# ARE YOU IN PERPETUAL DEBT?

September 5, 2017

## Make no mistake, lenders make money from indebtedness – your indebtedness.

When you are in debt you pay regular monthly residuals to the bank in the form of interest – which is fair enough after all you borrowed money and you should expect to not only pay it back but pay some interest on it. But how long should you be in debt?

If you took out an eight year car loan, and a twenty five year mortgage, how long would you expect it to take to pay back the car loan?  If you think you have the answer to that question using similar logic, try calculating how long it will take you to pay back the mortgage.

If you said “eight years” and “twenty five years” respectively you would probably be dead wrong.  If you said “the rest of my working life” you would likely be closer to the truth.

Let’s talk a little more about the car loan:  Are you really going to drive that brand new car for eight years with regular monthly payments of \$650 or are you going to trade it in after 3-4 years and roll the balance of the loan over to a newer vehicle?

Similarly, and we have talked about it before, the mortgage comes up for renewal typically every 3-5 years and most people either:

1) add new money to the mortgage to collateralize debt; or

2) add another term (renew for twenty five years instead of twenty) in order to reduce their monthly payments.

Now let’s turn our minds to credit cards!

Look at the fine print on the bottom of your credit card statement – yep, right down there, put your glasses on, where it says “if you make minimum monthly payments it will take you 138 years to pay off this balance”.  Perhaps bankers have heard that people have a longer life expectancy these days.If you said “eight years” and “twenty five years” respectively you would be dead wrong. If you said
“the rest of my working life” you would be a bit closer to the truth.

Let’s talk about the car – are you really going to drive that brand new car for eight years with regular monthly payments of \$650 or are you going to trade it in after 3-4 years and roll the balance of the loan over to a newer vehicle?

Similarly, as we have talked about before, the mortgage comes up for renewal, typically, every 3-5 years and most people either 1) add new money to the mortgage to collateralize debt; or 2) add another term (renew for twenty five years instead of twenty) in order to reduce their monthly payments.

Now let’s think about credit cards! Look at the fine print on the bottom of your credit card statement – yep, right down there, put your glasses on, where it says “if you make minimum monthly payments it will take you 138 years to pay off this balance”. Bankers have heard that people have a longer life expectancy these days.

Do you remember a few short years ago when banks issued one brand of credit card and one brand only?  Now they are offering more – MC and VISA at the same institution – what is that all about?

Simple – “perpetual debt”.  Bankers have facilitated you doing balance transfers and making payments with one credit card to pay another in order to avoid two things:

1) your insolvency proceeding to get out of debt; and