What does this mean? Not all debt is the same. Some debt is good. Believe it or not, paying off debt can cost you more money than you imagine.
What do I mean? Here's an example:
Low interest debt, which is anything in single digits, can actually work to your benefit. The best example is my previous post: The Power of Saving Early You can apply that to this. So you have low interest debt (Student loans, car loans, mortgage) and want to pay it off first before saving. BAD! Why you ask? If you look at the break down in the spreadsheet. You avoid saving and paying off debt of $30,000. You lose $48,000 in trying to catch up for retirement vs saving early and it costing you $12,000. Not only that, you also lose in the financial gains you may missed out on, which is highlighted in the spreadsheet below:
https://docs.google.com/spreadsheets/d/e/2PACX-1vSQTiorIeNCt4YQTXZ6RYHPfy2GB68xpCYJZYD4BmzQ7nSRuVyjbADg0RmVDdfAm7PbMT_T_GBVkviK/pubhtml
Now, in the example above.
Person B paid of debt early and was debt phobic. They started saving later and managed to save a nice $1.5 million.
Person A started saving early and paid off their debt slowly. They have $3 million dollars saved for retirement.
Who would you rather be? Person A I hope.
Friday, June 24, 2011
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