Back to Basics: Debt Elimination

3.7.25: Audio automatically transcribed by Sonix

3.7.25: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement Show. I'm your host Val Majewski with American Benefits Exchange. As always, appreciate you taking the time out of your busy schedule to join us, to view our content, to listen to what we have to say. Why is that? Why? Why do people listen in? Why do they tune in? If this is your first time, it's because we just try to give the information that we believe you, the federal employee that's listening with the information that we believe you need to know so you can make the best decisions when it comes to your benefits, your retirement, planning, your career, all of those things. So we've been in a series recently that's called back to the basics and kind of going back to the beginning, when we first started this, uh, radio show podcast, you're really starting with the basic information. And as things evolve, as things change, just making little updates, little tweaks to the fundamentals. And I've mentioned this on on other episodes because you got to rely on these fundamentals. You got to rely on these baseline principles and these things that we go over. And these are all topics that that I would discuss if given a full presentation to a group of federal employees that did that recently, last week gave two long presentations to groups of federal employees discussing benefits and retirement. And you get a lot of lot of head nodding, a lot of head bobbing in the room.

Speaker1:
You can tell that this is pertinent information. This is information that federal employees need that they're currently not getting. And even talk to some folks that were recently hired, you know, hired within the past three months. And I said, what happened when you first got employed, when you first started your job with the government? And this is not a knock against the government at all. I just want to say that. But when they first got hired, they got a folder of information and they said, figure it out and get to work. That was the gist of what these federal employees told me said, here's the information. You can read it. You can research it all you want. When it comes to benefits, retirement, planning, all the choices that they have to make when they first get hired. Uh, figure it out yourself. And here, let's get to work. And I heard that from multiple people, and I just wanted to make sure that I was correct in my assumption over the, over the time, because you may have heard me say this before, but I'm grateful that I have a job to do and that I can assist federal employees with these areas. Benefits of retirement. However, I wish that this would be taught to you from day one or even before day one as you're going in so you can read this information. I mean, if you knew you had a higher date coming up of, let's say, April 1st, right? We're going to hire you.

Speaker1:
You're going to start April 1st. Well, give me some information to read so I can go through all this and maximize my opportunity with the government, because I think the job you all have is tough enough, uh, the opportunity that you have to retire and retire very well is huge, but you need to take advantage of all the things. Okay, done with my little speech there. To start, let's talk about today's topic. Back to the basics when it comes to debt elimination. So let's dive into today's info and talk about debt elimination. Now when it comes to this, why do we bring this up? Because this is not something that is normally part of your benefits and retirement scenario, right? It's not your fegli that we've discussed. It's not the retirement system. It's not TSP. It's not the first supplement. It's not the survivor benefits. This is something totally separate, but it factors in to retiring how you want, when you want, and the way you want living the lifestyle that you want. We've we've talked about planning for retirement, saving more money, taking advantage of everything the government gives you, working enough time to get a pension that's going to be, you know, high enough for you or larger amount, a large enough amount for you. But that all goes for nothing. That that's all great work, but it's all going to be negated if you have a debt problem, a debt problem, and that means too much money is going out the door to service your debt.

Speaker1:
Money that you've borrowed, loaned, charged, whatever it might be. If there's a debt problem and I mean everybody's debt situation is different. So the word problem is going to be different for everybody. But why not eliminate debt, get rid of it along the way. Now in general, why do we talk about this topic. Because it factors into your retirement and just general guidance. Blanket statement here does not. It's not specific to anybody. Blanket statement is we would like folks that we work with that are employees that we talk to to retire as close to debt free, if not completely debt free as possible. When you hit that retirement date, usually the only acceptable debt we'd want to have on the books. Maybe the mortgage, right? But if you can get rid of that too, why not? And we'll discuss that here in a second. But the idea is you plan for retirement, you save up money, you're building up your pension, you're deciding when you're going to take Social Security. Et cetera. Et cetera, et cetera. But we also have to have a plan to get rid of the money that's going out the door. It's going towards debt service. So what are we talking about today again? It's eliminating debt, getting rid of debt in a fraction of the time so that you can retire again how you want, when you want, the way you want.

Speaker1:
Question for you. Question. And it's going to sound like a sales pitch. It kind of is. But question. What if I could show you how to get completely out of debt, completely out of debt, including your mortgage, in ten years or less without spending any additional money than you're spending right now? Is that something you'd be interested in? Now, this is not debt consolidation. This is not you know, we're buying up debt. This is not messing with your credit or anything, but this is developing and designing a plan to hyper focus on your debt. Get rid of it in a fraction of the time, ideally without spending any additional money than you're spending right now. Is that something you'd be interested in? Chances are, and in the conversations I have with federal employees, I see head bobbing. Chances are you would say yes. Well, why do we want to do this? Why eliminate debt? Number one, when debt is gone, you're eliminating payments to debt. Payments to debt. Now, when you eliminate the payments, where does that money stay? It stays with you. It's not going to the lender, the creditor, the bank, whoever loaned you the money or whatever credit card you're paying off. You get rid of the payments. You improve your cash flow. Money is staying with you.

