GOLDEN: The Ultimate Debt Payoff Program
Nobody likes the idea of owing someone else money, but for a variety of reasons, many of us find ourselves in debt. Credit cards, student loans, vehicle financing, and mortgages, among others, pile up to take a signifiant portion of our monthly earnings.
Conventional wisdom tells us that we can only use our money once. If we use it to pay off debt, we can’t use it to pay our bills. Or save for retirement. Or invest it. Or go to a movie. With every dollar we earn, we have to decide where it’s going to go.
But like many other tidbits of conventional “wisdom,” this, too is not only false, but it does considerable financial damage to us when we believe it.
The fact is, using an insurance contract, you can use the same dollar more than once, including to pay off debt. In fact, in most cases, you could get out of debt, faster than Dave Ramsey, without sacrificing your lifestyle, while building a tax-free retirement?
Enter GOLDEN. Growth Over Life in Debt. Earn Now.
That is an incredible claim. So how does it work?
In a nutshell, here’s how it works:
First, you have to figure out how much of what you are currently spending can be redirected to your plan. Are you overpaying on any of your debts? That extra mortgage payment you make every year? The dollars that are going over the minimum payments on your credit card? Those can be redirected so instead of just paying debt, they can go into your FBIC and pay off debt.
Are you paying for term life insurance? Those premiums going towards term insurance can be redirected to your FBIC, which comes with a death benefit of its own.
What about money you are contributing to an emergency savings account? That money, and the balance of the account, you’ll want to contribute to your FBIC, which is a liquid account and can serve as your debt-payoff account and your emergency fund at the same time.
What about those 401(k) or IRA contributions? Yep, let’s redirect those, too. Your FBIC is a much better tax wrapper for a retirement plan than the government created qualified plans.
Are there any other monthly expenditures you are making but don’t need? Video streaming services you aren’t using? Monthly subscriptions you signed up for, didn’t use, and then forgot about? Let’s redirect those, too.
Once we total up those amounts, which are going to vary for everyone, we can set up a plan and show you exactly what that will look like, year after year, specific to your FBIC and to your individual debts.
We obviously can’t show you how this works for you specifically until we speak to you. So we’ll use information from a past client (after changing their names) to show you how this works.
Sam is a recently graduated doctor in her first year of practice.[1] She has worked hard to stay out of consumer debt but owes on a vehicle, student loans, and her mortgage:
Car: $30,246 balance, 4.90% interest with $525 monthly payment
Student loans: $220,429 balance, 6.00% interest, with $2,000 monthly payment
Personal residence: $271,331 balance, 4.5% interest, with $1,383 monthly payment
Total Debt: $522,005 balance, 5.16% average interest, with $3,908 monthly payment
At the current rate of payment, Sam will pay off all of her debt in 29.7 years, with the last payment on her mortgage being made just a few months shy of thirty years from now. But she won’t have just repaid $522,005:
· Total Debt: $522,005
· Total Interest Paid: $325,575
· Actual Debt: $847,580
That means on average every month, $913.51 is going to interest alone! That’s really why debt is a growth-killer: interest.
Sam was lucky she came to see me right when she got out of medical school, and she hadn’t spent too much time paying down debt the old-fashioned way—you earn money, send it out the door toward debt, and you never see it again.
Instead, we drew up an FBIC made specifically for debt repayment. We call this the GOLDEN program: Growth Over Life-in-Debt. Earn Now. You don’t have to sacrifice earnings while you’re paying off your debts!
Sam would reduce her payments toward her debt to the minimum payments allowed. Then she would pay the difference, plus whatever else she was going to be contributing toward a 401(k) and an emergency fund into the FBIC. In her case, we drew up a plan for $5,000 monthly to go into the FBIC.
By putting the money first into the FBIC and then using it for debt, Sam can use that money more than once. It’s growing for her at a guaranteed rate, plus she’s earning nonguaranteed dividends. It is also paying off her debt, acting as an emergency fund, and providing a death benefit and living benefits.
As it grew, her debts would slowly (very slowly) shrink as she paid the minimum payments. But her FBIC was growing rather quickly. Then at a certain point, the balance of her smallest debt would be equivalent to 80 percent of the cash value in her account.
Once that happens, she was to borrow against 80 percent of the cash value and pay off the vehicle. Then she adds the monthly payment she was paying toward the vehicle and adds that to the $5,000 she’s paying every month to the FBIC.
There is a very important reason we advise Sam not to borrow against more than 80 percent to pay off debt: We want to make sure she has an emergency fund to draw against to insure against life’s unexpected expenses—hospital bills, fix a leaky roof, travel for a funeral, etc. Plus, we want to make sure the interest arbitrage (the difference between interest and dividends being earned on the total [the cash value] and interest accruing on the part [the loan]) is always positive so she actually makes money to take out a loan.
Sam can do the same thing with her other debts. She pays the minimum payment, continues to pay her premiums, and then when 80 percent of the cash value reaches the balance of the next-biggest debt (in her case, the student loans), she pays that off. Then she takes the monthly money she was paying toward the loan and rolls that into the total she contributes to her insurance contract.
When she does that, she can pay off the same debts, including her mortgage, in 7.1 years!
Remember, under the first scenario—the default scenario where she just continues to pay her debts—she is debt free in year 29.7, but she is also broke. In our scenario, in year 29.7—the year she would have been debt free under her conventional plan—she has $3,668,869 in retirement savings plus a $3,349,547 death benefit.
Take a look at the side-by-side difference between the two:
If Sam had kept doing what she was doing, she would have paid $325,575 in interest. After 29.7 years, she would have been debt free but broke.
Using the FBIC, she would have paid only $131,352 in interest. She would be debt free after 7.1 years (and not be broke). After 29.7 years, she would have $3,668,869 in liquid accumulation.
Sam is not unique. We can do the same thing for someone making less money with more consumer debt. We can do the same thing with a business owner wanting to pay off business-related debt.
If you want to see a plan specific to you, with no cost and no obligation, reach out to us. We’d love to talk.