The Quest for Debt Freedom

Some of the things you may have read on this website or have heard. “Your Home - Your Money” may seem to conflict with other financial strategies you have heard from other financial sources. Though our strategies seem to contradict theirs, they do in fact compliment one another.

 We  have no idea where  people are financially until they call us. We do not know what the underlying reasons are for your financial situations. Your financial strategies have to be straightforward and fool-proof. It would be irresponsible for us to try and communicate sophisticated strategies without the involvement of a financial professional.

Here are some of the things that we suggest that you work on:

• Work toward being debt free (though we define that differently).
• Eliminate waste from your monthly cash outflow.
• Save, not consume any excess funds.
• Save for large purchases rather than finance them.

We take the accountant’s definition of debt; that is evaluating assets and debt based on a balance sheet. If you owe $5000 but also have $5000 in assets in a savings or investment account, you are debt free. You can retire that debt at any time, but it is not always in your best financial interest to do so. The balance sheet shows a wash of assets versus liabilities and therefore we consider that person to be debt free.

I can think of several reasons to maintain that $5000 obligation mentioned above.

• If the $5000 in your savings account is your only cash reserves, you should keep it available to you for emergencies.
• If that $5000 liability is the only account of that type reporting on your credit report. Keeping that account open and in good standing will boost your credit profile.
• If you are anticipating a future expense that you can pay cash for instead of using credit.
• If you are earning more on the investment than the obligation costs you, and there is a substantial degree of security in that investment.

What drove you to make poor financial decisions? If you went far into debt before, what will prevent you from doing that again? Those are important questions. In our broad stroke approach it is important for you to learn to to manage your debt.

 But it is good financial advice to use your equity to retire consumer debt for two reasons: First, consumer debt is usually at a high interest rate. Mortgage interest rates are usually lower. Second, mortgage interest is tax deductible. The net impact on your financial well being can be substantial.

For example, let’s say that you have $300 each month that you can use to pay down your mortgage. If you paid $300 extra toward your mortgage each month, you would pay off a 30 year fixed rate mortgage in just over 23 years. Sound great right? Now let’s say that you took that same $300 per month and invested it into a safe, liquid investment account that earns an 8% return, you would be in a position to pay off your mortgage in only 17 years. That’s 6 years sooner!

Some would argue that it is unwise to consolidate consumer debt into a mortgage that is secured by your primary residence. I would agree that if your goal is to free up funds to increase your spending, that would be a very unwise thing to do. But if your priority is to create a sound financial plan for your long term security, then I would disagree. In most cases, the new mortgage payment will be lower than the current monthly payments of your mortgage and consumer debt combined. That will make your monthly financial picture stronger. And, as I mentioned above, you will experience a tax advantage on the repositioned debt that will compound its value to your bottom line every year.

That illustrates how a professional can help you to achieve the same goals by a different path. So while our messages may seem contradictory, they really are not.  We take your financial strategy to the next level. The professional level.

BretlinFloridaMortgage.com

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Email: info@bretlinfloridamortgage.com 

Apply Online Anytime: www.bretlinfloridamortgage.com 

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