jump to navigation

Personal finance inefficiencies – debt March 6, 2016

Posted by bluedevil32 in Uncategorized.
trackback

As an analytic, inefficiencies send my brain into overdrive wondering how they continue or what could be done to remedy them. Now, inefficiencies certainly have created markets where otherwise they may not have existed.

Most people should have been taught in Economics in high school about opportunity cost. This is the underlying concept behind most inefficiencies. The problem isn’t that the work does not get done – it’s that often, it’s done in the least economical way possible.

With the start-up financial lender I have been working with, I see it everyday with borrowers. People just do not [want to] understand their own finances. The principal concept of financial fitness is an excellent one. When in some debt where you have reached the point that you pay and pay and pay without making a dent due to high interest rates and the compounding, there should be the trigger that goes off that initiates a new, better-structured debt that will rid you of the one that has you in quicksand. Structured payments that won’t change over a 3 or 5-year term – and done, often or hopefully at a similar or better amount and throw in less interest. Borrowers seem to only understand that the investments/savings they put away is more important earning 6-8% than to rid themselves of the compounding 15, 20, even 30% interest slogging them down. Alas, money is money and the interest lost to credit cards will cancel that return you so craved for the year.

This is why we see borrowers receiving $15,000 / yr in disability at an advanced age or the middle-aged earner pulling in $200k, or the graduate of a university seeking to remove the debt placed on them from the inefficiencies of universities advancing tuition at a rate 200 times that of inflation over the last 30-40 years (we won’t go in to why they feel they can do this). Some ask the right questions, others do not. They see the numbers for the terms in front of them and blindly exclaim that it doesn’t work – why can rates be high if they earn x dollars and have xxx fico. Then when we look, they have savings or investments that could easily take care of the interest/debt extra but people do not understand that it’s usable – and likely a better option.

It’s no wonder why the average household holds $15k in credit card debt or total any type of debt of $130k (as taken by Q3 ’15 in NerdWallet data) where income as been outpaced by inflation and the average household pays $2500/yr in credit card interest alone. All of the little things add up, and people do not realize that. $6.85 a day sounds reasonable until you look at the $2500 for the year. What’s not having a coffee or as big a lunch as you planned? Well, over the year, that would equate to a substantial sum.

Information is available, but it needs to be read and talked about and understood. More importantly, it needs to be acted upon properly.

Eliminate bad debt that costs you and budget for the rest. You will realize there is a substantial amount that remains – and better, you’ll have the authority to control where you put it!

Advertisements

Comments»

No comments yet — be the first.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: