Stop Believing THESE Debt Myths (Before It's Too Late)

Are you throwing money away each month and working extra hours just to pay interest?

The average American pays $8,000 per year in interest alone. That's $667 every month! But the real cost isn't just the dollars—it's the extra hours you work to pay those bills.

In this eye-opening episode, we expose five dangerous debt myths that could be forcing you to work harder than necessary:

• Why making minimum payments on credit cards could keep you in debt for 22+ years
• The hidden trap in Parent PLUS loans that could delay your retirement
• When NOT touching your home equity is actually costing you money
• The surprising truth about reverse mortgages (they're not always bad!)
• Why "all debt is bad" thinking might be limiting your wealth-building potential

Key Quote: "I realized I was working for my debt instead of having my debt work for me. Once I understood the difference between productive and destructive debt, everything changed."

Whether you're carrying credit card balances, considering college funding options, or wondering about your mortgage, this episode will help you identify which debts are holding you back and which might actually help you build wealth—allowing you to work less while achieving better financial outcomes.

Ready to rethink your relationship with debt? Connect with us for a complimentary debt strategy session at wealthwisdomfp.com/call

 

01:24 Meet the Team

02:41 The Cost of Debt in America

07:32 Debt Myth #1: Credit Card Minimum Payments

14:58 Debt Myth #2: Parent Plus Loans

25:59 Debt Myth #3: Mortgage Rates and Home Equity

29:48 Exploring Home Equity Loans

30:08 Comparing Interest Rates and Savings

30:56 Understanding Home Equity Loan Payments

32:41 The Concept of Home Equity Loans

36:31 Reverse Mortgages: Pros and Cons

45:12 Evaluating 401k Loans

48:36 Good Debt vs. Bad Debt

53:12 Bank on Yourself Policy Loans

55:17 Wrapping Up and Final Thoughts

 

Watch on YouTube here: https://youtu.be/owG5LW26xlo 

Episode Transcript

(00:01):
Hello, Hello, HelloWelcome to
our live today. We're talking about 5
debt myths that you need to stop
believing right now. As in
aura at this moment as we are
live, or if you're watching the recording
at this moment when you're watching the
recording, it's really sad.
Debt is hitting all time highs here in

(00:21):
America and we all kind of know why it's
chaos out there. But here's the thing
when you break it down. The average
American is paying $8000 per
year in interest alone.
That's ridiculous. That's
$667 per month. Can you imagine if your
cell phone bill was $667?You'd be looking

(00:42):
for a new carrier, right?Like, let's get
this interest out of our lives. And it's
not necessarily the debts,
but sometimes our beliefs about the debts
that actually cost us even more than the
interest on the debts. They cost us what
we could be doing instead, the future we
could be creating. And we're going to
talk about all of that today with five

(01:02):
debt myths. And we're going to end the
session with helping you identify good
debt, avoid costly mistakes and
potentially save you thousands of dollars
or help you create thousands of dollars
for your future as we go here. So as
people are coming in to the live, want to
say a little bit of what we're talking
about today for those that are catching
the recording. And you'll see

(01:25):
my esteemed guests here that are going
to not guests, collaborators, amazing
people that are going to help introduce
themselves, share a little bit about who
they are, why they're showing up today
and what they're excited about before we
jump into the the debt myth. So who wants
to go first?I think I want to go first,
Amanda, can I?Yeah. So

(01:48):
as you guys see, we have new faces here.
We are going to be doing some fun stuff
here. We're growing our team here at
Wealth Wisdom Financial. So you see
Christy and Stephanie, they are a part of
our our team and we wanted to
allow them space. It's not just the
Amanda and Brandon show. I mean, you know
I know you guys like us, but we really

(02:10):
wanted to bring other people into the
fold because you know, we we learn a lot.
You know, we we always have Mark here,
but this time we get to have
Christy, Christy blank last
name there and Stephanie now.
So. Alan, while you guys are here,

(02:31):
don't forget, write comments, like
post, do all the things, share this
because we want to eliminate
this, this craziness that's happening in
the debt world. We want to be able to
help you build a stable financial future.
Debt sometimes is OK, sometimes not.
We're going to talk about that today. So

(02:51):
with that, you guys introduce yourself
and comment here. So I'm Stephanie Nelb.
My company is Foundational Wealth
Builders, but I work very closely with
the team here, particularly Amanda and
Brandon. And I am so excited about
this topic today because I used to be
really debt averse myself and
have now realized there's a difference

(03:12):
between good debt and bad debt. So we'll
get into some of that later, but I'm
really excited to be here. Hey, I'm
Kristy. I work with Brandon and
Amanda in office. I'm. Got my
master's in finance and then found
this unique company that I
it changed all of my views on everything

(03:32):
I learned. It upturned everything that I
thought I knew about finance. So I've
been relearning all of that on this
awesome journey with them and excited to
talk about that and you know how you can
use it to your advantage. Yay. Love
it. OK. I'm going to do a little screen
share and we're going to talk a little
bit about what everyone can expect today.

(03:56):
Here we go. So we're going
to talk about 5 debt myths. Really funny
story. Just earlier I was
reviewing the P&L for a business owner
and saw their largest expense for
2024 was, you guessed it,
interest, interest paid to others,
bananas. So we're we want to stop that.

(04:19):
And part of why we need to stop, like
part of what needs to happen to stop that
is there's a big financial literacy gap
in America. Fewer than 1/3 of Americans
understand how interest even compounds
the difference between simple interest
and compound interest, what the
calculations look like. Don't worry,
we're not going to nerd out and show you
a bunch of calculations today and in

(04:40):
detail, but we're going to go over some
big numbers that kind of hopefully will
help us all learn some things. And
the problem is that the media financial
institutions, they often oversimplify
financial concepts. We're going to
simplify without oversimplifying to give
you kind of the the real math without
having to go through all the details of

(05:00):
the math, but also without being like and
this applies to everyone all the time in
all cases, which is often not true.
The other thing is that those who do
learn about debt often learn about it
from a family. And that
often perpetuates myths rather than
how, you know, counterbalancing myths

(05:21):
and or people learn just through painful
experience and then they react and kind
of take the pendulum the other way. And
all of these kinds of things we're
talking about the media oversimplifying,
inheriting myths from our parents and
grandparents, painful experiences that
kind of skew us in unhealthy directions.
All of those cost us real money.

