Banks make money by taking your money and having it work hard for them. The banks keep your mortgage and other loans separate from your checking and savings accounts. What purpose does this serve? This allows them to make as much money as possible on your accounts.
Banks make money by lending your money from your checking and savings accounts to other borrowers. They make money by lending you money from other people’s checking and savings accounts. The banks make money by lending your money back to you with interest. Would you like to be your own bank?
Keep this process in mind as we go through the following principles. You can eliminate debt, create wealth to turn the tide, and have your money working for you.
An open-end loan is a revolving line of credit issued by a lender or financial institution approved for a specific amount. It is very flexible, meaning you can take out as much or as little as you need up to the amount of your credit limit, and once you pay off that amount, you can reuse the line of credit again later. Open-end loans include credit cards, bounce protection lines on checking accounts, and a home equity line of credit, or HELOC.
Closed-end loans allow borrowers to buy expensive items–such as a house, a car, a boat, furniture, or appliances and are paid on schedule, or penalties and fines are imposed. Closed-end loans are dispersed in full when the loan closes and are paid back, including interest and finance charges, by a specific date. These types of loans are called “installment loans” or “secured loans.”
For example, the less you owe on your mortgage balance, the less interest you pay. Finding a simple and easy way to lower your mortgage balance to pay less interest and reduce your monthly payments makes sense. Where do you get the extra money to lower your mortgage balance to pay less interest? This is where the excitement begins!
Float and Leverage
Leverage uses debt (borrowed capital) to multiply the potential returns from another investment or undertaking. Many companies use leverage to finance their assets. Instead of issuing stock to raise money, companies may use debt financing to invest in business operations to increase shareholder value. Consumers may use float to earn interest in a separate account while utilizing the bank’s assets to sustain their lifestyle.
Which debt should you make strategic transfers to first? Most people have more than one debt. Some people recommend paying off your smallest debts first, regardless of interest rate, since eliminating the monthly payment for that debt will free up more of your money toward other obligations. Other people say to pay off your highest interest rate debt first so that your money will have the most significant impact and cancel the most interest. Both methods have merit. There is another way.
Albert Einstein said Compound Interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it. This statement could not be more accurate! Those who spend 30 (or more) years paying interest on mortgages, cars, credit cards, etc., make the banks extraordinarily rich! Fortunately, those with the right tools and understanding can also become rich! As you may already know, your money has great potential power. Using it correctly and with the right tools, your money can multiply exponentially.
By applying these principles to your debt, we can show you how to pay off ALL your debt, including your mortgage, in as little as 5-7 years and convert your debt into wealth!