by Amy Lawson MBA, CDFA®
Managing debt is a tough subject. It’s tough to hear and it’s tough to do. So, before we go any further, I want you to channel Aretha Franklin, the Queen of Soul, then go back and read the title again, but this time, read it with some attitude. Do it now.
Feel the difference? Now you’re ready, read on…
Debt can be debilitating. It robs our peace and steals our dreams. It ruins relationships as well as our credit rating.
Not to mention the effects of stress associated with debt can have on our health. We now know stress creates the perfect environment for a multitude of disease states, not to mention the dis-ease we feel when we see the furrows that worry burrows into our foreheads.
Experts say some types of debt are good, other types of debt are bad. Some debt is obviously bad, for example, credit card debt, car loans, boat loans, student loans, etc. Credit card debt is especially bad, in my opinion, as it benefits no one except the credit card companies that issue the cards.
The value of other debt, namely mortgage debt, is debatable. Some experts say mortgage debt is good, others say it is bad. In my opinion, bad debt is debt that makes you poorer. Mortgage debt feels bad to me because I must pay it each month, so it makes me feel poorer. Prior to the sub-prime mortgage crisis, the pain of the monthly mortgage payment was tempered by the warm and fuzzy feeling of our rapidly appreciating real estate. But the warm and fuzzies turned into heartache and pain when our real estate values plummeted while our mortgage payments stayed the same. Sometime in late 2008, many people woke up and found themselves owing much more money on their homes than their homes were actually worth. Few people ever considered they would be upside down in their mortgage.
So, is mortgage debt good or bad? It depends on who you ask. One argument supports maintaining a mortgage for the benefit of deducting the mortgage interest. Another argument supports having zero debt so your income needs are less; this argument is predicated on the belief that the less money you NEED, the more freedom you have.
Ask yourself. Assuming you have no other debt, what feels better? Owning your home outright and redirecting the mortgage payment to your retirement accounts? Or, using the mortgage interest deduction to reduce the amount paid into Uncle Sam’s offers? I encourage you to explore your options with an independent investment advisor to determine the impact of your options on your Retirement Spending Plan (yes, you should have one of those) AND with your CPA (yes, you should have one of those, too) to get an idea of the impact of your options on your taxes.
If you are approaching retirement and your bank accounts and retirement accounts are pleasantly plump and you still have a mortgage you can comfortably pay, then NOT paying off your mortgage may be your best option. But if you are approaching retirement age with skinny bank and retirement accounts, paying off your mortgage along with your other debt could make the difference between retiring sooner rather than later. Either way, I encourage you to CONSULT WITH AN INDEPENDENT INVESTMENT ADVISOR AND A CPA.
Debt can be tough to manage but it can be done and you can do it.
If debt is robbing your peace, commit to getting rid of it; commit to paying if off and keeping it off. Channel Aretha everyday if need be and consider attending Dave Ramsey’s Financial Peace University. While I don’t agree with everything Dave has to say, I will say this: If you follow his instructions, you WILL experience the joy of living debt free. To find a course in your area, go to www.daveramsey.com.
If not for your financial health, consider paying off your debt for vanity reasons. The stress of debt creates wrinkles. Who wants to look older?!
Until next time…
This week’s wine recommendations come from Sonoma, California.
RED LOVERS: Once Upon a Vine, The Big Bad Red Blend. “…velvety rich and sumptuous on the palate, the ripe berry and chocolate flavors meld into an aroma so enticing you might even say, ‘My, what a big nose you have!’”
WHITE LOVERS: Once Upon a Vine, The Fairest Chardonnay of All. “…lightly touched with oak… a creamy, indulgent texture… lush flavors of honeysuckle, vanilla, and creme brulee.”
Another reason to try Once Upon a Vine… Just as every bottle of wine begins with a grape; every worthy thing begins with a vision. Have a worthy vision of your life. Nurture it. Protect it. When you find yourself struggling to maintain your new ideals remind yourself you are worthy of all good things. Financial health is a good thing, a very good thing.