(05:41):
And we think most people like if we're
paying 8000 in interest, we could
probably save about half of that through
just better debt management, not that you
have to be totally out of debt
immediately. So we're going to
go through these five debts.
Here's the debts on my screen
that we're going to go through. We're

(06:02):
going to talk a little bit about credit
cards, parent plus loans like for college
mortgages. Reverse mortgages. If we have
time, we're going to talk about 401K
loans and then we're just going to talk
about all debt and you know this all debt
is bad debt belief that a lot of people
have. And we're going to talk about why
people believe each of these debts and

(06:23):
why they're what they
often believe is a myth, why it's not
true. So before we jump in, anything else
anybody wants to add at this point, I
would add make sure as we as
you're talking Amanda PNL, some people
don't know what that is. So what is the
PNL?Yeah, it's a profit and loss

(06:44):
statement for a business, what their
profit was, what their, you know, or
their income was, what their expenses
were. And then it has profit at the
bottom. We throw things on
reverse with profit first, if you're
familiar with that concept. So that's why
I screwed up there. I'm thinking profit
first rather than income minus expenses
equals profit. But yeah, we looked at,
here's their income, here's their

(07:04):
expenses. And the largest line item on
that is expenses was interest payments to
others. Just want to make sure sometimes
people are like, oh wait, she's already
talking over me. I don't know. I know
what that means. Yeah, there we go.
OK, we ready?Jump in. Everybody got
their snorkel outfits on. And just
so you guys know, comment. We want to
hear from you. We might fear off

(07:27):
if you have a big question. We want this
interactive. So, OK, so here we
go. Myth #1
revolves around credit cards.
And here's the myth that a lot of people
believe. If I pay my minimum,
my credit card balance will go down
quickly. If I just pay my minimum, I'll

(07:49):
I'll get out of credit card debt quickly.
The minimum will do that, right?
Now with some debt, that's true, right?
The minimum is calculated in a certain
way that it goes down faster. You know,
an amortized loan, like a mortgage, the
greater and greater share of the payment
goes to the principal with each passing
payment. But

(08:10):
credit card companies,
like we believe that they're on our side.
So we believe that, you know, bigger is
better, bigger is gonna be more
trustworthy. I can trust the minimum
payment. They're doing what's in my best
interest, right?That's what we're,
you know, it's a a a myth. I'm trying to,
you know, why we believe all this, right?

(08:31):
Also, the credit card companies are
really good at making it easy not to
see what you're paying in interest or,
you know, principal and interest, how
much is going to principal, how much is
going to interest, especially if you
enroll in paperless and save money, right?
They, you know, they tell you like, well,
we'll lower your interest rate if you
enroll in paperless, but then if you're

(08:51):
you often don't even look at your
statement. And then if you do look
at your statement, the interest is on
like second, third or 4th pages at the
end of the statement and you have to
actually like open the PDF, find it. It's
not really anywhere when you just first
log into your account.
And the monthly statements will also, if
you look carefully at them, they'll put
the minimum payment in like bold, extra

(09:14):
big font in color color while
the rest, you know, the full balance, all
those kind of things is much smaller, you
know, less prominent, less transparent.
Anything else you guys can think of a why
people believe this myth that they pay
their minimum, their credit card balance
will go down quickly. You know, I think
people see this as a service for them and
you have to remember at the end of the
day that credit card companies do still

(09:35):
need to make money and. Trying to entice
you to just pay that minimum balance is
one of those ways that they do so. And a
lot of credit cards these days come with
some sort of rewards points, which sounds
really exciting. But again, you have to
remember they're making that up in some
way and this is one way they do that.
Yeah, it's really good and the
convenience, right, the convenience

(09:55):
charge that we don't realize we're paying
and. At the same time,
remember as as you look at at your
reports and all that, it's always on the
6th or 7th or 8th line, making sure we
understand that
that whole math thing and what they want
you to see those big letters

(10:16):
blinking in blue or whatever to
pay the minimum that that is for their
benefit, not ours. And so really
understanding. You know, you still use
credit cards. We have some, but but
understanding that they're in the
business to make money, the
credit card companies and banks,

(10:37):
as you guys have heard this many times,
are the most profitable business in the
world. They didn't get here by accident.
Yeah, I think a big misconception I just
want to highlight on that is that, you
know, they have your best interest in
mind and that they're, you know, they're.
When you take out that debt, you know,
it's they're going to help you. But
really, yeah, they're they're lining
their pockets, they're finding a way to

(10:58):
get, you know, their dollars. So it's
it's not you just have to know, know
who is for you and, you know, really take
charge of your own wealth there
and knowing what to do.
Yeah. OK. So here's the big mindset
shift. You ready for this real math, real
story. So the way that.

