All About Debt

two five six three seven. No charge that initial get to know the appointment at Class Financial. It will be complimentary to you again their number six oh eight four four two five six three seven. As mentioned, CJ and Eric joining us this morning. CJ, how you doing this week?

more about the team at Coss Financially. You can learn about the separate divisions. You can also sign up for the weekly market paulse newsletter that available to you at Clossfinancial dot com. Tell phone number six oh eight four four two five six three seven no charge for that ininitcial gets no you appointment at Class Financial. It will

be complementary to you. Don't forget. Also, you're going to use that numb a little bit later on the program with the class Quiz question the week your chance to win a fantastic prize this week no exception, our friends from Class Financially have provided a twenty five dollars gift card to IHOP and we'll tell you a little bit later on how you can win with the class quiz question.

Leak just a little tip though, Pay close attention to the program because just about every show the question and answer both come up during the program, and before we get rolling on this week's topic, let's actually roll back, take a look back at last week show and get the question and answer there as well.

game plan? These are really important conversations, aren't they?

to be a huge saver. And truth be told, there's strengths and weaknesses to all of these different shades of the way that you handle cash flow management and saving for the future. We've seen people who you know, maybe we're children of the Great Depression, who have millions and millions of dollars but won't spend a penny because they're

so fearful, and that's an extreme. But then we will have other people who you know, grew up with parents that never saved anything, and they just go, I don't know, I heard you can love our social security, so I

just spend everything. So you get the idea, these are these extremes that get set at an early age, and so we just want to tell you, hey, while while each approach can have strengths and weaknesses, we given what we do for a living, we get to see some behavior patterns that really work out out well and have high probabilities of success over long periods of time. So we're going to talk about that relative to debt today.

So that's one of these weird things that has a way of sticking around and for many people can even follow them into retirement. So you should know, in our view, the best case scenario from what we see across thousands of households that we've worked with, is that heading into retirement debt free really is ideal. Now, some people go, but what about the mortgage interest deduction, And I've heard blah blah blah blah blah. Stop stop. We do this for a living, right. If you don't, then just take

a pause. I'm not talking about, you know, tax management or anything like that. I'm just saying from the overall approach, heading into retirement, if possible, being debt free really does give you the best leg up and give you freedom and choice and opportunity and all of that. Now that's not to say that you can't retire with debt. It's just to say, if you're looking for the best option, do your best to not have debt heading into retirement.

So of course people say, well, if if I'm not there or if my plan isn't on par What do I need to do to make some adjustments? So I'm going to go through kind of four things here that you can consider. Number One, set up a plan to reduce and eliminate your debt. It starts with a plan. If you don't want to take our word for it, you can listen to Dave Ramsey. I think he actually he might be syndicated on this station as well, if

not other stations. But Dave Ramsey's a big proponent of eliminating debt to create financial freedom, and then it can also create generosity in you. So set up a plan. Number two, consider making some lifestyle changes. You might need to tweak your spending habits and set some realistic goals. A lot of folks find success by being aggressive with debt payments first and then shifting to focus on saving for the future. So we would and then finally we

would actually say set it on automatic. We have that often people's desires don't match their cash flow, Like I really do want to be generous, but I just can't give right, Or I really do want to pay down my debt, but I just don't have money to do it with. And we would say, well, then your desires aren't matching your behaviors, and so you need to you need to make it automatic. So first of every month you make your large mortgage payment. Number three would be

to pay down debt, potentially in lieu of additional retirement savings. Now, one way where we might slightly differ from Dave Ramsey is we really do like people getting their company match. But I'll be frank with you, I don't want to argue Dave on Thus, I see his point, which is like, you've got to have a ruthless attitude about debt at times, I mean ruthless, like I just gotta get rid of it.

And if that means you don't save into the four oh one K for a little bit just to get the debt paid off before you retire, we would say again, heading into retirement without debt is the best option. Now again, talk to a professional advisor, talk to your accountant, make sure that it makes sense across your overall financial picture.

