Brought to you by Bob Whitaker of the Entrepreneur Network USA, LLC
This is part 3 of a 4 part series on understanding debt and how to eliminate it as quickly as possible. This section is entitled: “Accelerate Your Debt Rolldown Plan”. If you don’t wish to wait for the rest of the series on eliminating debt and creating wealth, then you can go now to, https://EntrepreneurNetworkUSA.com join the network for FREE and get the full version of our Debt Elimination and Wealth Creation manual immediately.
SECTION 3 – Accelerate Your Debt Rolldown Plan
Using Your Mortgage as a Debt Elimination Tool
In the last section, we discussed the importance of eliminating “bad debts” – debts that do not help us make money. We laid out a debt elimination calendar to easily speed up debt payment even if you don’t have any extra money right now. In this chapter, we will discuss one specific strategy for eliminating debts even more quickly. The next chapter will contain more strategies and ideas.
The best way to eliminate debts as quickly as possible is to create the biggest “margin” possible and then apply that margin toward debt payments. Creating a margin simply means finding ways to lower your payments and/or expenses so you have more money available to you each month. Many times using a mortgage creates the largest margin.
For example, let’s say this is your situation:
Home value: $220,000
1st mortgage amount: $156,000
2nd mortgage amount: $20,000
1st Car loan amount: $11,000
2nd Car loan amount: $9,000
1st Credit card balance: $6,800
2nd Credit card balance: $3,000
Department store card balance: $1,200
Total monthly payments: $2,750
Now, let’s say that you determine, after consulting with a debt elimination coach, that you can consolidate some of your debts into a new mortgage. After consolidating a few debts and leaving the others alone, your new total monthly payment is $2,550. You now have $200 a month available to accelerate your debt payments. That $200 a month will yield tremendous results when it comes to eliminating your debts. In fact, in this example, if you used that $200 a month to pay off your debts and did not accrue any new debt, you could have everything paid off, including your mortgage, in under 10 years. You could also save $155,000 in interest payments.*
Not only that, but because you have everything paid off in 10 years, you now have the other 20 years that you would have been paying on your mortgage to save up money for retirement. In fact, assuming you continued to contribute the full $2,750 toward savings after the debts are paid off, you would have $1,200,000 saved for retirement (earning a conservative 6%) after the full 30 years were up.*
Some important considerations when deciding whether or not this kind of mortgage should be part of your debt elimination plan:
Should you get a fixed rate vs. variable rate mortgage? If your debt elimination plan has you getting out of debt in 7 years, for example, you may want to consider a mortgage that has a fixed interest rate for 5 years or 7 years, since you will likely not be paying on it for the full 30 years. Your rate may be lower that way. Sometimes a variable rate mortgage can save you even more money and pay off your debts faster.
Make sure you factor the costs of the new mortgage loan into your debt elimination plan. If the costs are too high, it may not make sense. Also, if you plan to sell your house within a short amount of time, it may be better to wait until you sell the house, and use some of the equity money to pay off your debts instead of refinancing now.
If your new mortgage is over 80% of the value of the home and you will be required to pay mortgage insurance, make sure to factor that cost into your calculations. Paying mortgage insurance is not necessarily a bad thing. If it helps you create a larger margin, it may make more sense to pay mortgage insurance than to make a credit card payment carrying a high interest rate.
Please understand that we do not recommend debt consolidation loans for the sole purpose of reducing monthly payments. We see many people who have done debt consolidation loans, reduced their monthly debt payments, and then went out and ran up the credit card balance again, or bought a new truck, etc.
This strategy will not help eliminate debt and is not a path to financial progress. We only recommend consolidating debt into a mortgage if you are committed to an effective debt elimination and/or savings strategy that will put you in a better financial situation than your current one.
As we stated in the previous section, the most important step in eliminating debt effectively is not incurring new debt. If you want to get ahead financially, commit now to stop buying things on credit that do not help you make money. Then create a strategy to eliminate the debt you do have. Stick to it, and your debts will be gone sooner than you think.
* The scenario listed in this example is hypothetical. The actual time required to be debt-free, the amount of interest saved, and the savings amount after 30 years depends on many factors, including the balance of existing debts, the interest rate assigned to each one, the payment structure of each debt, mortgage qualifications, current mortgage interest rates, and other factors. Every situation is different and as such, this example is intended to serve as an explanation of these financial principles only, not as an exact illustration of any actual debt elimination plan.
Other Ways to Accelerate Your Debt Elimination Plan
In our discussion of how to get out of debt as quickly as possible, we talked about creating a debt calendar. We make the minimum required payment to all of our creditors each month. Once one debt is paid off, we use the monthly amount we were sending to that creditor and add it to the payment we send to the next creditor on the list. We continue the process each time a new debt is paid off. Before long, all of the debts are completely paid off. Next we discussed how a mortgage can help us create a “margin” (additional money) each month in our budget which can be used to pay down debts even faster. This idea is especially helpful when debts can be consolidated into the mortgage, thus lowering interest rates on debt and giving you increased tax advantages. In this chapter, we will discuss several other ideas for increasing this margin. The bigger the margin you can create (and the more of that margin that you put toward debt payments), the quicker you will be debt-free.
Creating a margin is really just a combination of reducing expenses and/ or increasing income. Here are some ideas to help you create the largest margin possible:
There may be some money available in your current budget that you can dedicate to paying off your debts. Do it!
If you are currently saving money each month (for retirement or other purposes), consider using this money – or part of it – to pay off your debts and then reinstate your savings program once the debts are gone. If you are saving at 3% and paying interest on debts at 18%, you are losing a lot of money, especially over time. However, one caution is in order:
We STRONGLY recommend having 6 to 12 months worth of expenses saved in an emergency fund (see Section 2, Chapter 4 -Saving Money). If you have your emergency fund in place
already, use your monthly savings amount to increase your margin and accelerate debt payments. If you don’t have your fund in place, you will need to decide what course of action to take. You may decide to continue your savings until you do have an adequate emergency fund. Or you may continue saving some of that money and using the rest to add to your margin for debt payments.
The danger of not having an adequate emergency fund is that if “life happens”, you will find yourself in a tight spot. It could be a medical bill, a car repair, an investment opportunity, etc. But if you don’t have the money available in an emergency fund, it can be a source of much stress and anxiety. You may even have to pull out the credit card again to cover it, renewing the vicious cycle of debt you were trying to stop in the first place.
Consider refinancing your auto loans. Rates are extremely low right now and this may save you some extra money. Credit unions usually have the best rates on auto loans, so if you belong to a credit union or you meet the eligibility requirement to belong to one, do it!
Refinance your student loans. Interest rates on student loans have never been lower. Although this may not save you as much as some of the other suggestions, every little bit helps.
Increase your income. There are many ways to do this. As you read in Chapter 2 of the last section, one of the best ways is to invest in real estate. Entrepreneur Network USA offers a great course to help you succeed as a real estate investor. Or you could start a small business on the side. Sell things on e-bay®. Get a part-time job for a short time until the debts are paid off. Even $100 or $200 a month extra will dramatically speed up your debt payments and get you out of debt quickly. A debt coach can show you exactly how much sooner you will be out of debt by adding money to your plan each month.
Transfer credit card balances to credit cards with lower interest rates (consider some introductory offers, balance transfer offers, etc.)
If you usually get a large tax refund every year, use your refund to pay down your debts. Also, if you receive W-2 income, consider increasing the number of withholding allowances you claim on your W-4 form with your employer. This way, you get more money in your paycheck which you can use immediately to pay down debt. Let’s say that you get $1,800.00 back at tax time. Paying $150 per month toward your debts will accelerate your debt payments much faster than waiting a whole year and then paying $1,800.00 all at once.
I have saved one of the best suggestions for last. Use a spending management plan. We highly recommend that you use some type of spending management software. These are often available for free through your bank or credit union. Using a financial software system can help you monitor your spending and help you find ways to save money. Mostly, this type of software can keep you accountable of your spending habits. The results can be amazing. Many people using tracking software have found an extra 10% in their budget. For someone making $3,000 a month, this would represent $300 a month savings. The best part is that most software tracking systems are very easy to use and are typically already linked or can be easily linked to your bank accounts.
We hope that you will use some of these suggestions and get rid of bad debt (debt that doesn’t help you make money) as quickly as possible. There is no better feeling than being debt free! And getting rid of debt is the first step toward creating wealth.
Review the suggestions in Chapter 2 and determine which ones you can use to create a bigger margin. Apply the margin to your debt elimination plan.
If you would like assistance…go to https://EntrepreneurNetworkUSA.com. Register as a premier member and receive help from a professional debt elimination coach. Your coach will work with you to create a personalized debt analysis. If it makes sense to make adjustments to your current mortgage, your coach can educate you on the pros and cons of different types of mortgages and can help you pick a mortgage that would work best with your personal debt elimination strategy. Your coach does not work for or with any mortgage entities. Your coach also is not paid on commission in anyway, so the information you receive is completely unbiased. Check out the website link above and begin your journey to a healthier financial future TODAY.
COMING UP NEXT
In the next issue of The Network Marketing Magazine, watch for the debt elimination article describing: Alternative Ways to Eliminate Debt. If you don’t want to wait until next month, go now to https://EntrepreneurNetworkUSA.com , join the network for FREE and get the full version on our Debt Elimination and Wealth Creation manual immediately.
For over 30 years, Bob & Anita Whitaker have successfully operated About Face Photo And Video from their home, doing hundreds of weddings & events. Bob founded The Daily Plan-It and developed the Tax MiniMiser, a financial tracking system used by independent contractors and small business owners now for over 25 years.Formerly the National Marketing Director for Musco Olive company, Bob oversaw all national sales. He has more recently Co-Founded the Entrepreneur Network USA and is the current VP of Sales for the company.He also serves on the Board of Directors of ConTXT, Inc, a mobile app technology company.
Latest posts by Robert Whitaker (see all)
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