Debt Questions EVERYONE Is Asking
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Let's do IT. Here's some dead questions everyone's asking.

Brand, I am so excited to talk about this because we know that our audience has questions about dead is IT good is a bad? How should I use IT what I do? What should I not do? And i'm glad that we can speak into those questions and hopefully help our financial mutants .

do money Better. That is can be danger. I talk about that time, but there for how do you properly use that? How do you also make sure you're paying off debt in a very reasonable time frame so you not get out of over your skis? We're kind of hopefully cover that with by going through some these general questions we often get on how do you do that? How to do that? Well.

you guys optimised. So there's a good chance that a lot of you are using that. You're not using IT in a negative or a bad way, but you even want to make sure that in the way that you're using IT, you're using IT to the optimum level. You are maximizing how you use and use IT well. So you have can incredibly effective and not something .

that actually works against your future financial wealth, building .

production first, debt that people often have questions about. For most of us, this is the single largest purchase we will make in our entire financial lives. And often times when we go to make this purchase, we have to use debt, not be able to do IT, and that purchase is home ownership.

Now the good news is, fortunately with for mori's historically, this is not going to be the highest interest rate out there is not like credit card or even student I mean student loans or car loans. Mortgage dead now will say most recently it's been will cover that. But the first question most people have as guys, should we do fixed mortgage? Should do adjustable mortgage. What type of mortgage should we have?

And what is the one that makes the sense? And there are mortgage and they are adjustable, right? mortgage.

And this is pretty common sense of fixed rate mortgage says i'm gna pay defined interest rate over the term of the law, whether it's ten, twenty, thirty years alone, i'm going to pay a fixed interest state over that term. Adjustable rates are little bit difference. They say we're going to have a rate that adjust.

Perhaps it's fixed for some period of time, three years, five years, seven years. But after that peared, it's gonna fluctuate. It's gonna move with interest rates. So as you can imagine, there are pros and kind to each, but they are not created .

eal is that this whole adjustable versus fix is is in an odd place in history because usually when interest rates are super light, why the world would you not just do the fix? Because know if you have a fifteen year, thirty year mortgage ing year in historic lows, this is like the biggest no brainer.

But now that we're in a higher interest rate environment historically, you can quickly see where people are thinking, hey, maybe out to do the ARM or adjustable rate. But but we were talking about first, you you got to go look at our checklist on home ownership. And I was saying that boat, my example was maybe something moving in five to seven years from the time they move, the probably .

would be by a primary residence if you're gona move inside of five to seven years. So or I think I just more mortals likely have some practical use case is if this is some sort of investment asset or some capital asset that has an mediate term holding period to our you believe either one of two things will happen.

You will have the ability to write refinance into a lower fixture at some point or potentially, you may just be selling the asset altogether. So it's really just a bridge loan for a temporary holding period. That's not the way we look at. That's not the way we our primary rest.

So but in the next question we get is how can I lower my interest because of if i've just hand shared with you guys that we're in a historical time where interest rates have gotten higher than they have been in the last ten and fifteen years, there has to be a way that we can bring this higher rate down. Where's more managed, especially as interest to start dropping?

There's really two ways that people often lower their interest rate, one you've heard of and what you have in the one you've heard of is just refinancing will talk more about that. But the one you are likely have not heard of .

in the amazing world, modifications isn't actually a versus one versus the other. This is actually should be part of your refinance processing. Everybody who's considering refinance, the first thing you should try to do is reach out to your existing lenders and ask if they will do a rate modification, which are all this is, is basically calling your current lenders and asking them to restate your mortgage rate for maybe it's at seven percent or little over seven.

What if new rates are now below six? Would they for a few hundred books or whatever their fee is to do rate modification, consider restating your loan at the lower rate as a very good chance, especially with these big lenders. They go to say no, but IT doesn't hurt to ask because it's substantially cheaper and a lot less of an arduous process. Doing a rate a loan modification versus doing a full .

refunding a loan modification is not available or Linda does say no to. Then you move to refinance. There's generally two types of refinances that we most often see. There's a cash out refinance. Essentially, you're going to tap into the equity that you've built up inside of the really asset inside of your home and you're gona pull some cash out of IT.