But generally speaking, given that we are retirement planners, I can tell you those of our clients that don't have debt and retirement tend to have a lot less stress and live a lot more free and are a lot more generous with their kids and grandkids than those that have a mortgage. And then finally there's an option just

to work a little bit longer. So we have plenty of clients who do this where they maybe got remarried later on in life, got a home with that new spouse, ended up with a mortgage, and worked, you know, instead of sixty five to sixty seven or sixty eight, just to make sure that they haven't had enough time to get that mortgage eliminated. So there's kind of four practical things you can do to try to eliminate debt before you retire.

part of the program. You can always listen back at Clossfinancial dot com. That's class klaas financial dot com. They're telephone number six, so eight four four two five six three seven, So Eric, that's obviously a lot to consider that CJ laid out there. How much debt are right retirees actually carrying these days?

trillion dollars in the third quarter of last year. That's a point eight percent sent from the previous quarter, and mortgage debt alone was twelve point five to nine trillion dollars.

Data from credit Karma, which this is from April to June of last year, shows that baby boomers specifically, who are either retired at this point or close to it, they carry an average auto loan debt of twenty three thousand dollars, a credit card debt of over eight thousand, and mortgage debt of about one hundred and ninety seven thousand, seven hundred and ninety five dollars. They also this surprising me, actually, they also have an average of forty five one hundred

and one dollars in student loan debt. Again as they approach retirement here in the near future.

Avoid this impulse spending. Don't don't create more of an issue than you already have. The second one would be know your interest rates, so focus on paying off those high interest debts first. These are often your credit cards, and I mentioned just a moment ago that we've seen, you know, starting in twenty twenty two, we saw interest rates spike and then you know, they've come down a little bit, but they're still higher than they were, like I said, the previous ten fifteen years before that, so

you may not notice. But your interest rates, a lot of them are not fixed. They're variable, especially your credit cards. So as interest rates change, your interest rate also changes. So more than likely you're paying more interest on your credit card now than you were three years ago. So take a look at those interest rates and prioritize those high interest debts first. Now you don't have to do this by yourself, so there are some pretty cool debt

payoff tools out there. I mentioned credit Karma earlier. Credit karma dot com has some great calculators. Calculator dot net is another place you can go to find out. You know, hey, if I make this payment every month with this interest rate, when will I actually have this paid off? Goes back to what CJ was saying earlier. To make a plan to pay off debt. The last one is pay your bills on time. Late fees add up fast. They can hurt your credit score, and they're really just you know,

adding to adding to your issue. And it's it's a pretty simple way to avoid some additional fees.

Class financial dot com. That's Coss k l aa S Financial dot com And they're telephone number six oh eight four four two five six three seven. No charge for the initial get to know your appointment at Class Financial. It will be complimentary to you again the telephone number six oh eight four four two five six three seven. Be talking about different types of debt with Cjen Eric,

we will do that and take your call. Next as Money in Motion with Class Financial continues right here on thirteen ten wib A talking with our retirement planning professionals from Class Financial, Eric Schwartz and CJ. Closs. Of course, you can learn more about Class Financial on their website colss financial dot com. That's Class k l a A S Financial dot com. You can learn about the team at Coss Financially. You can learn about the separate divisions.

You can also sign up online for the weekly Market Pulse newsletter. That all available to you at Clossfinancial dot com. Telephone number six oh eight four four two five six three seven. No charge for that initial gets to doing appointment at Coss Financial. It will be complementary to you. And again they're telephone number six O eight four four

two five six three seven. Talking this week about debt and heading into retirement and left off we were just kind of scratching the service a bit on interest rates and what are some of the things we should be looking for when it comes to different types of debt. CJ.

probably caught this, Shan. One of the ads was like, oh, you can finance, and I won't be particular because I want to, you know, but one of the ads right before we came on was referencing being able to finance something, and I just found it ironic. Okay, moving on from that. Yes,

so different categories, uh, credit cards. So according to lending Tree, the average interest rate is twenty four point two six percent right now on credit cards, and if your credit isn't great, that rate can jump up to twenty seven and a half percent or even higher. So obviously credit cards are what are a category kind of broadly that we call unsecured debt. Whenever you hear that, everybody just you.

Sometimes it sounds overcomplicated, but think of it in terms of, hey, if you default on making your credit card payment, can I, as the bank or the credit card company, come and repossess something that you own to then reduce my risk to sell that repossessed item to then pay off some of the debt. And the answer is no, not with credit cards, because typically you're buying like groceries and other items that you can't repossess, you can't give get title to.