Speaker1:
That's more money that does not go somewhere else at the end of the month. Now, when we do that, if we get rid of the payments sooner rather than later, we are also eliminating or reducing the volume of interest we're going to pay. Now, some people would look at me and say, well, Val, you said including my mortgage, my mortgage rate is only 2.5%. Um, why would I pay that off at only 2.5%? That's a very good question. But give me a favor. Look at your mortgage payment that you have. The next one that you're making. And tell me how much of your payment is going to interest. How much of that payment is going to interest? If you have a 2.5% mortgage, I can almost guarantee you. I don't want to say fully, but I can almost guarantee that it is a lot more than 2.5%. In some cases, it can be over 50% of that payment is going towards interest. So is it really only 2.5%? It's not like if you you bought $1 million house that you're going to end up, you know, paying a million, you know, 2000. You're not going to be paying 2% on it. Look at the payments over time. Tell me how much you total you paid for that home. So we reduced the volume of interest. Right. So it's not only free up the payments. Eliminate the payments. Free up cash flow.

Speaker1:
Reduce the volume of interest. Now what can we do with that money? We can redirect it and save more for retirement. So if you pay off debt sooner. Now, if it's a one debt or two debts or three debt or whatever, I'm going to go over an example here in a second and show you. But you can save more for retirement by redirecting those dollars towards your future. And then ultimately, if you retire debt free, this is a worry that is off your plate. It's not an obligation that you have anymore. It's not something you're going to leave for your loved ones if something were to happen to you. You now own and control your debt going forward, and I can explain that to you. So here's an example. Now this is a federal employee example. This is somebody that that we've talked to. We've assisted. And I just want to use it as an example okay. Yours could be slightly different, but when I talk to this particular federal employee, everything looked great on the front end, everything looked awesome and it was a solid conversation. We were going over all the benefits, the retirement calculations. We were looking at, um, you know, all the money that they're saving. I said they, you know, husband and wife were saving for retirement and made good money now made really good money. Now, uh, this federal employee and was saving a whole bunch for their future and in their retirement, looking at all the numbers on the front end, they were going to get really close to making the money that they were making pre-retirement in retirement.

Speaker1:
So there wasn't going to be much of a downside there. This was this was a great scenario. This is what everybody would want to see that when you retire, you're going to be making just about just about the same amount of money in retirement that you're making in retirement or sorry, that you're making before retirement. So let me say that one more time. Ideal scenario, you're making the same amount of money in retirement that you were making the day before you retired. Pretty awesome. Everything looked great then. I asked about the debt. Do me a favor, though. This is. This is great. Everything on the front end looks good. Let's talk about what's going out the door. Tell me about your debt. I had no idea what was going to happen, and this veteran employee unloaded on me. Give me the laundry list of debt. We were adding it all up and looking at it. And this person had $652,000 worth of debt. Now, you might say, wow. Well, that's interesting because you said this person made great money. 650,000 could just be their mortgage. They can have a really, really nice house and they can have a $650,000 mortgage. That's true. I will say the mortgage was about 400,000. So that left about $250,000 of consumer debt that this person was was trying to tackle.

Speaker1:
But on top of the mortgage and making regular payments. And I'm talking some of these payments were even overpayments, overpayments Payments to try to pay this this debt down sooner, but making all the regular payments that they were making. So the minimums plus the extras, they were going to be in debt for 20 years. And when I asked, I said, okay, what is your total debt that you owe? What is it? And like most people, they would say, well, my I added up all the principal balances and it's over $652,000 that we owe. That's correct. But that's also incorrect. At the same time, currently that's your principal balance, but over time, making regular payments over the next 20 years, you're going to pay over $400,000 more in interest. So totaling over $1 million that you're going to end up paying to get out of your $652,000 worth of debt in 20 years. So two things we want to do. We want to see if we can design a plan to not only cut into the amount of years you're in debt, get rid of your debt in a fraction of the time, but also reduce the volume of interest. Because what is interest? Interest is money. As you see in this illustration, money that you can simply just light on fire. You can throw it in the trash. Flush it down the toilet.

Speaker1:
It doesn't do you any good in this sense. Interest on the other side being on the positive side of interest. Yeah, you want to earn as much interest as possible in your TSP and other investments, things like that. But when interest is hurting you, when you're being charged interest on your payments now, it can be like running on a treadmill. Your interest on the front side is doing well, but the interest on the back side is pulling you back down. So we feel like we're moving fast, but we're not actually going anywhere. So the whole thing is, hey, let's get out of this interest paying scenario. And now we can focus on earning more interest, right? So this is something that makes somebody else profit that money that you're paying to the bank, to the lender, to the finance department, at the auto dealership that is making them money. This interest that you're paying is not doing you anything, not doing you any good. It's actually hurting you. So $652,000 in principal going to be in debt 20 years, going to end up paying over $400,000 in interest over that time, we designed a plan and I said, ideally, looking at doing this without spending any additional money than you're spending right now. Why would you want to help get this person out of debt? Because if we can rearrange their spending, rearrange their spending, redirect their spending, use their money more effectively, more efficiently, how can we get this person out of debt? Now, I will say, before I flip over to the solution side of this and what we're able to do.