Well, this doesn't really make altona since its super high interest strategy are certainly not if interest strates are higher than what your primary mortgage is because now you're borrowing very, very costly money doesn't make IT on a sense. A lot of real ate investors or use cash out refinances to begin acquiring and buying other properties, a regular Normal refinance to just called a right in term refine. We're likely what you're going to do. You're gonna reset the interest you're paying often times at a lower interest date and you're gna reset the term of the loan. So if you had alone that you've been paying on for five years and you go take out a new refinance five years in, you gonna try cast that mortgage over thirty years or resets the term of the law and also resets the rate at which things you want .

to make sure you watch out. They can be a little bit more aggressive because especially where is the money going, there are fees associated refinance. Is this actually going towards buying more assets? Are building more net worth or baLance sheet assets? Or is this just going towards consumption? There's a lot of things just realized. This is actually probably increasing the when you do cash out refunds versus lowering the risk activity. So just go into IT with your eyes open because part of life, I think, is that you are trying to figure out how do you from a rest perspective, yes, you might need debt in the beginning, but at some point you do want to remove leverage from your life because IT does you want to do risk your life. So be careful with the cash out refs because you might just find yourself in a situation where you just don't actually own the asset.

So one of the questions of people here is, okay, I hear this. I hear about refinancing. I really want understand, when should I do this? How do I know that IT makes sense for me to refinance? Because often times, what refinance can do is I can either lower your payment that you're paying on your mortgage, ge door IT might decrease your term.

You may be refinancing from a thirty year mortgage down to a fifty year mortgage. So how do I know, especially I gott mortgage in the last couple of years, how do I know when IT makes sense for me to refine? Are there any rules of film that I should bite, bite, to know that this is something that might trigger yeah.

I would be paying attention to what's going on with obviously the ten year treasury. But then more importantly, where mortgage rattes are. And once you notice that your mortgage rates is a full one percent higher than where the current market is, IT makes sense to start doing some research.

I think. So let's think through, okay, how do I go about deciding is this worthwhile? Because obvious ly refinancing is not a free and deer, there are costs associated with that.

You want to make sure that the interest savings that you achieve through the refine IT capon said you in a reasonable and of time for the cost that you're going to incur to do the refinance. So let's walk through a very simple case study. Let's assume that we have many and twelve and and they have a four hundred thousand dollar mortgage baLance currently at seven percent.

Their current monthly payment is two thousand six hundred and sixty one dollars a month, and it's gona cost them thirty five hundred dollars to refining. So then the question becomes how much what I need the rate to drop by in order to justify this? Or if they were to refinance their mortgage and rates drop to five and a half percent, there are new monthly payments that have been twenty six, sixty one a month and now drop to two thousand, three hundred and twelve dollars a month.

So the monthly interest saves are about three hundred and forty nine dollars a month in savings. Well, if I just take thirty five hundred dollars, not divided by three hundred and forty nine dollars per month savings, it's onna take me about ten months to break even on this refinance. So so long as I believe i'm going to be in the house for at least ten months IT probably makes .

sense to refind. This is why you can quickly see that IT does makes sense, especially to do the break even analysis. Let's go ahead, figure out where the pay off our break even point is.

And what I like is we even have a for our visual learners. Let's look at this is primarily driven from the cash flow perspective. I do you want to go when a minute where I give some god s on, there's even some risk to be careful with.

But IT is interesting. You look at this from a visual standpoint. You can see, yes, refine ancon, because you have that auto pocket thirty five hundred dollars IT looks like me.

Why am I even doing in a more? But that monthly savings every month there is go come across over point for this time is very quick in the first eighteen month, you see here, cross over point was at ten months. So you're now doing for a cash flow perspective much Better once you do hit that cross over break even point.

And then as you extra like this out over the term of a Normal mortgage thirty years, you can see that those interest savings will continue to accumulate. A refinancing can actually keep tons of money in your back pocket, in your wallet, in your army of our bills over the long term. But you want to make sure you do IT at the point time where IT makes sense to do that.