That's the key to So we call it unsecured because if you default, there's no recourse. I hope that helps everybody, and of course that's why the interest rate has to be so high to mitigate that risk. The next category would be home loans. Ideally we want to see little to no mortgage debt as you approach retirement. We already

talked about that. But as of the first of the week in February of twenty twenty five, the national average for a thirty year fixed rate mortgage is six point nine percent and for a fifteen year fixed rate mortgage it is six point h one percent. Listen, everybody, in

historical norms, this is actually not bad rates. It's just just a few years ago it was like, I think the thirty year was at three and the fifteen year was at two, right, And so our brains are used to these insanely low interest rates, and so now when we gravitate back towards a normalized interest rate environment everybody, but he's panicking. Truth be told, these rates are pretty normal. What I would say to you is it doesn't really

matter what the rate is. Being debt free is the key, because when you have debt, you have outgoing cash flow. When you don't have debt, you don't have that required outgoing cash flow. So those are the home loan rates, and then and then we're going to get into auto loans. So auto loans. In January of twenty twenty five, Edmunds dot com listed the average car loan interest rate for December of twenty twenty four as six point six percent for new car loans and ten point eight percent APR

for used car loans. So again, somewhat of a historical average what we're seeing here on the car loans. But what I'd say to you is listen to that used car loan space. I mean, listen if well, if you've heard me talk about auto loans. I'm actually a big proponent of getting vehicles that are lightly used because there's about a thirty percent decline often off the new car purchase price. That's not always true, by the way, but that's typically true. So get a lightly use used vehicle.

The problem with that is, now, if you get a lightly used vehicle that's had a thirty percent reduction off the MSRP and you don't have the cash to buy it with, the interest rate on that thing could be ten to eleven percent. So you get the point here.

It's like, oh, man, if I'm gonna buy that used vehicle, I may want to either have cash to buy it with that would be our first choice, or if I don't have cash to buy it with and I need a vehicle to get around, then we get into what we call the length of the loan or what you know in finance or bank terms they would call the amortization timeline. So, unbelievably, you can get auto loans these days that last like up to eight years. For those

who don't know, that is insanity. And the reason it's insanity is because the vehicle will be depreciating often faster than you are paying down the debt. Therefore, if you ever go to sell that vehicle, you might be upside down, meaning the vehicle's worth less than you owe. So what we would say is, listen, if you're forced into using an auto loan, although we would prefer that you don't then pay it off quickly, make it like a two

or three year loan. And if you go but I don't have the cash flow for that, then I would say you might want to get a cheaper vehicle because pushing out that amortization timeline further. Yes, it brings down your payment, but it also reduces the amount of equity you will have in that vehicle over time. So if you're going to get an auto loan, just be be be very aware of the interest rate and try to get it paid off as quickly as possible.

four four two five six three seven. So CJ, what about it's all the new student loans when we need to know.

that it's three years or less. And my first choice for you for your financial future would be that you pay for that vehicle with cash. And what that means because you go, how could I do that? Well, it means you need to pay yourself three or four hundred dollars a month for the next three four five years to build up the resources so that when you need to go buy a vehicle you write a check for

that vehicle. What you will find is that when you are writing a check that took you three or four years to save to buy that vehicle, will buy a cheaper vehicle than you would have if you use debt to finance it. Yes, let that sink in. When you actually pre save and use your own money and you write a check for a vehicle, you will on average buy a cheaper vehicle than you would if you financed it.

Because something happens with our brains when we are using debt to finance the purchase of something where we just don't make as good of financial decisions. Okay, to this final category of student loans, which, as Sean said, is really in the news right now. I'm not going to get into all the details of why. But there's just a lot of questions right now on what's called the SAVE program and what's going to happen to it in the future, and if deferments are going to go away, YadA, YadA, YadA.

But federal student loans for undergrads currently have a six point five to three percent interest rate for the twenty twenty four to twenty twenty five school year. Grad students, on the other hand, see rates as high as eight point eight percent I'm sorry, eight point oh eight percent on private loan or on those grad student loans, and then private student loans can range from three and a half up to sixteen and a half depending upon your

credit score. Now, be cautious these ideas of like refinancing and consolidating with somebody outside of the student loan space. This can sound really attractive because you end up with one payment. It's consolidated, but you often are losing some of the federal protections that exist, so be careful there. Or if you're part of what's called a PSLF program,

it can eliminate that, so be careful. When we just hear people go I'm just gonna, you know, move it to a private lender and consolidate it all and move it over here, we go, whoa, whoa, whoa, whoa. It's not that we're opposed to that, but you want to slow down and make sure you're aware of what you're giving up in the meantime, so listen. Big takeaway from today is make it your goal to retire debt free,

including the elimination of your mortgage if possible. And don't forget you still do need to be saving for retirement, but we think think just the impact of not having that outgoing cash flow for required debt service payments and retirement. Given that, again, given that we do this for a living, that is more powerful than you think. So make it your goal to retire debt free.

