Why Debt DOES Matter

(Contributed by John Shedenhelm, CEO, Bank On Yourself Authorized Advisor.)

It has been over eight years now since we first introduced the Bank On Yourself concept to our clients and I thought it was important to take a look at the progress. It has been the best financial strategy we have ever implemented for our clients. Last year alone we processed over 80 policy loans to pay off credit cards, pay off vehicles, make a home improvement, take a vacation, pay real estate taxes, and pay for college tuition to just name a few.

I recently met with one of my clients whom when I first met them several years ago had credit card balances of over $70,000 at an interest rate of over 20%. Like most people it was very easy to get addicted to the credit and before you know it, wham! No one plans to rack up debt but I have seen many people with good incomes fall into this trap. They had not conquered Parkinson’s Law…more on this a little later.

I too have learned a hard lesson about credit card debt and the dangers of it. We have to create new habits and what we did with this client is they were paying over $3000 a month to pay down their credit cards. They were tired of being in this mess and they were open to change. We helped them start a Bank On Yourself policy for $1500 a month and the other $1500 a month was their minimum payments on their cards that they kept paying.

As cash built up in the policy, they have been able to borrow from it systematically and pay off large chunks of the credit card debt. The B.O.Y. policy has allowed them to pay off over $50,000 of the credit card debt in 4 years, but it gets better….

Once they are done with all the credit cards and pay back the loans to their B.O.Y. policy with the $1500 a month that was being paid to the banks, then we can start a 2nd B.O.Y. policy for the family for another $1500 a month.

At age 65 their two policies will have a total cash value of over $883,000, and a death benefit of over $2,283,000 that may pass income tax free to their heirs or charity of their choice! Should they have a long term care illness, they will have over $300,000 that they can use for this purpose.

This is the amount of money that would have gone to the banks had they not had the courage to change their paradigm. Do you think they are happy with these results? Do you think they feel good about their future?

Nelson Nash, friend and author of Becoming Your Own Banker told me a long time ago that if you and your clients cannot whip Parkinson’s Law, then you will not win the financial game! What this means is working into retirement years, cutting back on your lifestyle, sending your kids to a lesser college or no college at all. Read Nelson’s book for more clarification as it is only a few pages. Basically Parkinson’s Law means as your income rises your expenses rise right along with it.

For those of you who are saying to yourself, “well I don’t have credit card debt so that does not apply to me,” you might be feeling pretty good but you probably have the same problem. I know people that don’t have a lot of credit card debt but are still spending most or all of their money on their lifestyle choices: cars, homes, food and drink, entertainment, vacations, etc. Parkinson’s Law applies to you too!

I see many people that have good resources or income but are spending more than they are saving. The effect is that you will have to work longer and you will not be able to do the things financially in the future that you want to do.

I hear all the time from people things like “I don’t know where all the money goes.” It is no wonder because we are becoming a cash-less society and families are not accounting for their money. We help our clients with a cash flow analysis to determine what the family can save above their fixed expenses. At that point the families can start paying themselves first so they can whip Parkinson’s Law for good!

To schedule your own analysis and see how a Bank On Yourself policy can help you achieve your financial goals and get out of the debt trap for good, just click the orange “Get Started” button to the right, and someone will be in touch with you shortly.

2 comments on “Why Debt DOES Matter

    admin

    Hi Zoe,
    Thanks for your question. There are various methods that can be used for consolidating debt, depending on how much debt you have, and what kinds. When it comes to Bank On Yourself, sometimes it makes sense to start a plan and use it to later pay off debt, and sometimes it is better to wait until you have more of the debt paid off before starting a plan. It really depends on the situation as every one is different.

    I would encourage you to request a free consultation with one of our advisors who can better direct you as to what is the best course of action for your situation. Just click the orange “Get Started” button to the top right of this column to request a free confidential financial analysis.

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