Search

There's Only One FirstWave®

The Holiday Crunch – Is Debt Good or Bad?

By FirstWave Financial®

How much debt should you carry and what kind? Here are some guidelines from our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area to help you make these tough decisions.

The best kind of debt to have (if you are going to have any debt at all) is the long-term, fixed rate, tax-deductible kind. Long-term because you can always shorten it by accelerating payments, but cannot extend it without refinancing; fixed rate because interest rates are at a historical low and you can lock in now for the entire term of the debt; tax deductible because the tax benefits reduce your interest cost. This kind of debt usually appears as a home mortgage.

The worst kind of debt to have is the kind where the interest rate is high, it varies month to month and is not tax deductible. Most credit cards are like this. Use these only as a convenience to batch your purchases and pay these off in full each month. Never incur credit card interest if possible.

Other consumer debt (like car loans) is somewhere between the best and worst kind of debt. It usually has a fixed, low interest rate (good) but is not tax deductible (bad). Be sure you get the best price for the vehicle first. Sometimes the purchase price is higher if you take advantage of discounted financing, effectively increasing your interest cost.

How much debt can you afford to carry?

General guidelines that banks used to use were as follows: your home mortgage principal, interest, taxes and insurance (PITI) should not exceed 20 percent of your gross income; and your total debt payments (including car loans and credit cards) should not exceed 25 percent of your gross income. However, there have been times in the past when banks have lent money far in excess of these limits to individuals, allowing people to purchase homes and cars they could not afford and contributing greatly to the economic melt-down of 2007-2009 which we now call “The Great Recession.” So even if a bank will lend you more than these limits we would suggest, don’t do it. You may be “house poor” at best and may lose your home through foreclosure at worst.

Most people cannot avoid using debt of some kind to help them accumulate assets during their working years. The kind and type of debt you use can make all the difference whether or not you achieve your financial goals.

Call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area today and speak with one of our WealthCoaches™ to see if we can help you create the life you dream about.

You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.

“You should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of the FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.”

Interested in a

Complimentary Consultation?

Recent Posts

Year-End Tax Planning Strategies – Let your Financial Advisor be your guide

By FirstWave Financial®
Amidst the holiday hustle, choosing the right financial advisor is like finding that special present under the tree. Move beyond the allure of superior returns; a stellar financial advisor brings a sleigh full of benefits.

At our wealth services firm in Satellite Beach, FL, we emphasize the qualities that make the season bright. From expertise in personal financial planning to being a fiduciary dedicated to your best interests, we’ve got the holiday magic.

Read More...

The Holiday Crunch – Is Debt Good or Bad?

By FirstWave Financial®
‘Tis the season for financial insights!
As we navigate the holiday season, are you wondering about the right amount of debt to carry, and how much is TOO much during the Christmas holiday season? Our expert WealthCoaches™ help to break it down. Avoid the naughty list with high-interest, variable-rate debt (hello, credit cards!).
Not sure how much festive debt you can handle?

Read More...

Unlocking WealthConfidence – How Tax Laws Shape Your Financial Future

By FirstWave Financial®

Tax law and policy have taken many different shapes and forms over the years. Their primary purpose is the generation of revenue, with individual income taxes contributing approximately 50% to the annual US federal budget. Another purpose of tax laws and policies is to affect economic and social behavior. Investing in stocks comes with the risk that you could lose some or all of your investment.

Read More...

Follow us on:

Contact us: