With all that is going on in this economy and in this world, I want to discuss something that might sound a little bit counterintuitive and that is why I would not know why I would not be paying off debt right now, of course, there are exceptions so please make sure you watch the whole article.
Don't go not paying your debt okay listen to my thought process and please stick around for all that and more it's just about the cash cobra.
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The first one is a liquidity crunch and that is basically when the banks are running out of the fake money that they created and if you don't know what I'm talking about click this article because I have an extremely in-depth explanation of the banking system and how it works.
Basically, when they think that they're going to be seeing you know some potential dramatic or increase the losses they're going to start to pull back a little bit, and when they do that that basically means it's going to be harder to get a loan you're gonna need better credentials and probably more money.
So it's gonna be hard for people to actually get into loans when things actually hit the fan. I don't think we're there yet I think we're just getting warmed up. It's going to at least from what it seems like it might get you to know a little bit uglier. I don't want to get anybody shook but that's just the facts you know.
In order for them to protect themselves, they will start tightening up on money I've actually seen people get their credit card limits slashed even if you were paying on time.
They have been kind of tightening people's credit limits because they know you can actually get rid of those debts through bankruptcy. So they are slashing those credit cards they're also refusing people to sign up for a home equity line of credits.
Maybe and this is obviously not direct financial advice to anybody, in particular, you have to always do your own research but it might make sense if you can refinance if you have a home or get a HELOC if you can.
I would probably see which one makes more sense financially because there are fees associated with both but you want to be the one that has control over that equity in your house. You are the one that's been paying that mortgage for.
However many years and if we enter a situation where home prices contract which I've already been seeing science for that happening well thank us what that equity poof vanishes you now.
Longer have access to that and if you are entering times of stress, you don't have anything to kind of look back on because even if you do have equity in that home when things get really in think of it.
There might be less of a chance for you to refinance and get into a better loan and this is not something I'm making up this literally happened in 2008 where even people who had good credit could not get loans even people who had a nice healthy deposit could not get loans.
Obviously, I don't know what's gonna happen again this time but if you have accessed the ability to do it right now it might not hurt you might want to look into it, and obviously, if you've been on my channel one enough you know I never condone using a credit card as an emergency.
I don't believe credit cards are for emergencies even though people constantly say that but you would like to be in a position where you know at least if you needed it right it was a matter of I need to eat or something at least you have something to lean back on and I almost don't want to say that cuz it's not for emergencies but it's also unfortunate to not have anything.
You can consider getting into things now especially if you are already considering getting into it right if you're already considering getting a credit card well apply now before things get a little more strict I personally will not be applying for any home loans or any car loans I don't come applying for a car loan at all unless it was like 0% interest or something but I want to buy my car in cash and I sorry I do buy.
Then plus I think cars are going to go down also especially used cars and I do have an article here talking about the used car industry as well as a new car industry so you can check that out but again just kind of think about extending your capacity as much as you can right now because when you want to do it later you may not have the option.
Job uncertainty
The next thing is job uncertainty it's funny because in my comments and previous stimulus articles that I made a lot of people were like oh we're not gonna get another stimulus package because the economy's gonna open back up and things were gonna just be so much better all of a sudden I can already see that it's not gonna be the same I mean a lot of things are opening and it's 50% in maximum capacity. it's social distancing six feet apart.
If you only can have half of the traffic that you once had in there well you don't need half of the staff okay so will the time to open back up well yeah eventually but it's not going to do it right now I mean and when even it as it is it's not opening up back to normal.
People were saying things are gonna best normal and you're insane I don't even know what happened in June honestly the way these months are going but as it stands right now.
Over 40 million people are unemployed I think the actual number is around 43 million because like I did do kind of throw out an official number but a real number is a different number ask me why we do that but at anyway from 40 to 43 million people depending on how you want to count them are unemployed right now.
You don't know if you're gonna be next because we don't know what's going to happen as far as how this economy is going to open back up, how much more people are gonna have to get in that goal because companies are struggling. These couple of months really put a lot of companies in a bind.
You have to also keep in mind that 45% of our GDP is from services and I know a lot of times people will float around the whole 70% of our GDP is based on consumerism that's true but 45% of that is services.
If people cannot provide the same amount of services that they once did what we're going to need fewer people across everything really I mean do you want to be aggressive paying off fixed debt if you don't even know if you're gonna have your job in a month or two from now?
I obviously would want everybody to stay employed but that's just the reality mind you there's talking about having a second potential wave of this mess so yeah you want to make sure you have money on hand to survive. I wouldn't be in a rush to pay off the fixed debt.
I will get into you know variable that later on but I would not be in a rush to pay that off because I would hate to be in a position where you know I put so much money into paying this off and now I lose my job and all that money could have been maybe another at least extra month or two worth of income and now it's gone.
Definitely pay off what you can if you could pay a little extra you can but do not neglect your savings right now it's very important to make sure you are going to have a few months of protection because we don't know what's going to happen.
Potential Loan Forgiveness and Forbearance
This is obviously speculation so oh just listen so as it stands right now we have federal forbearance right for student loans up until the end of September and the heroes actively proposing basically a ten thousand dollar loan forgiveness for private loans as well.
Is there potential to get your loans paid off or get your loan forgiveness? maybe they're literally in discussions about this and I think we will have an update on the heroes Act.
I think from what they said within a month or so so I wouldn't expect anything on that right now. You guys know of course once that does happen I will be coming to you with that information but there's potential to have some of that student loan debt wiped away.
