Articles tagged with: good debt

Is this the year you stop procrastinating about your Financial Plan?

Some things to think about as you get started.

Look at your expenses and your debt. Take a look at your core living expenses (such as a mortgage payment, car payment, etc.). Can any core expenses be reduced? Investing aside, you position yourself to gain ground financially when income rises, debt diminishes and expenses decrease or stay (relatively) the same.

Maybe you should pay your debt first, maybe not. Some debt is “good” debt. A debt is “good” if it brings you income. Credit cards are generally considered “bad” debts.

If you’ll be carrying a debt for a while, put it to a test. Weigh the interest rate on that specific debt against your potential income growth rate and your potential investment returns over the term of the debt.

Of course, paying off debts, paying down balances and restricting new debt all works toward improving your FICO score, another tool you can use in pursuit of financial freedom (we’re talking “good” debts).

Implement or refine an investment strategy. You’re not going to retire solely on the elective deferrals from your paycheck; you’re to going retire (potentially) on the interest that those accumulated assets earn over time, plus the power of compounding.

Manage the money you make. If you simply accumulate unmanaged assets, you have money just sitting there that may be exposed to risk – inflation risk, market risk, even legal risks. Don’t forget taxes. The greater your wealth, the more long-range potential you have to accomplish some profound things – provided your wealth is directed.

If you want to build more wealth this year or in the near future, don’t neglect the risk management strategy that could be instrumental in helping you retain it. Your after-tax return matters. Risk management should be part of your overall financial picture.

Request professional guidance for the wealth you are (or could be) growing. A good financial professional should help to educate you about the principles of wealth building. You can draw on that professional knowledge and guidance this year – and for years to come.

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com
Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

The Difference Between Good & Bad Debt

Some debts are worth assuming, but others exert a drag on retirement saving.

Who will retire with substantial debt? It seems many baby boomers will – too many. In a 2014 Employee Benefit Research Institute survey, 44% of boomers reported that they were concerned about the size of their household debt. While many are carrying mortgages, paying with plastic also exerts a drag on their finances. According to credit reporting agency Experian, boomers are the generation holding the most credit cards (an average of 2.66 per person) and the biggest average per-person credit card balance ($5,347).1,2

Indebtedness plagues all generations – and that is why the distinction between good debt and bad debt should be recognized.

What distinguishes a good debt from a bad one? A good debt is purposeful – the borrower assumes it in pursuit of an important life or financial objective, such as homeownership or a college degree. A good debt also gives a borrower long-term potential to make money exceeding the money borrowed. Good debts commonly have both of these characteristics.

In contrast, bad debts are taken on for comparatively trivial reasons, and are usually arranged through credit cards that may charge the borrower double-digit interest (not a small factor in the $5,347 average credit card balance cited above).

Some people break it down further. Thomas Anderson – an executive director of wealth management at Morgan Stanley and the author of the best-selling The Value of Debt in Retirement – identifies three kinds of indebtedness. Oppressive debt is debt at 10% or greater interest, a payday loan being a classic example. Working debt comes with much less interest and may be tax-deductible (think mortgage payments), so it may be worth carrying.3

Taking a page from corporate finance, Anderson also introduces the concept of enriching debt –strategic debt assumed with the certainty than it can be erased at any time. In the enriching debt model, an individual “captures the spread” – he or she borrows from an investment portfolio to pay off student loans, or pays little or nothing down on a home and invests the lump sum saved into equity investments whose rate of return may exceed the mortgage interest. This is not exactly a mainstream approach, but Anderson has argued that it is a wise one, telling the Washington Post that “the second you pay down your house, it’s a one-way liquidity trap, especially for retirees.”3,4

Mortgage debt is the largest debt for most new retirees. According to the American College, the average new retiree carries $100,000 in home loan debt. That certainly amounts to good debt for most people.3

Student loans usually amount to good debt, but not necessarily for the increasing numbers of retiring baby boomers who carry them. Education loans have become the second-largest debt for this demographic, and in some cases retirees are paying off loans taken out for their children or grandchildren.3

Credit card and auto loan debt also factor into the picture. Some contend that an auto loan is actually a good debt because borrower has purchased a durable good, but the interest rates and minimal odds of appreciation for cars and trucks suggest otherwise.

Some households lack budgets. In others, the budget is reliant on everything is going well. Either case opens a door for the accumulation of bad debts.

The fifties are crucial years for debt management. The years from 50-59 may represent the peak earning years for an individual, yet they may also bring peak indebtedness with money going out for everything from mortgage payments to eldercare to child support. As many baby boomers will retire with debt, the reality is that their retirement income will need to be large enough to cover those obligations.

How much debt are you carrying today? Whether you want to retire debt-free or live with some debt after you sell your business or end your career, you need to maintain the financial capacity to address it and/or eradicate it. Speak with a financial professional about your options.

Mike Moffitt may be reached at  ph# 641-782-5577 or email:  mikem@cfgiowa.com

website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.  

Citations.

1 – foxbusiness.com/personal-finance/2015/03/26/strategic-debt-can-help-in-retirement/ [3/26/15]

2 – gobankingrates.com/personal-finance/19-easy-ways-baby-boomers-can-build-credit/ [4/23/15]

3 – usatoday.com/story/money/columnist/brooks/2015/04/22/retirement-401k-debt-mortgage/25837369/ [4/22/15]

4 – washingtonpost.com/news/get-there/wp/2015/03/26/the-case-for-not-paying-off-your-mortgage-by-retirement/ [3/26/15]