Debt: Your Retirement Nemesis

There are two kinds of debt:  good debt and dad debt.  Good debt is debt that makes you money.  Bad debt is debt that costs you money.  The following is a case study profile that proves instructive on this point:

Of the six debts that Mark and Joyce have, how many are “good” debts and how many are bad?  The answer is that, by definition, all six of these debts are bad debts, including their home.  The only time a mortgage can be considered good debt is, for example, and 80 percent loan on a rental duplex that is giving you a good return on your 20 percent investment.  A loan on a home in which you are living and cannot retrieve any of the equity until you sell it and move out is considered bad mortgage debt.  The popular press and popular opinion touts that a house is always a good investment.  That assumes that you can enjoy a reasonable appreciation over time, for which there is no guarantee, and in the meantime the house has costs attached to it including upkeep, taxes, repairs, etc.  Not until you sell the house and invest the equity can the house make you money!
The point of this analysis is that you should want to get out of all bad debt as quickly as possible!  It is mathematically possible to get out of all debt, including your mortgage in 8 to 10 years. Why is it so important that you get out of debt quickly? Because you can then take the principal and interest dollars you were spending on your mortgage and invest them in a retirement program instead.  To do so is worth hundreds of thousands of dollars!
To make the point more vivid, imagine for a moment that you are Mark & Joyce, our our clients noted above.  Notice that by amortizing their debt, they will pay almost $195,000 in interest over the life of their loans to someone else!  Think of how many hours of work you have to perform to generate $195,000, just to give to someone else!  It is a painful thought!!
Therefore, don’t get caught up in typical thinking about debt.  Accept that it is a burden that should be minimized.  You can do it with the proper principles, tools and techniques.  Get out of debt in one third the time and then pay yourself big time.
One final dose of reality:  Mark and Joyce’s monthly debt payment of $2,177 per month becomes $913,738 for retirement once they eliminate their bad debt in one third the time using Money Mastery Power Down principles.
For more information on this and other personal financial matters, call Alan 801-292-1099, alan@moneymastery.com.