Yeah, one thing that I do want to remind people, this is why if you want to go to money out of resources, we have a refinance. God is because I worry, because you will notice when interest rates start moving quickly, you might find yourself thinking, well, I was great to refinance ance the first time. How about we refinanced again because rates keep coming down. You do have to be careful, remember what your original mortgage payment was and maybe even consider keeping that mortgage payment. Because what I don't want to do is a lot times when you refine, you also resetting the term right of repayments. If you're on thirty year mortgages, es and you've been paying for three years and you've come back to another thirty year mortgage, you can see you just added three years to your payoff term that so don't get just so measure zed by the cash flow savings that you don't consider keeping your payments the same so that you can actually just take a view of that interest rate difference and even pay off the loan that much sooner.

I love and home home ownership and mortgage are the only kind of debt that most people face, especially today with the day's workforce. Another common debt that most people have to undertake. A lot of our audience has to deal with our students loans. These are very much real issues that are serving as either stumbling blocks or hindrance to focus building financial dependence for the few.

And I love education. I often said that feel like education is the latter of opportunity to become the Better version of yourself. But we have gotten too much of a good thing.

A people at a very Young age are building up tremendous debt. It's almost becoming such a hinderance that it's really them entering doting with A A A huge weighing around. So that's how much is too much for student loans as the big question we can. And we've come up with um a good rule called the first year financing role. But can you explain how this work are?

Basically whatever you go out to get stood, you don't have your total student loan that exceed what you anticipate your first year salary to be and was great is well all the resources available to, as we can go research and figure out for the vocation, for the profession, that I will move into, what's the average starting salary for that job? If I know that the average starting salary for the job I want to pursue fifty thousand dollars a year, I need to make sure that I do not accumulate more than fifty thousand dollars a student long that to go acquire the degree necessary for me to be able to that job.

Now here is the problem, financial institutions are not gonna follow this rule. They're gona tell you, will give you as much student long that as you think. So we'll let you rack IT out no matter what you're gonna make your first year. And we don't even care if you work in this job when you graduate. So this is something that you have to buy a beware on so that you can keep yourself protected and not allow yourself to get in to precarious situation in the future.

Well, so that's beginning with the end demand. But there are a lot of our listeners that might have just found us, and they've already got they're already out doing the adult thing. They have the student long baLance. So they asked themselves should have prioritize paying off my student alone. And this is one of those things where I want to remind people we've tried to help you do things well by coming up with the financial order .

of Operations.

Mean really is the financial of Operations is got cut the corner, you what exactly what to do with your next dollar? But you're trying to very quickly figure out, is this a step three when we talk about high interest dead? So we had to kind of think about this, and I cover this, a millionaire sion, my book as well as what is high interest that specifically when IT comes .

the student that yeah, what we said is a kind of pins on your age and what your market expectations are. The opportunity cost of your dollars will, generally speaking, if we look at historic equity risk premium, the amount of money we get for going out and putting r dollars to work, if you're in your twins and your student loan interest rates are above six percent, you may want to privatize paying off your student loans. If you're in your thirties and your student loan interest rates are about ve, five percent, you may want to prioritize paying off your student s and then in, if you still have student loans there about four percent, you may want to prioritize paying off those student loans because as soon as you get those loans gone and you're down, that then you can begin deploying all of your army dollar bills to growing for future financial opponents. You want to have to Carry that way to the rest of your adult work in career yeah.

I like that. The baLance between the risk, the baLance between the opportunity costs, we've really try to help you figure out, is this a step three years? This a step? None of financial order of Operations, IT does know this is I mentioned an area included to IT earlier. Student loans have now drifted into this dialogue, the right guys of where we are in society right now because is a lot Young people that struggle with IT. So what should you do if you're struggling to make payments?

But yeah, a lot of folks of recognition made. Maybe I didn't make the best financial decisions when I taking out these student loans. Maybe I got myself in a situation where I didn't really rose that our signing up for.

But now it's my reality. I'm in this reality where I have to pay for the student loans and I maybe not making the level of income I thought I was making, or maybe life is just more expensive than I anticipated. How can I think about doing this? Well, fortunately, there are a number of options and plans available to you to potentially help uh, reduce or alleviate some of the pressure you fall from loans.

