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Drive Down Your Debt

While the market is riding high, the time is right to drive down your debt!

Here’s the good news:

The financial markets have been experiencing incredible growth over the past decade, creating an unanticipated boost in the bottom line for individuals, small businesses and corporations. It’s the kind of steady growth that would have been unimaginable a dozen years ago. Just think about it … banks have lots of money to lend, businesses have tons of cash on hand, retirement accounts are growing dramatically, personal wealth is soaring.  

So should we all be socking away our surpluses, ignoring what we owe (like low-interest debt) and saving for that proverbial rainy day? Not so fast. There’s another answer and it’s a pretty simple one, but most people aren’t even thinking about it: pay down your debt! 

Not easy to predict:

Here’s what we all have to keep in mind: This prosperity will not last; history has taught us that there will be a market correction. When will the market correction happen? It’s hard to predict; timing the market is difficult, if not impossible. But there are a few things to consider. For instance, most financial planners will tell you to ride the market, to diversify your stocks or to put your money into their recommended funds. Sounds like good advice, right? But consider this: The main goal of a financial advisor is to make money - first for themselves and then for you. They’re in business to make a profit, and they do that by handling your assets. But ask yourself this  - are their goals your goals? Of course you should continue to build your portfolio, but if you have some extra cash on hand, you really should think seriously about paying down your debt.  

Planning is everything:

We get it - the question of what to do with excess cash is an age-old conundrum. And the answer is often different, depending on circumstances. But planning for when times are not so good in the financial market should always be a priority. Everyone should consider having a five- to ten-year financial plan for the future. Ask yourself what will likely to happen during that window of time … Retirement? College tuition? What if you lose your job? What if you get sick and can’t work? What type of health care will you need? 

As part of this plan, the first thing you’ll want to do is have a six-month cash reserve in an easily accessible money market account. And your next priority should be to pay down your debt!

Time to get serious:

Are you carrying a large balance on your credit cards? Are you paying just the minimum on student loans? Do you feel like you’re drowning in mortgage payments? Here at Padden Cooper LLC, we have seen many clients - too many, in fact - who are overburdened with debt. Often we see people in their 50s and 60s feeling the pressure of too many bills to pay and too few years left to earn an income. We don’t want this to be you! 

What to do? Take a percentage of your cash on hand or in securities - the excess that has built up from the past 10 years - and start to reduce your debt.  Do it now, while you have the excess reserves!

A plan of action:

1.  Pay down all debt to zero starting with any credit card debt and/or student loans that you are responsible for. Start with the highest interest rate accounts first. 

2. Next, attack any car loans, personal loans and home equity lines of credit that may no longer be tax deductible. (Your CPA can advise you on the specifics of HELOCs.)

3.  Then pay down your mortgage aggressively. Consider doubling up on payments.  

4. If you’re nearing the typical retirement age (65-67) and you’re still saddled with a lot of debt, consider staying in the workforce for several more years. And then use that steady income and get serious about paying down your debt.

The bottom line:

Set yourself up for success - no matter your age or stage of life. Become debt free and then you can do anything you want, even if the market takes a downturn. Think of it this way … while money can’t buy happiness, living debt free will certainly add to the quality of your life - and to your daily peace of mind! 

“Think about paying down outstanding loans,” advises Dan Padden, one of the partners at Padden Cooper LLC. “Talk to experts. People need to see the pathway out and we can help them become debt free.”