(11:21):
Credit card companies calculate minimum
payments is it's typically 1 to 3%
of the balance plus interest.
So the
the way that this would work, we're we're
going to be doing a this or that. So this
is what the credit card companies do
and then that is the way that you can

(11:43):
maybe outsmart the credit card companies
and reduce the interest that you pay to
them. in your pocket. So here they're
doing, we're doing a 2% minimum payment
as your balance goes down, your minimum
payment, the one that's in, you know, the
bigger colorful letters on your statement
goes down as well. So if you've got an
auto set, an auto payment set to always
pay your minimum, you actually see your

(12:03):
payment go down over time. Compare
that to, let's say whatever your minimum
payment is today, you add $50 to
that and you set up an auto payment to
pay that every month,Right. And
always that on you know the day before
your due date or something like that. So
that you're you know budgeting for that,
you know exactly what to to counter on
it, but it's not going down, it's staying

(12:24):
flat. Well, if we can, if we apply those
two to a $5000 credit card
debt, you know balance that you have and
if you're paying 18% interest, which a
lot of people pay way more than that,
we're just trying to get, you know use a
simple number here, 18%. If you pay the
2% minimum, remember the the payments
going down until you get to about 25

(12:44):
bucks and they don't want you to send in
five or $10, they keep it at 25, you
would pay over $7,500 in
interest alone, which means you'd pay
back your 5000 plus another
7,500. So you pay back
12,500 if you never charge another dime,
right?You're just paying that interest
and it would take you 22 plus years to

(13:04):
pay it. Not 22 months, 22
years to pay it off in full. I saw
somebody say this. I put it into an Excel
sheet. I, you know, did the calculations.
I confirmed that is legit. That is true.
Compare that with if you're just paying,
you know, 150 bucks a month, right?The
minimum starts at 100. You add 50, you
end up only paying a little less than

(13:25):
2000 in interest and you're done with in
less than four years. It's like 30 some
months. How cool is that?Like,
why not?If you can pay 150 today, keep
paying that 150 until the balance is gone
out of your life for good. And again,
this is as if you never charge another
dime of interest. So the minimum
payment, I call this a trap. The minimum
payment trap is that as your balance

(13:48):
decreases, so does your minimum payment,
which extends the payoff time and extends
the amount of interest that goes to the
credit card company. So always pay more
than the minimum. Even if it's just 50
bucks a month, that reduces how much you
pay dramatically and gets it paid off a
lot more quickly. And then even better,
if you can set aside some intentional
time, you just got a tax refund, just

(14:08):
wipe out that balance, never go into it
again, right?You know, get some kind of
raise. You increase how much you're
paying per month. Like have fun like that
too. But at least you know now never just
pay the minimum. Before we go into debt
#2, anything y'all would say more about
this. I mean, just what a massive
difference that makes. It's so
wild. I might add,

(14:31):
this is where, you know, the where Dave
Ramsey gets some of this stuff, right, is
understanding that that that
snowball or interest,
that's the one part of where
where he yells at us. I like
how he's yelling, at least in this regard
sometimes, OK.

(14:54):
That's debt myth #1. Now
let's move on to debt myth #2. I'm going
to hand this one over to Stephanie, and
she's going to go through this one. This
one just blew my mind when I learned this
before. Awesome. Yeah, so there are many
different ways to pay for college out
there for your kids, but one of the
popular ones are Parent PLUS loans. So a
lot of people think that Parent PLUS
loans are the best way to pay for

(15:16):
college. Now, that might not necessarily
be the case if you are a
parent. And you have not yet saved
for college and your child's about to go
off for their first year. You know, this
might seem like a great option on the
surface, but really the problem with
this is you are taking out the debt as

(15:38):
the parent instead of your children
starting their lives in debt. So you see
it as a really valuable thing because
you're helping to set your kids up for
success by sending them to college and
then graduating debt-free. But the
problem becomes that you personally are
taking on this debt, which can have a lot
of negative impacts if you're not careful
with it. I'll open it up to

(15:59):
everyone here. What what do you see as
the biggest concerns with parent plus
loans?I'm trying not to answer
cause we're about to show it in the
example. Fair enough.
Yeah, the comments are open to from our
audience. Since you don't know the answer
yet, maybe you could react here even if
you're watching the recording. I mean

(16:21):
it the.
like, I don't know, if I just took out a
parent plus loan and then I need a loan
for something else, like I'm getting into
real estate or I'm gonna apply for a
mortgage, that can really impact my
ability to actually use debt wisely if I
decide to do it. Cause that parent plus
loan shows up on my income to debt ratio,

(16:42):
right?My credit scores
impacted all those things as a parent as
well. I'd say a lot of
reasons why people do it is because they
didn't maybe plan for the
college and they're like, Oh well, I'm
going to help them and and they don't
have a history, the kid. So

(17:03):
guess who's guess who's co-signing mom
and dad and the easiest way. Oh,
parent plus loans. They sound amazing
because they're has the word plus in it.
So it sounds better. I guess it'll
make more sense, but. Yeah, you're going
to show the math. Sometimes not so good.
Yeah. And I think the other thing to be

(17:23):
aware of here too is who is paying off
this loan. The parent PLUS loan is in the
parent's name, so it's the parents that
are responsible for paying it off.
However, I have also seen cases out there
where parents might take out the loan in
their name, but then expect their kids to
pay it off once they get a job after
college. And so just being really clear

(17:44):
on who it is that's actually going to pay
that back so that parent and child are
both crystal clear on the plan that
avoids any potential confusion later on
if you are going to go down this road.
But even with that in mind, keep in mind
that these parent PLUS loans, they don't
wait until the child graduates college.
You have to start paying these back
typically pretty immediately.

(18:06):
Yes. And so it's not like we get out of
paying for college for four years. We
have to start paying for it the minute we
take the first loan, in addition to
whatever we have to pay otherwise that we
didn't weren't able to take a loan for. I
mean, I've had so many clients that, you
know, like they. They talk to us, they're
they have this loan for their kid. Their
kids now making plenty of money, but the

(18:28):
parents still paying the bill because
they never actually had that conversation
with, hey, this is I'm going to help you
help me, you know. So, so I've told some
people as we're helping our kids, we want
to like that's the point.
However, you're going to be. Sleeping on
their couch, maybe because of those

(18:49):
parent PLUS loans and not have a
retirement account. And so we have to
think about what's that really costing
us and them in the long run. Yeah,
absolutely. Well, should we jump into an
example?Yeah, go for it. Yeah. Let's talk
about why this myth is false. Let's do
it. Awesome. So there are a
couple things to be aware of with this.

