At the end of April, I’m truly amazed at what can happen in just a month. While having dinner at a Mexican restaurant one night, my sweet wife and I came into agreement about taking a bold and risky move. I made a withdrawal from savings to pay to zero the SVF line of credit. Although this line is my debt, it was on my wife’s credit, and I didn’t want it to impact her credit anymore. The plan is to not just replenish the line of credit to what it was, but to charge myself a high enough interest that will not only put the self lending principle to practical use, but recover the interest that would be in the savings account even if it hadn’t been removed from the account. The way you can achieve this goal is by charging yourself an interest at least 5 times or more high than the current interest rate of your savings account. For example, the current interest rate in one of my savings accounts is 2.25% annual percentage yield, so I’m charging myself 15% (6.67 times) and calculated payments based off a 12 month term so I have a minimum payment that is manageable, and if necessary I can stretch the term by 24 months for more cash flow. Your maximum term when using the self-lending principle is 24 months. Anything longer than two years lowers your commitment to finishing what you start.
Paying off this line of credit was also necessary, because we needed to get a new car. Our cars were over ten years old, and we had maximized the usage out of each car. We know how to take care of our cars, and I noticed that more and more money was being poured into her car. It’s in a situation like this one, that I think it’s a good time to look for a new car. We decided to get an SUV, because this type of car would be good for the day we begin to have a family for the sake of transporting children, groceries, and other necessities. Thankfully my, father-in-law was able to find a fantastic deal on a 2018 Ford Escape. Personally, I didn’t want that kind of vehicle, but the car had less than 1000 miles on it because it was used by the dealer only. It was a mid-level SUV, but it had extra amenities on it that added to its overall value. I liked that the vehicle had Bluetooth capability for hands free driving, it had the necessary storage space for groceries, and it had overall better gas mileage than my car and her car. However the most important point is that we were able to get the car at half its MSRP (Manufacturer’s Suggested Retail Price), and have purchased on a 5 year loan at an interest rate less than 5% for a monthly payment of less than $300.00 This flexible term and payment will give us the ability to consider home ownership and at the same time not hurt our budget. Our overall net income or disposable income is still high enough that we can still stay on track on paying off our existing debt. Once my debit is paid off, I can easily switch gears to go after this car loan.
When you are considering a major purchase such as a vehicle or home ownership, you need to look at it from as many different levels as possible. Not just the personal intangible features, but just as important, the financial impact it has on your budget. For me a major purchase is anything that I can’t pay cash for and or it’s $5,000+. In my opinion, some don’t have $5,000 in liquidity easily available to make a purchase. When making a major purchase that may involve getting a loan, ask yourself: Can you truly afford it? Keep in mind that having a good credit score will help you get a loan at an interest rate that will be more in line with your budget. If you have poor credit history, then you could end up paying more in interest over time. Knowing your bottom line is critical and having a peace about your decision will prevent buyer’s remorse.
If you want to learn more about how I’m increasing my income while reducing debt, or if you want to have someone to discuss your debt reduction strategy with, or if you need me to check your financial pulse then, contact me.
Also, learn more about how I use the self-lending principle through contacting me
This month’s video is Kevin Hart FIGURING IT ALL OUT (This will change the way you think!) from the Mulligan Brothers YouTube channel.
“The LORD will send rain at the proper time from his rich treasury in the heavens and will bless all the work you do. You will lend to many nations, but you will never need to borrow from them.”
I believe in your journey to….
A Debt Free Me