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My Thoughts on Debt

Economic Dangers

  • The primary economic danger of debt is that compounding interest works against you rather than for you.
  • The second economic danger of debt is that debt becomes a trap – getting in takes no effort, but getting out can feel impossible. The feeling of power turns into a stranglehold on you.
  • The third economic danger to debt is that debt always mortgages the future. The first priority use of future income becomes debt repayment.

(From Master Your Money By Ron Blue)

Many financial professionals underestimate the psychological burden but rather focus on the financial decision. Taking on debt is an economic, psychological, and spiritual decision.

Psychological Impact

  • I have seen debt create more stress and anxiety than it gives pleasure.
  • Marriages are ruined by debt. Financial burden is a major attribute to divorce.
  • It can also put friction and distance in other relationships, such as between friends or in business partnerships.
  • When one person lends to another the relationship changes. If it is a friend or family member I promise that the relationship will never be the same, at least until the debt is paid off.

Borrowing takes away from the future and jeopardizes important goals, such as retirement, children’s education, and giving.

Debt keeps people in jobs that they hate and from venturing into a more fulfilling job.

Once you experience freedom from the burden of debt you will never want to go back in debt. 

My General Recommendations:

Start retirement debt free – I have seen many couples enter retirement with a mortgage and even auto debt. For some this worked out okay. However, it always creates unnecessary stress, during what should be a low stress time of your life.

If you are in the midst of planning, make entering retirement Debt Free a priority. If you are only a few years from retirement, then map out a plan to accelerate your debt payoff or even consider other housing alternatives. The first few years of retirement is usually your highest retirement spending years. Enjoy them! Do not let debt weigh you down and be the killjoy during this great stage of your life.

Mortgages – I have never met anyone that regretted paying off their mortgage! If the mortgage is the only remaining debt we will likely recommend increasing monthly payments to pay it off early. Of course, it depends on the personal situation. If you purchase a new home or refinance, consider a 15 or 20 year mortgage rather than starting over with a fresh 30 year mortgage.

Don’t finance a car for more than three years – If you believe it is necessary to finance a car at all then pay if off as quickly as possible, even before maximizing the funding for long term goals. I would rather see a couple debt free than a huge college fund or retirement fund. Planning for the future is very important but reducing unnecessary risk today is even more important.

Credit Card – Stay away! Do not carry a balance on a credit card. I don’t care if it is 0%! Most people do not factor in the human emotion and how we are wired. We do not totally understand the risk and how quickly the snowball can go in the wrong direction.

Criteria for undertaking debt

  1. Does it make economic sense to incur the debt? These are two rules to follow to determine:
    • The cost to borrow (after-tax interest) must be less than economic benefit received (interest, yield, and/or growth in value).
    • There must be a guaranteed way of repayment.
  2. Both spouses must be free from any anxiety regarding this debt. There must be unity between spouses.
  3. Can the debt be undertaken with spiritual peace of mind?

From a biblical perspective, debt is not wrong. There are many verses of scripture that teaches us how to manage debt. However, God does warn strongly against the dangers of debt.

We have seen it all. Just ask. We’ll tell you about the success stories and the horror stories. These create opportunities for us to learn and grow and to lead our clients into financial security (as much as possible).

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Joey's primary focus is working with clients in the goals setting and financial planning process. He has extensive experience is in helping clients facilitate the decision making process, leading them through the implementation of their financial plan and contributing to their peace of mind. This includes helping clients gain an understanding of estate planning, charitable giving, and helping them implement these plans by working closely with estate planning attorneys.

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