(from Brice Hogan)
Many people in the Financial Industry are really focused on helping people save for retirement. There is just one problem with that they do not take into account that most people have a very large debt load. So I will illustrate the power of paying your debt off versus saving while carrying debt.
The Hardtimes Family is trying to get out of debt and at the same time try to save for retirement. They have $300 extra per month to invest their money for retirement. So they find a good mutual fund that is returning 10% a year on their money and invest it for 20 years. They would end up with $227,811 dollars at the end of 20 years but they still have seven years left to payoff all of their debt.
Lets take it from a different perspective using a Debt Payoff Program. As it is the Hardtimes family has $395,000 in debt. Their minimum payments are $3662 a month they will take over 28 years to pay off all of their debts just making minimum payments. So lets illustrate the power of debt payoff. Debt roll-up is just taking the minimum payment and rolling it into the next payment.
Their Debts are Monthly Payment
Department Strore 150
Credit Card 1 50
Visa 20
Home Depot 100
Master Card 111
MiniVan 500
Car 356
Time Share 200
HELOC 250
Mortgage 1925
So the process is to take the first payment $150 and then when you pay it off you roll it into the next payment the Credit Card 1 ($50 + $150) so at this point you are paying $200 to the Credit Card and paying minimum payments to the other payments. And you just keep rolling the amounts into the next debt. At this rate the Hardtimes family will have their debt paid off in 13 years instead of 28 years they will save $194,178 in interest. They can then take that $3662 at the end of paying their debt and invest it over the next 15 years into a mutual fund that is returning 10% they will end up with $1,470,737.
So we compare that with the first example the Hardtimes family would have made $1,242,926 investing in their debt, than just trying to save $300 month to invest. The best choice is really to invest in your debt and then to start saving after
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