DEBT RESTRUCTING
The first step toward Creating Wealth is putting your money to work for you. Allow us to analyze and advise you on restructuring your Debts. Our highly trained and certified consultants will optimize your current Debts to get you to your "FREEDOM POINT" (debt-free) as fast as possible. Click here for a FREE Personal Freedom Point Analysis.
In the meantime, let's look at the myths of how money works, and what the real truths are:
OK, you have read a little on the website and you like the idea of paying off your home in 8-11 years. You probably have some reservations.
How is this possible?
This sounds too good to be true!
What's the catch?
We have heard them all. The beauty of our strategies is that they are all Fundamental Financial Planning Principles, simple concepts that you can understand. When you put them all together, like pieces of a puzzle, they form a beautiful picture.
We will begin by explaining a scenario, and then applying the concepts to the scenario to illustrate how everything works together.
Debt Restructuring Scenario
When we met Mary Jones, she had at $150,000 loan, $40,000 worth of Credit Cards, and a $10,000 Auto loan. Her total Debt was about $200,000.
Mary takes home a net pay of $5,000 per month from her job.
Mary's total expenses, including Home loan, Taxes, utlities, groceries, and everything else is about $5,000 per month.
This leaves Mary with no discretionary income per month.
Sample Illustration
We restructured Mary's Debt maximize her monthly discretionary income, and now her finances look like this:
Now Mary has a $200,000 Real Estate loan at 6% on a 30 year fixed rate loan. She also has a $20,000 Home Equity Line of Credit (HELOC) with a $0 balance at 8% adjustable rate note. In summary, she still owes a total of $200,000.
Mary still takes Home a net pay of $5,000 per month from her job.
Mary's total expenses, including Home loan, Taxes, utlities, groceries, and everything else is now only $4,000 per month.
This leaves Mary with $1,000 discretionary income per month.
Now we have something to work with!
Prepayment Example
What if Mary wrote a $5,000 check from her checking account made payable directly to her 1st mortgage?
How much would she save in loan interest?
This prepayment will save Mary about $23,500 in loan interest on her 1st loan. (The general rule of thumb is about 5x the prepayment: Prepay $5,000 = Savings of about $25,000.)
That's a great return on her money!
Closed-End Real Estate Loan
Why don't we all do this when we have a few extra dollars lying around?
Because we know that any prepayment to our Home loan is permanent. Once you make a payment to your Real Estate loan, you cannot get that money back, and what is you need it?
You just never know, so you keep it in checking. If you're like most people, you probably spend it eventually too.
Here's another interesting thing about your Real Estate loan. Most people's Real Estate loans are "due" on the 1st of the month, and considered "late" after the 10th of the month (the grace period).
Did you know that no matter when you make your loan payment (1st, 5th, 10th, whatever) the bank does not credit your account until the end of the grace period?
So if you make your payment "early" by sending it on the 25th of the prior month, the bank cashes your check on the 25th, but does not credit your account until the 10th of the following month. They collect interest on those 15 days of your money, and the money from millions of other customers to keep those marble floors shiny.
Interest Cancellation
Let's go back to Mary.
Mary is like most of us, and she does not have $5,000 in checking. So, what if Mary wrote a $5,000 check from her HELOC made payable directly to her 1st Home loan?
On the surface, this doesn't make any sense.
Why would she want to move money from 6% fixed to 8% adjustable?
The answer is because she is going to deposit her $5,000 income into her HELOC, which would then give her HELOC a $0 balance.
So how much interest will Mary actually pay on her line of credit with a $0 balance?
ZERO! This is called "Interest Cancellation."
Myth: Deposit your paycheck into checking account
We were all taught this.
I don't know very many people who don't deposit their paychecks into their checking account. That's we're supposed to do, right?
Well, what sense does it make to deposit all that money into checking when the bank only pays 0-2% return on your money?
Open Ended Line of Credit
Let's go back to Mary.
If Mary deposited all of her paycheck into her HELOC, how was she supposed to pay all her bills, buy groceries, and make the car payment?
If she uses the HELOC to pay her bills, then the balance on the line of credit will go up, and she will pay interest. True.
However, because interest on a HELOC is calculated on an AVERAGE DAILY BALANCE, Mary would not pay as much interest as if she had kept the money sitting in her 1st Home loan. To illustrate this point, let's break down her $4,000 in expenses.