Speaker1:
My disclaimer is results are not typical. This is a unique scenario. Everybody's personal situation is different. I just want to make sure that's clear because this is not how everybody turns out. But if you want I'm saying, is this this drastic? But the idea is everybody's situation is unique. And you can look at paying everything off sooner, uh, eliminating those payments, reducing the volume of interest. These folks were able to get out of debt in under six years. Now this plan is currently going right. It's in place. But the idea was we're taking their 20 year time horizon doing it exactly how they're doing it now. Re relooking at their spending, relooking at money that they currently have going elsewhere, redirecting that, looking at it in a better way with a different lens, getting them out of debt and under six years along the way, going to save over $200,000 worth of interest. Okay. Along the way, going to free up a ton of money as far as payments. So this is an example from the program. We were able to run and show them their scenario. And this takes diligence. This takes sacrifice. This takes a little bit of obedience in this. But if you're committed to retiring how you want, when you want, the way you want, being able to live the lifestyle you want to in retirement, we have to focus on getting rid of debt sooner rather than later.

Speaker1:
Okay. Who wouldn't want to do all this now? Why are we doing this? Why? Why talk to this particular family? Why talk to this federal employee and work on getting rid of their debt? Said eliminating payments they were putting over or almost $11,000 per month going towards debt service. 11,000. We get rid of the debt in a fraction of the time. What's freed up? Almost 11,000 every month. What if you redirected that towards retirement? I'm skip to the bottom bullet point here, redirect that towards retirement, and put all of that aside. Over 30 years, at a modest interest rate, they can have over $6 million saved up. That's that's a lot. Um, what else did we do? We cut into the interest, so they were going to pay over 400,000. We cut that in half down to 200,000 in interest that they'd be paying over time. So that's $200,000. That would have gone to somebody else that didn't do you any good. Again, $200,000 that we would have just thrown in the trash, lit on fire, flushed down the toilet. So when it comes down to to debt and why, why at least have the discussion? I said results are not typical. This is not going to be everybody's scenario, but it could be.

Speaker1:
We need to dive deeper, not only into preparing you for retirement, going over all the basics that we've covered in this series to this point, but then focus on the back end and say, okay, you're doing a great job. We're maximizing everything that we can up front, but what's going on on the back side? I'll give you a different way. Let's say for retirement, you're trying to save all this money and have all this planned for retirement. You're throwing all this money into a big bucket. Picture this for me. Let's say you're you're filling up this bucket with as much money as possible. This is your retirement bucket. This is the the pension. This is the Social Security income. This is the TSP. Your other other places where you're you're saving money for retirement, and you're filling up this bucket as fast as you can because you need it to be full for retirement. But what if there's a big gaping hole at the bottom? What if there's a big hole that is just leaking money? Money's going out the door. Money is falling on the floor. It's it's it's running down the streets. Whatever it is, it's just it's leaking. Why is that? Because we have all this money that's going towards debt that's pulling us back. I said it's like running on a treadmill. I'm focusing on saving for retirement, but I've got all this debt service that I need to pay back.

Speaker1:
That's pulling me back. I feel like I can't get my head above water. I feel like we're just playing for the tie, and that is true. So if you had this bucket that was leaking money, what did you probably do before you fill it up? You'd probably fix the hole. You'd probably plug the hole first. Stop the money from leaking. So now you can fill up the bucket. And that's what we're looking to do. Looking at your entire situation, including benefits and Fegli and TSP survivor benefit, all of those things. But debt factors in. And if you could retire as close to debt free as possible, awesome. If you can eliminate debt in a fraction of the time. Awesome. Because of all these reasons we're mentioning here eliminating payments, improving cash flow, getting rid of interest, saving more for retirement. So it's worth it when you sit down and you go over your benefits with somebody. You've got to ask about your debt if they don't ask you about it. Now how can you ask us about it? You can go to our website, Federal Retirement show.com. You can fill out the form. You can request a full benefits and retirement review. Make sure to ask if it's not me personally. Um, the the expert that gives you a shout because we have folks all over the country ask them about doing a debt elimination scenario for you so you can see if this is right for you, or doing something like this is right for you.

Speaker1:
It's worth the conversation, whether it's with us or somebody else, it is worth the conversation to tackle this. That way you're focused on the future positive, positive, positive instead of all the negative. As far as the money that's leaking out of your giant retirement bucket. So I really do appreciate you taking the time to go back to the basics with us as we close out this series. Just understand, there's a lot of great information at the Federal Retirement Show, not just the back to the basics series, but we've got over 120 episodes for you to view. It's all information that we believe you need to know. If you like it, share it with somebody else. Subscribe. So you get notifications about when new content comes out, but share it with your colleagues. Tell them about it. Our episodes are anywhere from 5 to 30 minutes. It's you tackle one or multiple episodes during your commute to work. So just understand this is for you, the federal employee. But if we can help in any way, reach out to us. Go to the website Federal Retirement show.com, fill out the form, and we'll be in touch to do a full review of your situation. Get your questions answered. So thank you for joining me today for this series. Going back to the basics, and we look forward to seeing you on a future episode.

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