A Smarter Way to Incur Debt . . . That Won’t Make You Want to Kill Yourself

NO NONSENSE CORNER

You only use your credit card when you are short on money. You tell yourself that you will pay off the balance — as soon as you get your next paycheck. You pay most of it off. Then you realize you don’t have any money left over for this month’s expenses. The problem with credit cards is that life happens. Credit cards, by design, generate a debt domino effect.

By Elie Boutros

One way to borrow money is to acquire a personal (or signature) loan. The interest for these loans is very high since they are risky. Credit cards and signature loans are similar, due to the lack of collateral. There is nothing the bank is holding to obligate you to pay.

On the other hand, there are loans that do involve collateral. You only own your home if you pay off your mortgage. If you choose not to pay your mortgage, the bank will confiscate your home. This is identical to how car loans operate. These loans are currently at a historical low. Consumers with exceptional credit have an interest rate from 1%-5%. Compare these rates with credit cards that usually never have a zero balance (12%-28%).

A hostage situation?

The interest you pay is directly correlated to the risk you provide the bank. If you grant the bank collateral, then you become less of a risk. Because the loss of a home or car is too great, payments are a priority, and the banks know this. Sounds like a hostage situation, right? Yes! So if you’re looking to pay off credit cards or student loans or simply to consolidate debt, consider a cash-out loan on your assets. The bank allows you to borrow a lump sum of money equal to the value they determine your asset to be worth. Then you begin making monthly payments to pay back this lump sum of money.

Example:

You borrow $5,000.00 at 3% APR for 3 years. Your payment amount will be $145.41. After making thirty-six payments, the total amount you’ll pay back is $5,234.76. It’s the cheapest way to pay off debts.

Elie Boutros has a Bachelor’s in Economics from CSUCI. Most of his career has been in the banking industry. His all time goal would be to one day work in developmental economics on a global scale. The “No Nonsense”  is a new corner that starts today on Colorado Boulevard.