appear that ALL debt is bad debt BUT, this is far from true.

Most “consumer” debt IS bad debt and more than likely “should” be paid off.

When you borrow to invest in a business, is this bad debt?

This would be considered Good debt. (Of course, assuming this business is a good investment.)

From a cash flow perspective as long as the business can pay for the debt this works.

In other words, the business is at positive cash flow or showing a net profit when you include the debt payment as an expense.

Using debt to purchase investment real estate could also be considered good debt.

So, in conclusion, struggling to get out of debt may not be the best method for some people.

In a future post I will discuss the methods used to build wealth without paying off your debt. 

Advertisements

Is a Debt Consolidation Loan best for you?

August 16, 2007

Is getting a Debt Consolidation loan a good way to start the process for eliminating your debt obligations?

With the wave of mortgage refinance hitting a peak a few years ago, this is not as much of an issue as it once was.

Many people are still in a position from an equity perspective (in other words, they still have equity in their homes) to put themselves in a better position from a cash flow perspective. (By consolidating their debt.)

The question is, “When is it good to do this”?

 Well, quick frankly there are a lot of times when it is NOT good.

Most people that refinanced over the past few years, did NOT use the money that they were saving wisely.

Let me give you an example.

Say you refinanced some debt and were able to cut your monthly outgo/loan payments by $450.

You consolidated some Credit card debt, maybe a car loan, etc.

Now, what did you do with the extra $450 per month? (assuming that you were making the payments on the other loan obligations before the refinance. Obvisouly, some people refinance bad debt that they weren’t making there monthly payments on.)

SOO- what did you do with the extra $450?

 A large portion of the people—

—Went right back out and FINANCED OTHER CONSUMER ITEMS!!!

To put themselves right back in the same hole again.

THIS is where the “proper allocation of capital” comes in that we will be speaking of in the future.

Obviously, there ARE bad loans but most of the time it is “poor management of money” after the refinance.

More on this topic later..

The Cost of Debt on America’s Families!

August 13, 2007

In today’s fast paced super hyped society, we can only take in so much information.

Most families today have both spouses working and have little time to truly evaluate their current financial situation.

The amount of financing options available to everyone has us wrapped so tight that we cannot focus on the people and ideas that are important to us.

The key is to truly get a grip on what the real numbers are in OUR financial world.

The key numbers are:

1) Amount of income per month.

2) Amount of our expenses per month.

3) How much is leftover.

 For most people the last number is ZERO!

That IS the problem.

You either have to spend less or make more to get ahead. (At least that’s what we are told.)

But, is this true?

 How about the “proper allocation of capital”?

Have we taken this into consideration?

Living paycheck to paycheck has become a way of life and actually, sucks the life right out of us.

In a future posting I will give you the step by step instructions for eliminating your debt and getting a handle on your finances.

I will also properly explain the term “proper allocation of capital”.

Until then, I would love to hear comments on what your thoughts are on the issue of debt in the American household.

Thanks and talk to you soon.

How to Eliminate Your Debt!

August 9, 2007

Hi. This is William. Do you know how to get rid of your debt?

On this Blog I will be sharing my 20 years of experience in the financial services industry helping hundreds of individuals and families free themselves from the burden of unnecesary debt obligations.

Looking forward to hearing from you all.