(19:10):
So if you look at a parent PLUS loan
versus an alternative type, let's.
Let's take a look at a
HELOC or a home equity line, for example.
So you can have the same interest rate
with the parent plus loan and the home
equity loan. But what you might not be
aware of is these parent plus loans come

(19:31):
with an added origination fee. Right now
that tends to be about 4%. So that's
another 4% on top of the
interest rate that you're already being
charged for this loan. Pretty wild,
yeah. And that can catch a lot of people
by surprise. And you'll see in this
example how that can really add up with a

(19:52):
lot more interest than you would
otherwise need to pay. But yeah,
so walk us through this. But but the kids
need college. Well,
we're still paying for college. In this
example, it's 30,000 as a parent plus
loan versus 30,000 taken out as a home
equity loan. So Stephanie, walk us
through this. Here's the parent plus

(20:12):
loan. 30,000 for college, we're taking
that loan out as a parent plus loan. This
is a loan at a 9% interest rate. Again,
with that added 4.2%
origination fee, the
term is going to be 120 months and that's
going to start immediately. So unlike a
student loan where if they take out debt
for to pay for college, they'll be able

(20:33):
to delay that payment until after they
graduate. It's not the case for a parent
plus loan, so that payment is going to
start regularly immediately.
And you'll see in this example, you'll
with a payment of 397 a month, you'll end
up paying almost or a little
over $16,000 in
interest alone over the course of paying

(20:54):
back this loan.
Yeah, so that year of college,
right?If it's 30,000 a year, didn't cost
30,000, it cost how much?Yeah, so now
you're paying 46,000 in total.
For just one year or maybe even one
semester, depending on the college.
Yeah. So then on the flip side of things,

(21:17):
if we look at doing this with a home
equity loan, so taking out a loan of that
same amount, let's assume same interest
rate for the scenario, but no origination
fee. So that's going to make a big
difference here. And then the term is
going to be a bit longer, but let's just
assume that you're going to have the same
monthly payment as you would with the
parent plus loan. So if you allocate that

(21:40):
same amount to this home equity loan and
paying that down over time, the total
interest charge is going to be 12,000. So
in total you're paying about 42,000 for
this loan, but that's a lot better than
the parent plus alternative. Pretty wild.
What did everyone else think of this?
Well, and then we've got the asterisks
next to the payment. I forgot to bring

(22:02):
this up here too. Yeah, so that's I
believe because there's. It's
not the the minimum, right?So you could
pay less, but again, looking at apples to
apples here, parent plus loan having to
pay 397 a month. If we look at putting
that same amount towards this home equity
loan, that's where you get to pay this

(22:23):
down a bit faster and end up paying less
interest. And I I also like to
Fast forward, let's say you're six years
into this, hopefully your kid's done with
college. If you needed another
loan, they're not going to give you
another parent PLUS loan. Your kid's done
with college, right?Like that's for
education. But I could theoretically
tap back into the home, the equity of my

(22:45):
home and take out another home equity
loan, right?And I've have experience with
that. I've built a relationship with a
lender. The more I pay on it, the more
I'll be able to use again. Not true for
the parent PLUS loans. I never thought
about that until I just looked at these
side by side here. Yeah, definitely. So
if your child needs a little bit of extra
help getting. Prepared for the real
world, maybe getting their footing with

(23:07):
that first apartment, you're able to help
them out with that. Whereas you couldn't
with that parent plus loan. Yeah. Or if I
need to buy a new car or all kinds of
things. Yeah. Pay off my credit cards
like we're talking about before. I
I think again is maybe we just
see one side and we're like, oh, this is
gonna solve one thing, right. And we

(23:27):
aren't very aware. And so
we wesay, well, I'm going to get this,
my son's going to go to be a doctor, so
that's going to make make up for it. And
And we don't realize the true
cost. And so in this episode
here, as you guys are watching, true
cost, have you guys ever experienced that?

(23:47):
Has this happened to you?Or have you
gone back five years later and said, oh,
wait, I didn't realize, I'd love to hear
that in the comments.
We want this interactive, so not just the
Brandon and the girl team.
And as we wait for those comments to come
in, I just want to highlight again

(24:08):
something that Brandon mentioned earlier,
but I think is really important here. So
if you are a parent and you're taking out
a parent plus loan for your child so that
they can go to college, you might be
putting your retirement at risk or
minimizing the amount of money that you
have for your retirement because you now
have these loans that you have to pay
back. And on top of that, that's

(24:29):
assuming that you have good enough credit
that you can get a parent plus loan in
the 1st place. So that's something else
that parents really need to be aware of
when they're looking at options to pay
for college. Yeah, that's a really good
point. And we should also emphasize these
aren't the only two options. We just want
to kind of show these as common options
that people look into. Most common the

(24:49):
parent plus loan because everybody's
promoting those including this financial
aid office at the university. And then it
kind of that maybe the second most common
are these home equity loans because where
a lot of people have their wealth is in
their homes. People will also use loans
from retirement accounts which it
absolutely puts their retirement in
jeopardy and so on and so forth. So it's
not like these are the only two options

(25:10):
and I'm I'm glad you brought up that's a
good. Whatever way you're thinking about
paying for college to think about how
it'll impact your eventual retirement is
a very good point to consider.
Again, I I think about like some of the
people I'm talking to are like 72 or 73
and they still have parent plus loans.
I'm like, how do you still have a parent

(25:30):
plus loan and it doesn't look very
small either. And it is
crazy bananas for some of these things we
see. Yeah, there's
deferrals and income-based repayment
similar to student loans for parent PLUS
loans too. That can get people in even
worse trouble. Yeah.