One of the most common right now, an income driven repayment plan, which basically you're put on a plane that ties to the income that you're earning. To calculate what your monthly student alone payment should be, IT takes into count. Your income as well as your family size. And if you make the payments for a special number of years, there's even a chance that some of your loan could be forgiven after you pass a certain amount time, making that income following through the income driven payment.

This is one of things where you got to go read the fine print, no, what's going on. So encourage you go to stunt aid, G O V, slash, D, R, so you can understand the income driven repayment plans. And then these can be coupled with, this has been another thing that's been brought forward into the public dialogue, into some of these forgiveness programs. What's the two most popular ones you hear about?

Yeah, the two that we see the most often the public service loan program as well as the teacher alan forgiveness program. And they're pretty self explanatory. Public public service loan forgiveness forgives the remaining baLance after one hundred and twenty qualifying payments for public service workers.

So you want to make sure. But if you're going to work in public service, that you work in a job that qualifies for this loan forgiveness, and your mouthy payment will be determined by your income driven repay, a plan. Teacher alone, forgiveness, very similar.

But rather than a being for public service, it's for teachers. You get partial forgiven ness for teachers who teeth for five secretive years in a qualifying school, you want to make sure the school you are teaching and qualified. And this will forgive up to seventy thousand five hundred for math, science and special ed, as well as up to five thousand for other fields. So if you have, you're going into public service or you're going to be a teacher, you may want to see if your loans might qualify for some of these potential forgiveness programs.

Yeah and this leads to cause with we're about inner period where interest rates are going down. So mediately people have questions. They should I refunds must do the loans.

Well, this is what part of that personal and personal finances because IT IT depends. And especially we've come through a period. We even saw a lot of the federal student loan programs.

They weren't a cooling interests. They were completely you know, they wasn't even just defer. I mean, there was just no interest of cruel ing whatsoever.

And then we've even seen some discussions about complete loan forgiveness or so you can quickly realize, man, there is a big decision to be made. If I do try to refinance or consent, you need to pay attention to the different words i'm using. They are impacted in part of this discussion.

Yeah, when we think about loan consolidation versus refinancing, they're not the same. When you think about consolidation, often times you're combining multiple federal loans into one. What IT allows you do is that of having multiple payments now going out. You have one singular payment going out, but IT may extend the long term. Again, that depends on the nature of the loans you're consolidating.

When you're refinancing, though, now you're replacing a federal long where the private loan and while IT could lower your interest in that could reduce the month payment, there's a good chance that you may be for going forgiveness grams or you may be moving yourself away from income driven repayment option. So you want to make sure just because the interest rate is lower, you really understand the benefit that you're giving up. Sometimes IT might not make sense to refine and especially if someone is working towards ultimate loan forgiveness, this is another one of those areas. Or if you can do a little bit of research on the front end and if you can make yourself and informed consumer about your student loans, you can make decisions today that hopefully, we will set you up to be able to make much Better decisions later on in your financial .

and don't be scared to do some of those break even. And that we've talked about with the mother, the debt programs out there. If you know what the cost of doing this refinances is, you know what your savings on the law are interested to go be.

You can quickly decide if this is something that has a break even, but don't forget to take an account, especially you going from a federal program to a private program. Don't just be the song song of lower interest costs. Make sure you know what your king away from. On some of the experiment, the the one forgiving us programs out there measure twice, cut once. Because this is a big, big decision.

I B, we talked about home ownership and mortgage and we've talked about student loans. I argue those are deaths that not that we love. We don't love any debts, but that's that are acceptable. And we understand that part of our process. But these next ones, no, man, I don't like this.

And and if you are someone who has had to use this, I hope that you're a place now or you can move away from whenever have to go back to because credit cards can legitimately be no palm to your financial situation. We know that compounding interest can be our absolute greatest or IT can be our fiercest one. When you're racking up credit at fifteen, twenty, twenty five percent interest rates, you are dig in a hole that gets harder and harder and harder to .

get out of because we've done a lot of surveys out there, both for our clients as well, even you guys out there in our audience and credit card use is okay. It's really what we're talking about here is credit card death. And that's where the no way definitely the kicks in is if you're not paying off your credit card every month, guys, you really are turning the most powerful force in your wealth building journey a against you.

