by Nick Vaccaro

Over the years, we’ve seen a slow deterioration of the US financial system.  It started in the housing sector with the downgrade of (then) Countrywide’s bond rating, but then it slowly made its way into other sectors: a failed banking system, Wall Street saw investors losses in the billions, record unemployment, state and federal government failures, and is now causing a complete deterioration of the US economy.

While there are a number of issues that have acted as an catalyst to the economy, one of the primary reasons for the issues, is debt.  We’ve heard that debt is one of the major contributory factors of this ever-growing crisis.  Just last week, the US government announced that they had hit the 14.3 billion dollar debt ceiling.  Major cuts are necessary, but it seems that the politicians are living in denial.  The social security administration is now projected to be bankrupt by 2024, 10 years sooner than most recent estimations.  Not only does debt affect the government, but it incapacitates business and individuals as well.  In 2010 over 1,500,000 corporations filed for bankruptcy protection.

Why is debt so dangerous?  I’d like to show you how $30,000 in debt will end up costing you closer to $300,000 over the next number of years, and possibly prevent you from retiring.

“I only have 30,000 in credit card debt”

What most people don’t understand are the long-term effects of debt.  Sure, you owe $30,000 in credit card debt, but $30,000 is easy enough to pay off, right?  Wrong.  Unfortunately, $30,000 is what you owe if you could some how magically pay it off today.  The truth is that $30,000 in debt will end up costing you $300,000 of your hard earned money by the time you’re done paying it off.  IF you pay it off.  Given that the average amount of retirement has been dropping over the last number of years, and savings of a person retiring is only $56,212, we start to see that this is a bigger problem than most people realize.

First, I’d like to look at the cost of debt.  Currently, $30,000 of debt has a monthly payment of between $600-$1000; depending on your payment structure.  Most people are unaware that their interest rate and what they pay per month are mutually exclusive of one another.  Based upon these numbers (and assuming that you NEVER spend another penny on the cards), it’ll take you about 15 years to pay to pay off this debt IF you keep your payments at $700 a month, and IF you never spend another penny on the card and IF your interest rate never goes up and IF you never miss a payment.  Sounds like a trap?  Good for you, it is.  The truth is that most people NEVER pay off their credit card debt.

Unfortunately, most people don’t realize that the credit card system is build to keep you in debt.  Believe it or not, the credit card companies DO NOT want you to pay off your debt. Sound unbelievable?  Realize that you’re of no use to the credit card company once the debt has been paid off.  You’ve been put into a system that is designed to keep you in debt.

With that said, what are the long-term effects of $30,000 in debt?  The “out of pocket” expense will run you between $700-$1000 a month; depending on your interest rate.  This equates to $110,400 over the next 15 years.  One of my analysts said it best when he said, “so the $7 burger I just bought with my card will actually cost me $21?”  Yes.

How credit card payments are calculated

Typically, the credit cards have a 1%, 2%, or 3% of balance payment.  Accordingly, on $30,000 your payments would be (30,000x.025= $750/month).  Important: Given the above information, it is mathematically impossible to payoff your credit card once it exceeds 24% on the typical payment structure.  If you miss a payment, and your i/r goes to 29.99%, your minimum payment will no longer cover the interest generated on the card each month!

Opportunity Cost

In business, and in economics, there is a concept known as “opportunity cost”.  That is what is the cost of the next best option that you didn’t’ take.  In this discussion, the opportunity cost to the individual in debt is the ability to invest those payments over the same term of time.  In other words, what would have been the result if you didn’t have the $30,000 in debt, didn’t have the ensuing payments, and then had the opportunity to invest that money instead?  We would first want to assign a return to that investment of say 7%.  What would be the difference between what you pay out, and what you could have been earning on your hard earned money?  In investment terms, it equates to about 32%, but in real numbers it can be about 10 TIMES that of what you owe.  In other words, because you owe 30,000 and are paying on that debt for the next 20-40 years you could have been about 300,000 dollars richer in that same amount of time IF you didn’t have the debt that you’re currently carrying.

Over the last number of years, I have helped thousands of individuals with their finances.  I have a specialized degree in finance, and tend to think of the “bigger picture”.  I was also trained as a financial planner, so I understand the necessity of keeping your money in YOUR pocket.  NOBODY should pay interest rates of 15-30% EVER.  It’s a slow sabotage of YOUR financial situation.  A typical financial planner works by giving you a bill each month to fund your retirement; I create a way for you to save money.

Have you depleted your savings in the last couple of years?  I can get you back on track.  Have you lost your home to foreclosure or short sale?  I can show you how to get back into a house again.  Are you behind on your mortgage payments or trying to qualify for a mortgage modification?  My program helps with that.  Through the process of debt settlments, we are able to not only pay off your debts for the least amount of money possible, but we are able to help you cover so much ground that has been lost over the last five years.

Also, take note that it took you years to build up the debt, and it’s going to take a little while to pay it down.

Over the last three years, I’ve personally interviewed 110 companies.  I wanted to build the absolute top company in the debt settlement industry.  I knew that if I could build the best, then I’d be able to offer the best results to my clients.  In the end, I have the best company that’s also one of the cheapest, has the some of the best settlement rates in the country, and has a program that is designed around the client.

If I can ever answer any of your questions, please feel free to contact me at nick@americanfpg.com

Thanks for reading,

Nick Vaccaro
858-240-6157
American Financial Protection Group
nick@americanfpg.com