(25:52):
OK. I think we beat this myth pretty
hard. Are we ready to move on to #3?Myth
#3?Yeah, I'm ready. I'm ready for that
one. OK, Brandon's lead in this one. Go
ahead, Brandon. Yeah. So now we
have the paying off my
house early. I got an
amazing rate on my mortgage.
And or other things, maybe they don't pay

(26:14):
off because they have an raising rate on
their mortgage. I shouldn't touch my home
equity, couldn't shouldn't use it
because I got it
in 2022.
It was 2.99. Now I
mean interest rates, I don't know, have
you guys looked how much interest rates

(26:35):
on a house is right now?6-7,
is that good now?I don't know. Compared
to what?I don't know. So I've heard
this, I've got an amazing rate on my
mortgage. This is another reason that we
also have relationship with
mortgage people that can help us think
because not everything is the same,
right. So go ahead and move to the

(26:57):
next slide there.
Yeah, just talk about like more about why
people believe this is a myth, right?Not
just the change in interest rates, but
also like getting a mortgage is
complicated and stressful. I'm done. I
don't want to go through that process
again if I don't have to. But I do. Yeah,
I think that there's sometimes we've been
told that because, you know, back in our

(27:19):
grandpa, and This is why it was
grandma's. Wealth wisdom back in the day,
it was like lower interest rates or
different things that we would we would
think through, right?Sometimes
we're scared
of of pulling that. Out.
We want to have that paid off house. I've
had so many people are like, well, I

(27:40):
don't care if it's 2.5, I want to pay off
that house. And so
they want to be mortgage free, so they
don't want to touch it, even though they
know if they use that equity in a smart,
systematic way that they can make more
money. They they
don't in that regard, they're not
business owners, right. And so they don't

(28:01):
understand the the true cost or or
opportunity cost.
And why would they touch their interest
rate if it's it was in the
greatest time of all of all time at post
COVID to buy a house?
Why would they touch it now, right?That

(28:22):
would be ridiculous cause it's 7% versus
2, right?
Yeah, I pause for a second, Brandon.
We've got a comment from D I'm gonna show
it on the screen. It was about the last
myth. So we're gonna before we move
on to talking about why this one on the
screen is a myth here. One thing you'll
notice D is. She's

(28:44):
asking if is there a better alternative
to parent PLUS loans outside of just
saving?So we talked about home equity
loan. If you own a home, that is an
option that people use. People also use
options like they can take penalty for
withdrawals from some retirement accounts
but not others. They can take loans from
some retirement accounts but not others.
Some tap into family. There's lots of

(29:06):
different ways to pay for college. If you
want to learn more, we have some great
colleagues and friends that are college
funding specialists. That help people
figure this out and we'd love to chat
with you about it, but that the home
equity loan is one of those common
alternatives other than just saving.
Savings is really great too, if you can
do that. And having your kids save from

(29:26):
that college or from the summer job or if
they work through high school, those are
really great options too. There's
probably more than we could cover at this
time, but I'm really appreciate you
asking that. OK, now let's go back to
I just got an amazing interest rate. Why
would I?Touch my equity.
Yeah. So, so I again, I've heard this
many times and usually they're they're

(29:47):
they've been in the house for a while.
They got this great house in 2022.
So now they've paid off a bunch.
So now that we touch the equity and and
again sometimes I'm speaking to myself,
we have that great interest rate and we
have equity. So we're like we're
playing around with this. So let's let's
go through some numbers here, Amanda.

(30:08):
So let's say you have a a home
equity loan of you could do this
at
100,000 at 9%, right?
Keep keep going versus
100,000 growing
at 5.5 per year like that. That's

(30:29):
which one looks better,
5.5 or 9?Are you gonna
add something?Yeah. And if you
had both of these, would you take that
100,000 that's growing at 5 1/2% and
pay off your home equity loan at, right,
they're equal. You've got the savings.
Would you pay it off knowing your home

(30:49):
equity loan is 9% and that 100,000 is
only growing at 5 1/2%?Let's do some
math and see, right. So we have the loan
interest rates 9% term. Is
360 months,
that's that's a little bit of time
payments if we pay $804 and
interest charge is

(31:11):
189,000, right.
So this is the 9% how
much it would cost us. And
then we have the other side account
balance is 100,000. Interest rates
lower 5.5 term is
360 months. We are not making any
payments and the balance

(31:33):
of course is in 30 years. Amanda,
why are we not making payments on this
one versus this one?
So the what the home equity loan is
showing the interest that you would pay
if you never if you didn't pay off that
loan with your 100,000 sitting in that
other account growing at 500,000. And
most people will be like, I don't want

(31:54):
to pay $190,000 to the bank that I have
this home equity loan through, right?Like
I'm going to pay off the loan. But they
forget that that 100,000
compounding at 5 1/2%, a
lower rate of return than the
interest rate on the loan, ends up in the
same time frame, 30 years,
making $518,000.

(32:16):
Plus, right. So do you wanna save
190,000 or do you wanna make
518,000?So or actually
really make 418,000 cause you have the
100,000 that you started with never
adding a dime to it. So this is like
again using that same money and
making money, right?So so there's a
difference, right?518

(32:37):
plus versus -189.
Yep. And then for those who might not be
familiar with a home equity loan, this is
a newer product that was created. It's
not a cash out refinance.
It is a second loan or an additional loan
that you get so that you don't touch your
original mortgage that's at a really good

(32:58):
interest rate and the interest rates
might be less than 9%. Now we kind of did
this as a an example you you could have
more or less, but but again what it's
showing is like having
money. Making it or using it,
right. And so, so maybe
you might take a home equity loan to

(33:18):
create other cash flowing assets
or why would you use a
even though my interest rate is low,
maybe we take out the home equity loan
to take out a lot of high
interest credit cards going back to #1,
right?So twenty-two percent.