This thing is horrible. So this is why we actually put paying off high interest debt is stepped through the financial of Operations even before we get to emergency reserves of step for. So we need to talk about, should I.

should I pay off? Man, if I have one dollar at the age of twenty, I can turn into eighty eight doors, sixty five, so that so powerful, why on earth should I 2 tize paying off the credit when my money can turn that in？ The answer is, it's really math.

But we hold the thing up. We recognize that, yes, every dollar that we invest can turn in the eighty eight dollars for twenty in to sixty five. But you aliza that every dollar you Carry in credit or dead can cost you twenty five. Since here in interest, IT is literally working against you. The only thing in the financial world that's Better than that.

Step two, yeah, in the reason a lot of people are throwing like what the work why why is there a step two with epower and match before we get to high interest decks? You just sent twenty five percent. If you're paying twenty five percent to your credit card company, that seems like a losing proposition.

It's like two and a half times what we're hoping the S. M P hundred, get you on an investment if you're do an index investment of some sort. And the reality is, is that your employer is in synthesized to give you some type of matching contribution and encourage you to look to see if yours does is because of your empire gave you fifty cents on the dollar for every dollar you put in, that's a fifty percent guaranteed rate of return.

If your employer gives you a dollar for dollar match, that is equivalent of a hundred percent guaranteed rate of return. You notice very quickly, for all my mathematic people, fifty percent, hundred percent is greater than the twenty to twenty five percent that you get in, stepped through you with credit card dead. So even though I despite I low credit card debt, a lot of you going to still already come to this system with this decision.

Ready is water under the bridge. So i've got to figure out how I can trios to get you in a Better place. I don't want you walking away from one of the stronger gest wealth building tools, which is your employers retirement program. And I don't I don't want you maximizing this retirement an just want you to get your employer match. And then lets get very serious about paying off the high.

And so then the question becomes, how do I do IT OK? I'm so I gotta get out of this high interest credit card and I ve gotta get paid. I've got paid off.

What are the methods? What can I deploy to do that? Two different methods. And we don't care which one we use because we want you to get out of the debt. The one that we often go for is the avante method.

You take all of your death and you arrange them by the highest interest rate. First you begin attacking your highest interest. You work from your highest intestate to your lost intestate.

Mathematically, advances pay off an over. We do recognize that eighty percent of personal finances behavioral. So some people love to use a snowball method.

I'm going arrange all of my debt. I will arrange IT by baLance from small lest baLance to my highest baLance. And I pay off the small lest baLance first.

And they want to that one off the next one. It's get small winds along the way to hopefully build a minor. I will go on record saying, we do not care which one you use. So long as you are paying off and knocking off the dead, do what everyone is going to allow you to get the dead off your body.

Now what you just didn't say, and I see a lot of people, especially they think they're this is not financial te territory here with these baLance transfers, these credit card companies will offer you zero percent. And I think a lot of people who have credit card that they see this maros or the sirens that says, hey, I can take the pain away by doing the zero percent transfer. But there's usually some catches.

And I want to make sure you guys are aware of this, is that typically, when you do a baLance transfer, there is a three to five percent up front fee, just even have the ability to do this. So there is a friction cost right there. And then what I don't like is you said so much a personal finances behavior, I don't like people feeling that the pressure has been taken off.

But just because they have this baLance transfer that they now don't have to kind of really sharpen the pencil, figure out what's going on their financial life. So they get out of this either make more money, spend less how we go, get out this horrible situation I don't want you feeling like all is relief because typically these baLance transfers have a very small window that they give you this short term son of and the Normal A P S. Come right back, plus that three to five percent just don't fall into this trap.

I think it's one of things where. Maybe there is going to be a funny mute that is the outlier that can actually use this to speed up their debt repayment. But I think for a lot of p eight people, that could become a behavior trap as well.

So one of the things that people says, OK, we heard about dead consolidation as IT relates to student loans. Like, is that something I should consider what a cosa credit cards is? Debt consolidation, if I have a number of different credit cards and have a number different baLance is out there, is that something I should consider contain?