Obviously, I know what the loan forbearance that's kind of pushing the due date the final payoff date to like a little bit further back but this is when you can actually use that money to again aggressively save because we don't know what's going to happen and you want to make sure that you're eating your bills are paid you have somewhere to stay every will be ahead.
So take advantage of it even if you can't come to me play it I'm not saying go ahead and buy Louis Vuitton bags or whatever else people potentially have stolen and will be selling but definitely think about putting that money into your savings so that you can use it for a rainy day.
There are also rent and mortgage moratoriums where that you don't pay your rent or your mortgage is either. So again don't bought out with that money save it because it can come in handy and really save you.
Low-Interest Rates
Another reason why I wouldn't pay off debt is if I have low-interest rates again this will be different depending on who you are like for example let's say you have real estate.
You have dividend stocks you know and you're earning the kind of an easily calculated return like let's say you're earning I don't know 7% on those investments but then your debt is only at 3%.
Well, you have to calculate opportunity cost when you're looking at your money and your opportunity cost is what am I giving up in order to put my money here right.
If you're gonna be aggressively paying off 3% debt you're giving up the potential to be earning 7% so you want to do the calculations and see where would my money work for me the best.
Credit Card Debt
A lot of people who have credit card debt I mean in most situations it almost like pay off the credit card debt you know in most situations you're not going beats a 15% interest on your credit cards you know what I mean like most credit cards have 15 to 17% so I would say pay that off.
But if you have something that's like a low interest or no intersect medical bills but please definitely use that money to either make you more money or to save it.
Save For Income Producing Assets
Another reason why I would not pay off my debt is for cash reserves to take advantage. People become super-rich during these recessions.
Every recession is an opportunity to pick up things for a dirt-cheap okay. Some will argue that its not really dirt cheap it's just fair value because of all this fake money. You know kind of artificially pushes these prices up but that's another conversation.
But at any rate, if you have the means to if you do feel like your top is secure if you do have your savings set up for a couple months in the event that you did lose your job. Well then definitely make sure you're putting some money away to kind of take advantage of buying assets that will actually really help you will secure your retirement, will secure your funds right now.
Real Estate
You know like I always like real estate personally but stocks may take another dip. You want to just be the person that's there to actually take advantage of it. If you're in the market for a new car You know those are also gonna be going down in my opinion.
So I would be focusing on trying to keep some of that money to myself so I can actually you know make it work for me even harder when things get harder.
Hyper Inflation
The next reason is hyperinflation and this really works with fixed-rate debt everything I'm talking about money to is fixed rate there I'm gonna get into why but with hyperinflation when things are skyrocketing like this okay when you have a situation where maybe every week or even everyday prices are just shooting up.
Then that will make your debt more affordable as long as income is also shooting up with it why is that like I said if it's fixed-rate debt. Then the interest rate is going to stay the same amount but a lot of times you'll see that in a hyperinflationary event that your income will have to increase.
Venezuela, for example, their minimum wage increase 67% and that was the whole kind of combat inflation right. So if your income has raised 67% for example but your debt has stayed the same.
Well, then it's much easier to get rid of that debt now because you're now earning more and paying the same amount.
For Venezuela though unfortunately even after that 67% increase, people could still not buy a loaf of bread with their income. So you know hopefully we do not reach that situation because that's pretty tough but this is kind of like a little crystal ball into the future of potentials.
So to me, if you're looking to kind of put your money into something it would be something that kind of like matches with inflation like gold. You don't have to believe me you can go do the research for yourself. I do have an article on gold and I will be doing an article on gold. Please be sure to subscribe I'll be talking about gold and silver but those things historically have helped people with inflation.
We can go right back to Venezuela and you'll see that you know while minimum wage increased 67% gold increased 3 million%. I'm repayment I'm laughing but that's like ridiculous honestly like that's out of hand.
So if you had gold invent as well I mean you'd be pretty comfortable you know in a situation like that if gold were to increase 3 million% here. I mean one ounce might have you set in debt-free.
Exceptions
Let's get into the exceptions as far as why I would be paying off my debt expeditiously and the main tool would be the high interest and variable rate debt if you have high-interest rates which are mostly credit cards and variable rate debt which is mostly credit cards pay it off right now.
Please thank you and excuse me. I really need you to get rid of that because it is going to be the bane of your existence. If we reach a situation where inflation is creeping up because that has no limit. I've talked about this so many times on my website but you want to get rid of that.
Because they can control you and pretty much keep you enslaved in debt. if they can control your interest rate right if they can just jack it up to 30% you're never gonna pay that off let's be real.
So personally to me anything above like 7% I think you should look at getting rid of because not a lot of things can get over 7%. There are certain situations well that's what I was talking about before.
You know evaluate what makes more sense if you're earning more money on your investments then you don't be so aggressive with paying off your debt but it just kind of depends it's a case-by-case situation.
Emergency Savings
The next thing I would say is to pay it out if you can I mean if you have the means to have the emergency savings you have savings for investments.
Well then beat that free I mean why not I'm not telling you to just hoard all your cash if we do feel comfortable if you do feel like you have job security.
Then I don't think it hurts to just get rid of that debt so that you can really focus on growing your nest egg growing your passive income and things like that.
Then of course if you're behind I mean if you are behind you yeah you want to pay that off because like I said you will be targeted so you don't want to have repossessions, you don't want to have foreclosures those things take a while to build back up from.
I think a lot of people can use leverage to their advantage. So to the extent that you can get into a loan to control a piece of property that you otherwise couldn't pay out in cash right.
Well then I want you to be able to do that but if you have foreclosures if you have late payments. It's harder to get those loans and it's harder to kind of get into that passive income and using leverage to help really 10x or you know whatever increases your income.
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