(33:39):
May be way higher
compared to even, you
know, 9%, right.
Just doing the the math and saying, well,
which which is better. And then of course
I'm a business owner, so I'm gonna try
and do things that create
wealth, not liabilities. What
questions you guys have on that one?I

(34:00):
think we had another comment here. Oh,
she's OK, great. Thanks. Have you guys
ever experienced that?Stephanie, Christy,
anything you'd add?Yeah. I mean, I guess
I would add, you know, in this scenario,
it definitely seems to make a lot more
sense to be saving that money, right, and
building that up so that you can use it,
but. People shouldn't necessarily shy
away from something like a home equity

(34:22):
loan or tapping into the money that they
have sitting in their house if they feel
comfortable with it. So to the earlier
point, there are a lot of people who want
to just know that their primary residence
is safe and secure and there's no risk of
the bank coming after them. And that's
OK. There's definitely something to be
said for that. I personally am a real

(34:43):
estate investor and have learned how to
leverage some of this debt in a positive
way. And I love the idea of something
like a home equity loan and tapping into
the growth that your property has
appreciated over time.
And if you know how to use it properly
and you have a payback source

(35:04):
that you you plan to pay this back over
time, it can still be a very valuable
tool to use. And I want to go back
to that's why we kind of put this
up out here for the the
listeners and having like the
like the bank yourself infinite banking
policies. That we put in together,

(35:25):
put in, but also having
relationships with the mortgage people
that are talking to each other. Like I'm
have a good relationship with the people
I introduced that do the mortgage side.
And so having that kind of
dance from a financial point and
and in the end what I really want

(35:46):
to grow in this for the people that are
listening is I want them to be the
master. Of their ship. They need to
understand how that works and how they're
they they didn't just buy a house just
for fun, right?Typically,
yeah. I mean, question all your financial
professionals, right?You're you're the
one driving the ship at the end of the
day. So it's important that you're asking

(36:09):
the right questions and you know,
pressure testing. Is this the right move
for me in my situation?Awesome.
Cool. Well, if you guys have questions on
that, put it in the comments. We'll come
back to it. But let's move on to our
most favorite one sometimes. Not really.
No, I'm gonna go through this one

(36:30):
quickly. The 4th one is
reverse mortgages are a scam, period,
right?Like, no, don't ever do reverse
mortgages. They're the most horrible
thing. And I would say previous to the
financial crisis of 2008, that was
probably true. Reverse mortgages were
oversold to seniors with little
oversight, little suitability standards.

(36:52):
They needed more regulation and
oversight to them, and thankfully
that is now put in place.
But there's lots of, you know, horror
stories in the media about seniors losing
their homes because of reverse mortgages
from that time period and occasionally
still today. So these are complex.

(37:13):
They're difficult to understand. That's
why if you're going to get one, there's a
lot of hoops to jump through and
they can have higher fees or higher
interest rates than conventional
mortgages, you know, higher closing
costs. And hands down, there's been a lot
of aggressive marketing of reverse
mortgage that have made a lot of people
feel like it's very scammy. So we're

(37:34):
going to talk about though why a reverse
mortgage could be appropriate for
someone. So you know when it's not a
scam, even if it is a scam with the
majority of the time, if that makes
sense. So one thing to know is that there
are a lot more regulatory practices in
place for reverse mortgages. It's called
the HECM program, HECM.

(37:55):
It's a home equity conversion mortgage is
what that stands for and there's been a
lot more protections in place for those
going forward. And what makes them really
fun is that they can lock in the home's
value and the bank takes the risk.
So would you say I'm pull pull the
audience here, you can say this in the
comments or you can come live. I hear

(38:16):
Brandon just unmuted cause I can hear my
echo on his line. There we go.
Would you say home equity, is that a
high or a low right now?Are home
values high or low?If you're watching the
YouTube, you can say high or on Facebook
or whatever, say high or low in the
comments. Christy,

(38:38):
Brandon, Stephanie, I'd love to know what
do you think?High or low home equity?Is
it high or low right now?Depends on
which market you're in. But overall I'm
gonna say high. Yeah, I would say high.
Yep, I agree. It's yeah, overall,
yeah, I know when I I'm a
little bit of a nosy

(39:00):
neighbor slash I I love just
looking at my neighborhood and what homes
are for sale. So I've got the realtor app
on my phone and I'm always looking.
They've got this chart at the bottom that
shows, you know, how the home's value has
increased or decreased over time and
they're always up, right, like an
especially a big spike, you know, since
2020 as lots of people. We're getting,
you know, you know, buying homes, there's

(39:22):
lack of inventory. We might see some of
that cooling. Now we've talked, you know,
Stephanie mentioned there's some cooling
happening in different locations, that
kind of thing of the market, maybe not as
hot. But let's say you're a senior,
you're we're going to talk about Mary and
Martha in our this or that for this one.
And the green is going to be Martha, an
appropriate use and then we're going to

(39:42):
talk about Mary is going to be the
inappropriate use. So let's say you're a
78 year old widow. And you're watching
this YouTube video or your mom, you know,
you referred it to her and she's watching
this. She's a 78 year old widow
with limited retirement savings and
Social Security is barely covering the
expenses, right?We've had huge inflation.
The Social Security cost of living has

(40:03):
not really helped a lot with that.
And you know, Martha's starting
to get a little old, right?Not old yet
and you're only, you know, only as old as
you feel, but starting to feel like.
There could be. I want to stay in this
house. I don't want to go to a nursing
home. I don't have to go live with my
kids. I want to stay here. And so I need
to do some modifications to make sure my

(40:24):
home continues to be accessible.
Installing a ramp, putting some, you
know, railings in the bathroom, et
cetera, et cetera, right. And kind of
imagine those. That's a great time to use
a reverse mortgage. Because
Martha is able to tap
into the home that she owns. Maybe she
owns it outright and it's 350,000

(40:46):
and she could tap into that, take a lump
sum for 30,000 to maybe make those
immediate home improvements, have a a
monthly payment to supplement her income.
You don't have to take all of the home
equity all at once. And then it's also a
line of credit that she's already
approved for that she can use if she has
some future medical expenses or does need
to. Go into a nursing home temporarily
or, you know, something like that. This

(41:08):
works cause it keeps Martha in her home.
It supplements her income. It keeps her
ownership while she's still alive.
There's no mortgage payments like there
would be with a, you know, cash out
refinance or a home equity loan or
something like that. And her
children, in Martha's case, support this
decision because they just understand
we're not going to have to deal with this
home that we don't even want when, you

(41:31):
know, mom, you know, goes to the other
side, goes to greener pastures. Great
example of this might be a good time to
look into reverse mortgage, see if
it makes sense and lock in that home
value so that if Martha lives to 100
or beyond, she's able to continue using
that no matter if we have some kind of
real estate market bubble burst, right?