On day 1 her HELOC balance was $1000.
On day 10, she paid her Home loan payment of $1166. (Balance $2166)
On day 15, she paid her bills of $1000. (Balance $3166)
On day 20, she spent $1000. (Balance $4166)
On day 25, she spent $834. (Balance $5000)
On day 31, she deposited her paycheck of $5000 into her HELOC
OK now let's break down the Average Daily Balance and Monthly Interest Expense.
10 days @ $1000 = $10,000
5 days @ $2166 = $10,830
5 days @ $3166 = $15,830
5 days @ $4166 = $21,830
5 days @ $5000 = $25,000
Total = $83,490
Average Daily Balance = $83490 / 30 days = $2783
$2783 x 8% / 12 months = $18.55 of interest.
Compare that to leaving the $5,000 in the mortgage at 6% interest.
$5,000 x 6% / 12 months = $25.00 of interest.
See, Mary just saved a whole $6.45 of interest, and it only took me an hour of math to prove it to you!
The point is that this method works. Don't forget that I started her off with a $1,000 beginning balance, and she still has access to her entire line of credit if she needed it. However, don't get too wrapped up in these numbers, because I will show you how to reduce the interest even further, possibly back to $0.
OK so I have proven the concept, but what we really want to do is keep the HELOC balance at or near $0 for as long as possible to cancel as much interest as possible.
How can we do that?
It makes sense to the Banks, but not you. Now you know that Checking Accounts are not a good place to hold your money. Deposit your paycheck into your HELOC.
Credit Card Concept
If you have a Credit Card, you probably know that if you pay the balance in full each month, the Credit Card Company does not charge you any interest. If you didn't know that let me explain how this benefits you.
Let's say Mary starts the month with a $0 balance on her Credit Card, and then charges it up just as we explained above. By then end of the month, she would owe $4,000 on her Credit Card.
However, when she gets the bill, it is only for $4,000. There is no interest charged as long as she pays it in full by the end of the grace period. Regardless of her interest rate, Mary just got use of the money for free!
So if Mary would use her Credit Card for all of her bills and expenses, including her Car payment, Insurance, Taxes, Groceries, Eating out, Gasoline, etc, she would not touch any of the money on her HELOC, and that would keep her balance on her HELOC at $0 for the entire month, cancelling as much interest as possible.
Conclusion
So let's recap.
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Pay all bills and expenses with a Credit Card.
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Pay off the Credit Card with the HELOC.
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Pay your Mortgage payment with the HELOC. (Unfortunately you cannot pay a Home Loan with a Credit Card)
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Deposit your paycheck into your HELOC.
Did Mary Refinance her property? No.
Did her monthly budget increase? No.
Mary saved over $23,000 in her first month alone just by changing a couple of little things about her banking habits.
If Mary continues to use these strategies, she will save over $186,000 of home interest, and save 21 YEARS off her loan!
That's the power of putting your money to work for you.
To find out what the Money Merge Account can do for you take a minute and request your FREE Personal Freedom Point Analysis Report
To find out how Home loan comparison and restructuring your Debt will accelerate the payoff of your home, send an email to Roger@HomeLoanConsultant.NET or call us at 760.285.5507
One of our trained financial consultants will get you started on the track to creating real Wealth by conducting a FREE Personal Freedom Point Analysis of your financial needs and prepare a comprehensive Wealth Creation Solution for you.
Remember, paying off Debt is not the same as Creating and Accumulating Assets. While paying off the Home Loan saves us interest, it denies us the opportunity to earn Interest with that money.
However, now we can do both!YES! By using these Fundamental Financial Planning and Banking Principles and diversifying you get more Safety, Security and Liquidity, create an investment vehicle, an Asset Accumulation Account that will materialize your financial goals without restricting your current cash flow.
We teach you how to become your own BANK! Those that understand interest - earn it and those that do not - pay it. Retire as a Debt-free millionaire– using nothing more than the money you're currently earning!
You are likely reading this for a reason. I don't believe in chance anymore. I hope the information provided is understandable and enlightening.
To get the process started, please take approximately 30 minutes of your time to review the presentation below where you will learn about the Money Merge Account Program. Follow the steps so we can better answer your questions, and set up your FREE Personal Analysis.
CLICK HERE TO BEGIN
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