Money Matters: A case study about debt and its cost

  • November 5, 2018

BY: CHUCK DUDLEY, Vice President
(501) 318-0010  |  cdudley@argentfinancial.com

Chuck Dudley

Chuck Dudley

My friend and business associate in Ruston, Byron Moore, is a very good writer and has a very simple way of stating and explaining complex problems.

Byron and I have had many discussions about how debt takes money from our pockets and puts it in the hands of financial institutions.

Wouldn’t it be great if we could reverse that trend, and start filling our bank accounts with the cash?

Over the next two newsletters, we will look at some case studies on debt, the “real” cost of that debt, and why it is not in your best “interest.”

And with the new tax law just passed, unless you have more than $24,000 in deductions, mortgage interest is not helpful as a deductible expense. That’s not to say mortgage debt is bad, because it helped you buy your house. But you don’t have to pay it forever…………

Let’s take a look at the real cost of debt.

INTEREST RATE VERSUS VOLUME

You know debt is bad.

But things may be worse than you thought.

Most of us are familiar with interest rates. That’s what a lender charges a borrower for the privilege of using their money over a period of time.

We have been living in a period of very low interest rates. A mortgage company may charge 4% to borrow money for 30 years to purchase a house. A car buyer may pay a bank 6% over 5 years to buy a car. With interest rates this low, it can almost make debt look like a good deal.

But now we need to consider another perspective on interest – interest volume.

The volume of interest is the amount of interest charged during any specific interval of time. This is not the same as the rate of interest, as we’ll see.

If John and Mary take out a $200,000 mortgage to buy a house, and finance it over 30 years at 5%, their monthly principle and interest payment will be $1,074. Of that, 78% of the first payment, or $833, will be interest. The interest rate is 5%, but for the first payment, the interest volume is 78%.

Over the life of that 5%, 30-year mortgage, $386,343 worth of payments will have been made ($1074 x 360). So, for the privilege of borrowing $200,000, you pay an additional $186,343.

That’s a 5% interest rate, but a 48% interest volume.

But what if you could re-capture that cash flow? What if, instead of sending all those payments for all those years, you could manage to turn the tide and begin reclaiming those dollars back into your own pocket?

HOW DO WE RECAPTURE THAT CASH FLOW?

Well………that is the point, isn’t it?!

We start with gathering financial information on you personally. It’s no more than a 2-3 page sheet, but properly completed, it helps us get an idea of where you are. Honesty is most important here. If you go the doctor, you tell him everything, right? You want him to be informed so he can make a proper diagnosis.

It’s the same with your financial health.

Want to find out a different strategy to turn the volume of interest paid back to you?

Then send me an email or call, and I’ll send you the form to complete.

Maybe, just maybe, we can show you how to get completely out of debt in 10 years or less. Or at least take a big chunk out of it.

You can wait……………or you can start today to find the answers. It’s up to you.

ACTION PLAN

If you really want to learn how to recapture your cash flow, we will listen. We’ve been able to help families and businesses learn to use money wisely, and we’d like to help you too.   We would be honored to visit with you about how to help you and your business. My number is 501-318-0010, or you can send me an email at cdudley@argentfinancial.com. Or text me at 501-282-1854.

An hour of your time spent analyzing your situation might make a lifetime of difference.

Arkansas Insurance Producer # 1005698