(41:53):
Now let's compare that with Mary. So
Mary is 62
and recently retired.
Wants to enjoy, this should say her 60s.
And so she's thinking about taking
out home equity or or taking out a
reverse mortgage to enjoy her youth,
right?Travel, get that dream car while

(42:16):
she can still drive. You know, all the
things. And in
this case, it's probably an
inappropriate use because Mary's still
relatively young. And this limits the
the potential benefit right over the long
term. There are those upfront costs,
origination fees, mortgage insurance
premiums, those can be substantial. And

(42:36):
to pay those costs right at the beginning
of retirement, that impacts the rest of
the financial future for Mary.
The proceeds are being used for
discretionary spending rather than
necessities. There's. We don't didn't
talk here about other income sources that
Mary might have, but maybe Mary has other
ways to pay for these things rather than
the equity they have in their home. And

(42:59):
really it's all about the long term,
right?Let's say that both Mary and Martha
live to 100. Martha's got 22
years to 100. Mary is 38 years to
100. That's a lot longer for that
interest to be building, you know, the
the things to come up that, you know,
completely derail this and.
So a very good like, OK, we need to

(43:20):
factor all these things in to account.
Make sure if you're going with a reverse
mortgage, don't just assume it's not
appropriate or assume it is appropriate.
Kind of weigh the pros and cons. I
would say because I always have to say
something right is
I remember having a client that that
was around in the 80s and and heard about

(43:42):
reverse mortgages, how bad they were and
were very. Um,
wary of it, but but she ended up doing
one because I introduced her to our
friend and it was mainly
because she had too much month and not
enough money. And so we needed
to figure out a a plan for cash flow,

(44:04):
right. And so she was trying to work a
business, trying to do all this fast rate
of return type stuff because she didn't.
She had a gap. So. So I was like, well
wait, you you have a paid off house like.
Why aren't you somehow systematically
using that for for
eggs or whatever she was buying at the
time, right. And so, so she did that and

(44:27):
she came back to me later and I again, we
didn't make any money off of this, but it
was just an introduction to our
friend and said maybe you should consider
this. And she said that was one of a
really good decision that gave her Peace
of Mind because now she had that
for her and her husband.

(44:47):
Yeah, and helped avoid all the credit
cards that they probably would have, you
know, gone into debt and paid much higher
anniversary time. And I said we need to
do something maybe. And that helped to at
least stop the bleeding. Yeah,
love that. OK, we've got a bonus
myth and then we've saved the best for

(45:08):
last. All debt is bad and we're gonna
hand it over to Christy for that one. For
this one, we're going to talk really
quickly about 401K loans. A lot of
people, this is their first go to.
Something to remember is that 401 KS
haven't been around forever, right?First
implemented in 1981. And for
many of us, this is all we have for
retirement, right throughout our entire

(45:30):
adult lives. So when it comes to taking a
loan from that asset, it's a natural
place that a lot of people turn. And in
this whole idea of paid
interest to yourself sounds really
appealing. There's no credit check
required, right?There's lower interest
rates than some of the other
alternatives, no impact on your
credit score. So it's why people believe

(45:50):
this myth with 401Ks. That's where I'm
going to go first. But one of the
things that a lot of people don't realize
is that the interest that you pay in a
401K, you don't get any tax
deduction for it now, right?
Plus you pay taxes on it when it comes
out as income in retirement. Wait, can
you say that

(46:13):
again?Yeah. So
the interest that you pay on your 401K
loan, you don't get any tax deduction for
it like you do your, you know, your
contributions to your 401K, right?You're
paying back the loan with interest. That
interest doesn't get a tax deduction, but
then it's in your 401K balance. And when
you take money out of your 401K, you do
get taxed on it twice. Yeah, paying taxes

(46:34):
twice. There's also limits in how much
you can take. So don't think you can take
your full balance or you know millions of
dollars out of this at once. You're
limited to about $50,000 or 50% of
your balance if you and then if
you leave or lose your job while you have
a loan outstanding, the balance comes due
immediately or within you know a certain

(46:55):
time frame you have to repay that loan.
So and then there's also this idea so
that this or that for this one. You have
a 401K, take out 10,000 5 years
versus leaving that 10,000 invested.
Well, what if you lose your job, right?
You got to pay it back. If you take that
out, do you have $10,000 that you could
pay that back?Well, if you did have the
10,000, why would you even take the 401K

(47:16):
loan in the 1st place?And then, you know,
leaving it invested?Well, are you going
to pay interest somewhere else, right?Do
you have that credit card that you could
pay off of the 401K loan?This isn't a
good, bad. It's a unique situation.
Everybody needs to make a good decision.
And think about opportunity cost and the
long range as you're making these
decisions. I I think it was Brandon

(47:38):
probably that put that not a fan of
paying taxes once, let alone twice.
Great. Anything else here?Are we ready
for debt myth #5?I just want to highlight
that paying taxes twice one more time
because it's so important and you know,
I've talked to a lot of people who do
think about taking a 401K loan and.

