Oh boy, today’s topic is a real doozy in that there are probably one hundred scenarios I can go through and still not cover every topic. However, on this #FundMeFriday, I am going to give you my opinion on the debt topics which I have chosen from the stacks of questions that have come my way. Before I begin the blog, I will ask my usual #FundMeFriday question and that is, have you funded yourself today? If you have, great job. If you have not or you are not sure what I am talking about, go back at read some of my #FundMeFriday blog posts and familiarize yourself on the importance of paying yourself before you pay anything or anyone else.
If I do not preface this blog post with the following statement, my attorneys head will explode. Therefore, before you read on, please know that what you are about to read is the opinions of me, Lori Desetto, Lori’s Loop and The Main Hustle all in conjunction with one another. Should you require legal or accounting help in your personal matters, it is always adviced that you seek the assistance of your personal attorney and or your personal tax accountant and or financial advisors.
That being said, the first topic on debt that I will discuss is student loan interest vs home mortgage interest. I am often asked if I would choose to refinance a mortgage in order to pay off student loan. Here is what I have to say. First of all, the average person carrying student loan debt is carrying that loan at an average of 6-8% interest. The average mortgage loan interest is around 4% interest. In most cases and if you qualify to refinance, I would advice that you refinance your home mortgage and use the money to pay off your student loan. Why? The first reason is obvious, you will be saving about 4% in interest payments which could amount to thousands of dollars in your pocket rather than in the banks coffers. Secondly, as of this posting, the student loan interest deduction on your personal income tax return is capped at $2500 and that deduction decreases as your income increases. Also as of this posting, assuming that you fall within the guidelines, all the new mortgage interest that has been added to your refinance is tax deductible on your personal income tax return (check with your accountant to confirm as everyone’s situation is different). On a side note, let us assume that something goes terribly wrong in your life and you are forced to file for bankruptcy. If you still have your student loans as separate debt, this debt is almost always not dischargeable in bankruptcy. You live and die with student loan debt whereas if it was in the mortgage, you would have a fresh start (Consult an attorney for your options). So what if you do not have a home that you can utilize the equity in order to refinance your loans? My answer is that you take on a job that offers to pay your student debt. Then you too make payments on top of the jobs payment. I would also take a side job where the money from that job is used solely to pay down that student loan debt. Finally, make constant calls to ALL banking institutions to try and refinance those loans down to manageable interest rates. One last note on student loan debt is that it is my advice that you never sign for a student loan for your child. The reason is because nowadays, so many jobs are offering to pay a portion of student loan debt annually as an incentive to get you to work for that particular company HOWEVER, if the parent signed for the loan, all bets are off. No company will pay that student loan debt unless the debt is under the students name. So, if you are lucky enough to have the ability to pay your child’s debt, let them take out the loans and once they graduate, if they end up in a job that does not offer this incentive, you can at this point choose to pay the debt so, wait because it can literally save you tens of thousands of dollars.
The second topic on debt that I am going to touch on is credit card interest vs home mortgage interest. This topic is more of an obvious choice but it can be a dangerous choice if you are not a disciplined person. There could be hundreds of reasons why you have mounting credit card debt, that being said, the average credit card interest rate is in the mid to high 20% interest rate area. None of that interest is tax deductible. If you are able to refinance your mortgage to pay off your credit card debt, it is my opinion that you do it. You will get rid of the credit card debt and save thousands of dollars on wasted interest payments. Also, the added interest that you are now paying to your bank as part of mortgage interest is now tax deductible on your personal income tax return. The major draw back with this is that if the reason for the credit card debt was because you are just a spender and once your cards hold no balances you will once again start charging than I implore you not to add this unsecured debt to a secured piece of property like your home. If you have your back against the wall debt wise, than I suggest you speak to your attorney to have them help you decide if bankruptcy is an option to rid yourself of that credit card debt.
Finally, the last topic on debt that I am going to touch on is bankruptcy itself. In case you are unfamiliar with this word that has people thinking about it as taboo, bankruptcy is a legal avenue available to anyone who may need this assistance. Bankruptcy is not for the bums or the incompetent people of the world. Bankruptcy is a legal right and tool afforded to anyone who is in need of this service and protection. You can file for bankruptcy protection once every eight years if necessary. There are different “chapters” that can be filed but you would have to discuss that with your attorney. Two generalizations are as follows, the first an most simple is that you are in major debt and unable to get ahead so, you file for bankruptcy and discharge all your debt then you have a fresh start. The second generalization is for those who own property. You too can file for bankruptcy protection to rid all your debt while saving your home and vehicle. Again, speak to your attorney but you should know that you have definite options available to you so use them to your advantage.
I have tried to answer major questions that have been thrown at me without crossing any legal lines. Every person has a completely different scenario than the next. Just one item difference can drastically change your outcome from another individual. There are so many resources available to you so please never think that because you are in debt that your life is hopeless. For those that cannot afford an attorney or a personal accountant, there are many places you can go for free assistance. One place as an example to visit is your local department of labor as they will steer you in the direction you need to go. They have services and abilities to help so please, always ask for help.
For today’s reading choice, I would like you to read The Money Resolution. I think it is a great start to learning about getting spending and savings under control. If you cannot borrow a copy from your local library or from a friend, here is a link to get your own copy from Amazon >> https://amzn.to/2FEXoD6
If you choose to shop in Amazon, I would greatly appreciate it if you could use the link I have provided. As an Amazon Affiliate, it is possible I can earn a bonus and therefore continue to provide continued content we all enjoy. Thank you in advance!
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