Here we go again. The U.S. will default on its debt obligations if Congress does not act by Thursday. TV coverage makes it sound like we are about to go into the abyss – with the stock market taking a hit once we default. Does this sound familiar? – as in each and every time we are approaching the debt ceiling and the non-controlling party threatens not to raise the ceiling! You can see how worried Wall Street was last week – they were not! Lesson Number 1 – Congress will raise the debt ceiling and the U.S. will not default. You might ask yourself, why do they behave this way? I think there’s a bungled analogy here. In elementary school – children act like children. In Congress – children act like children.
What about your debt ceiling? If you are tapped out on your cash and available credit, ask two questions: (1) If you can, will you raise your debt ceiling? – and (2) Should you raise your debt ceiling? Similar to Congress – if you are tapped out on your credit and given the chance to raise your debt ceiling – my bet is you will. It solves the immediate problem of cash flow, allows you to keep servicing your existing debt by making the minimum payments and pushes the problem down the road. Lesson Number 2 – while this may make sense – it is the wrong move – the longer you leave yourself in this situation – the bleaker your financial future will be.. The answer is “NO. – you should not raise your deb ceiling. What you need to do – is reduce your debt – ultimately eliminate it – so you are not wasting your financial future by paying interest on the debt. $100,000 of Credit Card Debt is $20,000 of interest per year – and you have to make at least $25,000 of income – to pay your taxes to net enough to pay the interest. Beyond that – the minimum payments are $2,500 per month, which is $30,000 per year – which means you need to gross at least $37,500 to make the payments. Even if you could do this (which you can’t and that is why your debt is increasing), you will never pay off the credit card debt because you have to keep using the cards since all your cash is going to make the payments. Imagine life in 15 years – if you are saving $37,500 per year instead, and it is growing at 8% per year. That is retirement money!
Pause now – and ask, so is this how Congress manages the Nation’s finances? The answer is yes. Now – stop thinking about it – because you can’t control it and in America – nobody listens to common sense! Instead – focus on what you can control – and that is you – your finances and your debt. If you are thinking of raising your debt ceiling, by seeking more credit card access or refinancing your home to reduce your debt –you need to consider better alternatives. You will not find them by asking the mortgage broker or listening to credit card commercials. You need real advice – that deals with reality and your future. On this point, you have an open invite to talk to us – this is one of many things we do -that really helps people turn the corner so that the car is headed in the right direction.
As the Pandemic moves to the rear window (thank goodness), you need to make sure your finances are heading in the right direction.
Have a great week,
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