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Imagine Having ZERO Debt in your life!

February 2009
Imagine Having ZERO Debt in your life!

By Rajesh Jyotishi

As I was coming to work the other day, the car in front of me had a bumper sticker that read “I owe, I owe, so off to work I go.” I thought to myself, how true! Isn’t it interesting how most people’s lives revolve around making payments for their homes, cars, credit cards and other things. Have you ever wondered how your life would be if you had zero debt?

Most people are in the habit of having installment payments for virtually all the things they buy. When car dealerships advertise a car, many times they will show the monthly lease payments rather than the purchase price. Electronics stores will sometimes advertise a monthly install rate in addition to the purchase price if you have their credit card. And, of course, there is also the lure of the zero percent credit purchase offers.

Many of the financial problems we are facing today due to the sub-prime lending are a direct result of too much debt and living beyond one’s means. When we add up all of the monthly payments we have to make, it adds up to a significant chunk each month. Then, if you lose your job or if your payments get accelerated, you can get into trouble.

Just for a moment, think what your life would be if you had NO mortgage payment, NO car payments and NO credit card payments; what would your life be like? Basically, everything you made in a month after your living expenses could be considered as discretionary income. For example, if you had a $3,000 mortgage and $500 car payment and they were both paid off, you would have an additional $3,500 per month to do what you want. If you lost your job and you didn’t have to worry about your mortgage, you probably wouldn’t be as stressed, would you? If the stock market beat up your portfolio, as it has for many people, you could sleep well at night knowing that your home and cars were paid for.

Why Do Most People Never Pay Off Their Homes?

I believe there are several reasons. First, there are tax incentives for having mortgage interest. The mortgage interest on your home may be tax deductible. Second, mortgage

interest rates are currently low, so many people are trying to maximize their returns by investing in other areas. Lastly, many people just haven’t thought about paying off their homes. They are in a habit. They may have large sums of money in the bank earning low interest rates but they like the feeling of having liquid cash, so they don’t payoff their homes, even though they could keep a line of credit open to access the equity in their homes.

Resolve to Reduce or Eliminate Your Debt

As you set your financial goals, resolve to reduce or eliminate your debts. You don’t necessarily have to pay off your homes if you are trying to maximize your returns and take tax benefits from your mortgage, but keep in mind that having paid-for assets are a great way to hedge against market risks and declines. When economies and stock markets have downturns, as they do every few years, having reduced or zero debt can give you a sense of comfort like no other. Please consult your financial advisor to guide you to make smart decisions.

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