27 Apr My Financial Advisor Never Taught Me the Beauty of a Line of Credit
The last few posts, I’ve shown you a simple and powerful way to put your money to work 24/7. Here are a just a few powerful uses for this strategy.
- Paying down your mortgage eliminates negative equity. This will enable you to refinance your home taking advantage of historically low interest rates.
- Paying down debt increases the cash you’ll have to save for your future goals. This strategy will work for student loans and student loans too.
- If you are an investor, this strategy is creates equity faster than if you were to apply 100 percent of your positive cash flow to a loan. You will be able to invest in another property sooner.
If you’ve asked your banker, financial advisor or CPA if they understand how this works, in all probability you will get a blank stare. How am I so sure? This has been my experience.
My CPA was amazed when I showed him this strategy. He now uses it too. He tells me he’s saved over well over $100,000 in interest. He shares this strategy with his clients. Ironically, few of his clients believe him. You know the saying, ‘If it’s too good to be true…”
Similarly, I’ve yet to meet a banker who understood the power of using your income and the bank’s money to create an unbelievably cheap loan. I always get a blank stare.
Unfortunately, instead of banks teaching us how to use a line of credit to build wealth, they encourage strategies that will increase our debt. Just check almost any bank website. You’ll see what I mean. They encourage consumers to engage in disastrous financial habits.
If you were a financial advisor, if you understood this strategy, would you take the time to share this with your clients? What if you are a client that’s not good at sticking to your budget? Who wants to be accused of ruining their finances? That’s a great formula for getting new referrals! Besides, isn’t it easier to talk about investment vehicles that will pay you dollars?
In short, I’ve learned that no matter how simple it is, teaching something that’s out of the ordinary is like pushing a rock up a hill. This is contrary to the ‘facts’ that repeatedly heard for years. The advice you’ve been given IS correct based on the way we’ve all been taught to use a line of credit. Once you put your income to work by moving your income to the line of credit, the entire picture changes.
Interestingly, teenagers and college students quickly understand this strategy. Why? They haven’t learned much about our financial system. They ask me “What’s the problem? This is easy to understand!”
Consumers, financial advisors and bankers ask me “Why should any financial institution encourage their customers to use a strategy that will reduce the interest they will be paid?” At first glance, the answer seems obvious. In my next post, we’ll answer this seemingly obvious question.