We will do all of that next as Money in Motion with Class Financial continues right here on thirteen ten, WI b A talking with our retirement planning professionals Eric Schwartz and CJ. Closs. Of course, they come to us from Class Financial website colss financial dot com. That's class k l a A S Financial dot Com. And they're telephone number six O eight four four two five six three seven. No charge for that initial gets to know

you at Claus Financial. It will be complimentary to you. Again, they're number six SO eight four four two five six three seven. One of the cool features too, I mentioned the website class Financial dot com. That's class k l a A S Financial dot Com. One of the cool features on the website is the opportunity to submit a question to be answered here on the program with the

Money in Motion Listener question corner. And Becky writes in, my husband and I are planning on retiring next year and our term life insurance will end two years later, does it make sense to replace the policy or let it go at that time? Thanks for your guidance, and that is from Becky.

insurance needs. So it would make sense that your your term policies are coming to right around the time you're retiring, because often your needs for life insurance change at that point. So whether or not you want to replace that term life insurance policy or let it lapse or whatever it might be, is going to be based on a few things.

Number one, do you still have financial dependence? Do you still have anyone that relies on you for income even in retirement, so this could be children or other dependents. If not, you know that may be a reason to let the policy go. But if you do still have dependence. That is one thing that insurance would remain important for. You want to look at your debt and your expenses.

So we've talked about debt for most of today's show, but often life insurance is put in place to pay off some of your biggest debts, like your mortgage or you know, future expenses. Let's say you want to provide educational funding for your kids or your grandkids. Things like these that could be a burden on your surviving spouse or family members. These are another thing that may that may cause you to say, well, maybe we want to we wanna look at a different policy beyond what we

have here. From the From the term policy your savings and your assets. So if you've if you built sufficient retirement savings or other assets that would cover final expenses and provide for your spouse and family, life insurance becomes a lot less critical at that point. Your health and the cost of a new policy, So this is a really important thing when you're thinking about replacing a life

insurance policy. Often we get these policies in our younger years when it's easier to qualify based on your health. So if you are getting a new policy, especially around retirement, you are likely to see higher premiums, and it's just in general is more difficult to actually get a new policy in the later years. And the last one here is the purpose of your insurance. So was the original policy intended to replace your income, to cover final expenses,

cover state taxes, maybe leave an inheritance. Now is a really good time to reevaluate your financial goals and figure out if life insurance still fits into fits into your goals now. It's these are really high level responses and I think pretty lengthy as well, So it's probably helpful to consult with a financial advisor to review your specific situation, determine if you want to, you know, if you want to look at getting another policy, if you even need

another policy. And this coincides really well with kind of the overall retirement planning process. So hopefully you're talking to someone as you as you move into that part of your life.

appointment tech Coss Financial. It will beat complimentary to you again their number six oh eight four four two five six three seven. You can want to hold on to that telephone number now because it's time for the class quiz question of the week. It works like this. In just a moment, I'll ask you the class quiz question of the week. You will then have thirty minutes from the today's program to call the Class Financial office at six oh eight four four two five six three seven.

If you are the first car correct answer to win this week's prize, which is a twenty five dollars gift card to i hop this week's class quiz question the week is this true or false? Entering retirement with the least amount of debt will give you the most freedom. Is that true or is that false? Telephlle number six oh eight four four two five six three seven. First call correct answer will win this week's prize that twenty five dollars gift card to i op dot forget as well.

That's Class Financial's office. No charge for that initial get to know your appointment at Class Financial. It is complementary to you. Their telephone number six O eight four four two five six three seven C J. Eric. It's always great hanging out you guys. Enjoy this beautiful day and we'll do it all again real soon. Thanks Sean, Thanks Sean, and again that website COSS financial dot com. That's coss k l a A S financial dot com Doctor Mardy Greer.

She joins us next with check out vet here on thirteen ten wu I B a