Well, let me give you the first sort of thing that I often see people do when they ask about how do I go about consolidating the first thing the life was, I say, i've got a whole equity line, and I know that my whole actually line that's going to be deducting interest and it's going to be a weer than create cards. Should I consider pulling money out of a whole mid line and then paying off my credit cards? Let me tell you why we do not love that strategy.

Yes, it's a lower interest rate. Yes, the interest for how metal lines is deductable what you have done now if you have taken non secure debt, credit card debt on things that you've bought, consumed, you're gone now. And you have now concerto secure det, your home, your shelter.

The thing that puts a roof over your head if you don't pay your create card baLances, yeah IT sucks. You're going to collections. People come after you get annoying phone calls during your credit.

If you don't pay off your mortgage and you don't pay your home and one, they will come take your home from you. So don't ever trade unsecured debt for secure debt because it's not worth the risk that you are applying your financial situation. If I am a consolidate, how do I do IT doesn't make sense.

Is this something? There is this process called debt consolidation, where you can actually take multiple deaths, typically credit cards or other you know consumer debt and then rolled into one conventional plane. And sometimes the interest rate can be lower than some of the debt.

You not not all the debt that could be more expensive than some of the that you might in with a lower interest rate experience, but IT is one of things where you have to be careful. So let's talk about how do I consolidate that well, and we kind of rock down a few steps. So let's walk through what's the first step on, should you do that?

Consult your research. And there are times of fragile actors and fragile players out there who are offering very quick fixes only to leave you with even worse debt problems, though, promise they're going to solve all of your problems and then what you end up doing if you end up getting yourself into a war of trouble. So make sure if you are gonna the decks and solidity company. IT is a legitimate company. If you've done your research, it's not someone that you saw a banner google ad for click on, and all sun gave a.

well, I love, and because you gotta find trusted resources, and one of my favorite is a car coward. You know, I think that anybody who is out there ringing the bail to try to make sure people understand this, if you'll go to court, duck come kark has a lot of great resources on deck consultations, so you can can't protect yourself, but also know what's the right path on navigating this complicated question.

And in the third, you compare the terms, understand what's worse, the devil that I do know on the credit cards, that the devil I don't know on the dead consolidation company, what are the terms? What are the payment schemes, the time line? If i'm going to consume actually in a Better position by consolidate that I would have been just paying off the credit cards Normally to the credit card companies. Just because you've heard that could be beneficial does not mean that I for sure will be beneficial for you.

And then the last point on this is don't underestimate the power of changing your behavior, all these things. And we give you tools on how you fix debt problems you have. I still want you to feel the pressure of the weight of leverage and debt is because I want you to truly catch the point that if you are in a bad situation now, you go make drastic decisions yourself out.

How do you make sure you never, ever, ever end up in the situation again? I share with you guys, and when I was, I was very, very transparent, a millionaire sion, when I talk about emergency reserves and step for, think a lot of financial commuters like myself, that cash is trash. So let's use a whole equity line to to be our cash reserves, a jacon or access to cash moment only to find myself that, no, this is still a form of debt that from a behavioral standpoint, pushed me out into taking more rist than I really should have put my financial life in my family in a jeopardizing situation.

And I think a lot of people are way too comfortable, way too comfortable using debt these days. So understand how chain saw s dangerous any debt can be. So you don't fall into these traps.

Dead is nothing more than a financial tool available in your tool belt. It's not one that you have to use. There's nothing wrong if you want to pay cash for cars, if you want to pay cash for a home, if you have the resources available to do that.

But if you are going to use that, you want to make sure that you use IT responsible. If you are a financial mute, you want to make sure that you optimize the way that you're using IT so that you can ultimately do money Better. Yeah.

go check us out. Money got outcome. You all free stuff, everybody has free stuff, got a money, got to come slash resources.

And then remember, your money should work harder than you do, he said, why you can eventually quit working with your back, your brain, your hands. You know what if you're paying all your money to the banks and high interests, you'll never own that game. Army of doll bills has to get to work on your host. Brian president, mister bow hanson money got a team out. The money guy .

show is hosted by brian president about wealth management is a registered investment and visor firm regulated by the securities and exchange commission in accordance, and complaints with the securities laws and regulations abound, wealth management does not render or offer to render personalized investment or tax advice through the money I show. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.