Let’s Get Real About Eliminating Debt

I was interviewed for the New York Times “Mortgage” column in a piece headlined, Is Paying Off a Loan a Good Idea? A gentleman from Ameriprise Financial in high-priced Manhattan questioned my counsel that mortgages be paid off as early as possible to free up earned income to accumulate it for retirement. The gentleman suggested that “prepayment is dangerous” if the homeowner’s equity is locked into his theoretical $2 million residence. In his example he asked how, if one depends solely on Social Security, one could maintain a $20,000-a-month (!) lifestyle (his number, not mine) if all your money were tied up in your house. Better get a credit line just in case, he suggested.

 

Let’s get real. The average American family loaded down with debt doesn’t live in $2 million condos in Manhattan spending $20,000 a month. Hardworking, industrious folks with combined income within a range of $80,000 to $120,000 today are struggling to make their regular mortgage, auto and college loan payments and barely have enough left to make the minimum payment on their high-interest credit cards. These folks should first pay off their credit obligations by relying on a proven Financial Liability Management program offered by their advisors, and then ply their savings into asset management services such as those offered by Ameriprise. In a disciplined approach to putting your financial house in order, your liability portfolio can be managed to predictably generate savings. Can the same be said for your asset portfolio? Done right, Liability Portfolio Management is the perfect complement to Asset Portfolio Management, producing the nest egg we all strive to achieve for our families.

Personal Financial Liability Needs Professional Treatment, Not Advice

I contribute a monthly column to a website frequented by financial advisers, benefits providers and insurance professionals.  In an upcoming article I urge these colleagues to take heed of the changing needs of Americans in the 21^st century: too many families are depleting their future earnings by buying homes, cars and the latest consumer electronics beyonf their means. Less than a third of us have saved income equal to three months’ income. Think about that and how these families might deal with such emergencies as job loss or a medical crisis. 

Using credit cards, home equity loans and student loans to pay for the present while sacrificing financially secure futures and incurring enormous interest charges, families are setting themselves up as victims of a financial dustbowl.  All that hard-earned income and equity are being blown away.

People have no trouble consulting an attorney on legal matters, or relying on knowledgeable professionals for their insurance needs.  The airwaves are replete with 60s era music accompanying ads for professional financial planning and asset management services directed at baby boomers.

Yet it puzzles me that most folks, even if they are aware their financial liabilities, rarely consult an independent professional to deal with their debt problem in a comprehensive way. Many who are desperate fall prey to quick fix schemes like refinancing and debt consolidation, which only prolong their payback period and negatively impact their credit standing. Others consult “credit counselors” who are agents of the credit industry (a misnomer, since it should be called a “liability” industry). Seemingly your advocates, these firms only want to accelerate repayment since the card issuers have made hefty returns on the interest you already paid them.

 Now, it’s true, some individuals are doing all the research and are making progress in their own intensive (and time consuming) commitment to eliminate their personal liabilities.  I’ve even visited the blogs of some who are sharing their stories online. I commend them for their resourcefulness.

 Still, the average person has neither the time nor the knowledge and experience needed to address personal financial liability as part of a comprehensive system for orchestrating the optimal use of assets and income to methodically eliminate credit card debt, auto loans, mortgages and other obligations.  

 I’ve done my share of do-it-yourself home repairs. But sometimes you have to ask yourself whether several trips to Home Depot until you figure out the right fitting for a leaky faucet is time well spent, when you can just find an ad in the local paper for a plumber who claims there’s “no job too small”.  A leaky faucet is one thing; but managing a liability portfolio that drains away your hard-earned money is not a do-it-yourself job for most people.

 

Are We Being Lulled into a False Sense of Security About Retirement Savings?

OK, so now we have an economist telling us that on the basis of his
research, people 51 years and older seem to have accumulated sufficient
resources to maintain their living standards in retirement.

With all due respect to the good Prof. John Karl Scholz of the University of
Wisconsin and his colleagues, his study of people born between 1931 and
1941 that found that at least 80% had saved enough for retirement is
fundamentally flawed as a guide for today’s workers. The fine print used in
mutual fund advertising, “past results are no guarantee of future earnings,”
has applicability here: the working years for these individuals (let’s
assume 1949-96) were arguably the peak postwar years with extremely high GDP
growth and prosperity, and likely aided by secure defined benefit pension
plans. So the experience of this group could hardly be replicated by today’s
debt-strapped baby boomer generation and their children (and grandchildren)
who have no such guaranteed post-retirement income.

The statistics speak for themselves. For the last three decades, families
with incomes of $80K and up have watched their credit card balances increase
10,000 %. In June 2006, the Federal Reserve Board announced that consumer
credit rose $10.3 billion to $2.19 trillion following a revised $5.89
billion increase in May 2006 — the biggest two-month gain since
September-October 2004. The incidence of foreclosure filings in January was
25 percent higher than any month during 2006.

In addition to these statistics, many economists and academicians can
document why Prof. Scholz’ methodology would lead to far different
conclusions for today’s working population. Alicia Munnell, director of Boston
College’s Center for Retirement Research, estimates nearly 45% of
working-age households are at risk for being unprepared for retirement,
telling the Wall Street Journal, “We continue to think people are going to
be very vulnerable as they approach retirement in the future.”

Don’t be lulled into a false sense of security. If you’re working but
spending all your income on your creditor obligations (credit cards, car
payments, student loans, and even mortgages) you’ll likely be unable to save
enough for retirement. That makes you a good candidate for a
professionally-administered Financial Liability Portfolio Management
program. You’ve come to the right place to learn about this innovative
solution that, unlike debt consolidation, do-it-yourself credit counseling
and personal bankruptcy, has no effect on your credit rating. In fact, it’s
designed to pay down your obligations in under 10 years, so you can be
assured of retiring debt free.

A Unique Perspective On Debt Elimination

Welcome to a new commentary about personal finance and advice on the smart and professional way to eliminate your financial obligations while improving your credit rating.

Your credit card obligation is your bank’s asset

Poor Citigroup. It appears the banking juggernaut suffers from an epidemic of wise consumers who have actually chosen to pay down their Sears credit cards, creating what the company calls a “‘real drag'” on the bank’s portfolio.  While it focuses on Citigroup’s woes since acquiring the Sears credit card portfolio, a recent Wall Street Journal “Citigroup’s Sears Problem”, Jan. 30, 2007)  report coincidentally highlights how  Citigroup’s value to Wall Street is built on the backs of their credit card holders.

With Wal-Mart scheduled to introduce a no-fee credit card in March, it’s
clear that businesses want to cash in on the credit-card boom and entice
their customers with easy credit so that their own “assets” — the credit
card liability of their customers — makes them more valuable.  The trend is
disturbing. For the last three decades, families with incomes of $80K and up
have watched their credit card balances increase 10,000 %.  In June 2006,
the Federal Reserve Board announced that consumer credit rose $10.3 billion
to $2.19 trillion following a revised $5.89 billion increase in May 2006 –
the biggest two-month gain since September-October 2004.
Next time you get an offer from a bank to increase your credit just keep
this in mind. Rather than help you overcome what you think is a short term
cash problem, remember that they are really offering to increase your liability
obligations to them — and enriching themselves in the process.