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When You Must Borrow, Borrow Smart

Consumers are using credit card debt to make up the difference between current earnings and the inflationary rise in spending on food, gas, and energy-related expenses. Consumer credit is convenient and easy to access, but it's expensive if the consumer can't service that debt in full at the end of the month. Credit is a convenience for those who have money, but not an antidote for those who do not. We are seeing a month over month increases in the 'carry over' balances... meaning consumer are having to use credit as their currency.


This is why inflation needs to be tamed quickly or the debt spiral for servicing this credit-related debt starts to compete with the inflationary cost of spending, which is a difficult position for the consumer. Imagine you use credit cards for month to make ends meet, and then you have to do it again, and again. Your carry balance that you can't pay is compounding at 18% and that balance is growing each month spiraling upwards just as other costs continue to rise.


Remember the Rule of 72 with investing? Divide 72 by the %Rate to find out how quickly your investment doubles! It works in reverse with borrowing! If you borrow 18% then 72 / 18 = 4. This mean s money you borrow at 18% on a credit card doubles very 4 years.



The good news for homeowners, is that overall debt is at an all-time low due mainly to the lowest loan-to-value in a generation. If you have to use a credit card then it might be time to make sure you can use an equity line of credit to pay that debt off with a more cost-efficient debt. Taping house-related equity and using your house like a personal bank, is another way real estate can be a tremendous support during difficult financial cycles.



TIP: If you haven't set up a home equity line of credit, do it now! Use it to pay all higher interest rate debt and give yourself an operating line of credit if things get worse before they get better! As a liability advisor - this is a critical message and reason to call existing clients to help them manage the wealth inside the house.

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