Rule Number 4, If everyone else is doing it do the opposite

Rule Number 4, If everyone else is doing it do the opposite

I spoke with a couple recently who owe almost no money and own two cars a bunch of stuff and have well funded 401Ks and are sitting on $125,000.00 in cash.

By the time I got off the phone with them I suggested they pay off their home and go completely debt free.

Here’s the catch. They owe $128,000 on the house. Admittedly the thousand dollars a month they spend on the house payment will take 10 years to recover from the point is they currently make 1.27% interest on the money they have in the bank.

Just in case you don’t have a calculator it equals a whopping $1,587.50 a year in interest. They’re paying about $8,750.00 a year in interest to the bank to have the loan.

The $125,000 would be a better investment in paying off the loan. Within a few months they’d have a nice reserve fund again.

Now for the lesson. The majority of people would not pay off the loan. They would instead invest it or spend it but they would continue paying a monthly mortgage and I can guarantee you a C.P.A Account would advise them to keep the debt because of the tax write-off.

Without getting to detailed the tax write-off isn’t worth it either because you’re still paying the interest. It’d be much more financially beneficial to pay the extra couple of bucks on taxes…its way less than the write-off.

The moral of the story is what ever the majority are doing you should do the opposite.

David Dassow