Issue 1.16
In a perfect world, by the age of 65 we should be free of all debt. Isn’t our retirement, supposed to include a paid off home and no credit card bills?
The problem is nothing is ever perfect. The last ten years have not gone as they were originally drawn up – correct? The downslide in the housing market coupled with the down side of the economy has hit our senior’s and retirees as hard as any sector today.
Here is something to please think about as we balance our finances during our retirement and heading into the 2016 year particularly with our debt. If you have a mortgage and you have additional credit card payments or other payments on top of the mortgage you need to consolidate everything. It is simpler than it sounds.
Our credit card interest is roughly anywhere from 12 – 20%. It makes payments on these credit cards nearly impossible to catch up on when we are on fixed income. For example, let’s say you have a 150,000 mortgage with a 900.00 payment and you have 20,000 additional debts with credit cards or auto loans and that additional payment or payments are 400.00 per month.
You can consolidate your additional payments at high interest into the low interest mortgage. A mortgage is generally the lowest interest rate in the market because it is of course the most secured. Adding 20,000 to your mortgage will increase your payment by 50.00 to 100.00 per month. But, the additional payment of 50.00 to 100.00 per month is offset by the savings of the 400.00 per month that you were making on the higher interest debt.
This simply gives you a 300.00 monthly savings or more during your fixed income years. That is a big deal to most of my client’s. All you are doing is moving high interest to low interest and reducing your payment over the long term. Here is the key: You can still pay the additional debt off in half the time if you want to. Clients will say, “Well I don’t want to extend my auto or credit cards out over 30 years.” So, don’t. Make the same payment you normally do and you will still pay the balance off in half the amount of time. There is no down side to consolidate the higher interest whether you want to save the 300.00 per month or whether you just choose to be able to pay it off sooner than you would if you keep the high interest. Finally, my comment would be why you would make extra payments to retire the debt. I know this sounds strange from a registered investment advisor, but you will not likely pay off the mortgage over your lifetime anyway! So, does it matter if your kids owe an additional 15,000 on the mortgage when they get the home after your passing? Really, why are you making those extra payments to retire the debt when it will never benefit you and your wife? If you are 30 years old, my advice is certainly not the same, but at 65 or 70 plus, please enjoy the additional cash flow monthly and enjoy a dinner out with your wife once a week. My guess is your kids would want you to do that anyway! So, if you have a mortgage plus additional debt in credit cards or other, please give us a call or your bank a call and get senior advice that is best for you and not someone else. Until next time, Brandon.
Brandon can be contacted at 435-674-9200.