VOL. 129 | NO. 95 | Thursday, May 15, 2014
Rays of Wisdom
Dana and Ray Brandon
Debt: Prepay or Let It Ride?
By Ray and Dana Brandon
Ray’s take: There was a time when debt was something to be proud of. It was the badge of progress and a good credit rating. 2008 made us all rethink the place of debt in our lives.
If you have debt, you should think carefully about keeping it or prepaying it.
If you have consumer debt – such as car loans or credit cards – there’s no doubt that you should pay that debt off as quickly as possible, as you’ll pay much less in the long run. Per the industry group CardHub, the average credit card interest rate for people with fair credit has hit 21 percent, up more than 2 percent from a year ago. Try never to borrow for a depreciating asset.
Mortgage debt and HELOCs (home equity lines of credit), usually considered “good” debt, can be a complicated proposition. Depending upon your tax status, you may be able to deduct the interest on your taxes. Another consideration is asset allocation.
Paying down your mortgage faster is basically increasing your allocation to real estate. This is the paradox when determining whether or not to prepay your mortgage. Will that “investment” in real estate result in a greater return than alternatives? Are your retirement plans on track to achieve your goals without “cashing out” that real estate investment? A tax adviser or financial planner can assist you with determining the various outcomes of prepaying your mortgage and alternatives worth considering.
Sometimes we need to look closely at the long-term consequences of our decisions and weigh them against the short-term happiness they may provide to make sure it is an equitable tradeoff.
Dana’s take: Technology is moving so fast now that I’m getting nervous about jobs and money in the next few decades. For us baby boomers, that means unload debt and start saving. We have had our consuming binge and now it’s time to conserve.
I recently read of a microchip implantable in your mouth that is fueled by the breakdown of saliva. Once we have computers in our heads, what’s next? I’m watching free online courses from Stanford University and MIT. What does that mean for teaching jobs in the future?
So many of the jobs I grew up with will no longer be needed. Record stores, bookstores and shoe stores have been replaced by a few clicks on the computer.
Living small may be more important than ever as job options and retirement plans shrink. Enjoy your many blessings as you end debt and save up for a secure future.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.