(47:58):
Their thought process with it is, well,
the interest gets paid back to my
account. So, you know, I'm paying myself
that interest. That's great versus paying
that interest to a bank. But again, not
so great because you're being taxed
twice. So that right there is a very
well-known myth, I would say. Yeah.
OK. I would wanna go add in the

(48:21):
whole like using the policy life
insurance. Well, that's where we're
going. Don't get ahead. Don't get ahead.
There's a better way than 401 KS. But
Yep, we're going to pass it over to
Christy. Let's go, Christy #5, save the
best for last. OK, awesome. Yeah, let's
dive into a topic that affects almost

(48:42):
everyone. Debt. You know, we've
talked about mortgage, credit card,
student loans. You know, there's also,
you know, business investment, stuff like
that. Debt really plays a role in
everyone's financial lives here. But you
know, as we're about to find out all.
Debt is not created equal. There's some
types of debt that can help us build

(49:02):
wealth, you know, create that financial
security. And there's others that can
trap us in a cycle of stress and hardship
and, you know, just put us
in a bad hole that we have to dig
ourselves out of. So
I like to think about it this way. A
knife can either prepare dinner or it can
cause harm. Um, and you know, in the same

(49:23):
way that can be a tool for financial
growth or it can be a trap that leads to
financial ruin. Uh, I think the key,
the most important thing here is to know
the difference between, you know, good
and bad debt. So a lot of
times. People, you know, we've grown up.
People around us believe that, you know,
all debt is dangerous. We're not really

(49:45):
taught about it in school. We don't
really, you know, learn about it
specifically, unfortunately, in our
classes like we should. Then also,
you know, there's a lot of different, you
know, religious beliefs that reinforce
the idea. For example, you know, Romans
13 says owe no one anything.

(50:06):
And there's also a law in Islam that
forbids charging interest called riba,
and it considers it exploitative.
There's also, of course, financial gurus,
you know, Dave Ramsey, others like him
that promote that cash only lifestyle.
You know, as the ultimate financial goal,

(50:26):
there's, you know, good and bad things
about that. And then
also just, you know, us ourselves, you
might have had a bad experience in the
past with debt, having, you know, credit
card debt or high interest loans in the
past. And that could create an aversion,
like some sort of emotional aversion that
would, you know, make you want to just
avoid debt altogether. And for some

(50:48):
people, all debt, you know, any bit of
debt is bad, but for others, debt.
Can be used as a tool to create wealth.
Yeah, but you can do better than
just being debt free. And let's
talk a bit about good debt and bad debt.
Good debt is that low interest debt that
helps you build wealth and it increases

(51:10):
your assets. Bad debt, that's going to
drain your finances, create, you know,
liabilities and it's not going to add any
value. Um, to yourself or your net
worth, Um, there's really two
types of assets, you know, appreciating
assets that can build that wealth, Um,
and then depreciating assets. UmAnd you
know, they're usually associated with the

(51:31):
good and the bad debt. Um
And you know, for example,
owning real estate, like Stephanie
mentioned, she holds real estate, you
know, where tenants are paying the
mortgage and your property is
appreciating, you know, that's a good
type of debt. And then
also as we're going to talk about, yeah,

(51:52):
I'll just hint at it, using bank on
yourself policy loans
can also be a good type of debt,
a good book that really explains this
concept. Is Rich Dad, Poor Dad by Robert
Kiyosaki. And he talks
about how good debt increases assets more
than liabilities and how bad debt

(52:14):
increases liabilities without increasing
those assets. You know, there's
just a lot of different
perspectives, a lot of, you know,
different things out there. One thing in
that book, in that book by Robert
Kiyosaki, it talks about how debt
can allow you to. Leverage someone
else's money to grow wealth. And I think

(52:35):
that's great. You know, that's, you know,
creating that wealth. There's also a
way where you don't have to use other
people's money. You can use your own.
And I'm excited to share that with you as
well. I believe we're on to the next.
So Yep, here we talked about bad
debt has a pure cost versus

(52:56):
good debt and it increases the value of
your money. You know, we
talked about the different types. We've
already gone over some of those, but
really just, yeah, increasing those
liabilities without increasing assets is
what happens with those bad debts. Yeah.
So one of our favorite examples of
strategic debt that is

(53:17):
using a bank on yourself policy
loans and.
A couple reasons why we love them
is that there's no additional risk
to your underlying asset,
meaning that your cash value keeps
growing whether you take a loan out or
not. And that's just a really

(53:39):
important point. You can be using your
money day-to-day and it's also still
growing for you. There's not many other
places you can find that around
and that's also another reason why people
say it's better than buying than paying
cash. Because you don't lose
that compounding. Then also,
yeah, here we see there's no required

(54:00):
payments, although you know, we recommend
that you do, you know
Repay. There's no fixed schedule or
penalties. You can repay on your own
terms when you're able. You know, you're
not having someone. There's no fees or
penalties for, you know, late payments or
anything like that. And then interest

(54:20):
rate is competitive and compounds only
once per year. This one's a really great
one. It has a simple interest.
Often, you know, credit cards, stuff like
that. That's compounding daily. That's
every day. You know, it's compounding
here. Interest compounds one time per
year. That's it. And allows you to,
you know, keep more, you know, that money

(54:42):
and not have to pay as much.
And then, yeah, available through a
bank on yourself professional. All of us
here are bank on yourself professionals.
Yeah. And just if you're interested in
learning more, want to find out, you know
more about what we do, reach out. We'd
love to help you and. To help you rethink

(55:03):
debt and building wealth. What
do you guys, do you guys have anything to
say about any
comments, any experience with good debt
or bad debt?
Yeah, great, Christy. I put, I put the
ways to connect with us. We're kind of up
on time here and we plan to go for about

(55:25):
an hour today. So wanted to make sure we
get that out there. The
bank in yourself type policy loans are
also a really great way I've found to pay
off debt without destroying my future.
That's how Brandon and I got out of
student loan debt was putting money into
our policies 1st and then taking policy
loans to wipe out that debt and take

(55:47):
power for our future. When we do the math
for some people, we'd end up having an
extra 6 figures for their retirement
because of strategies like that. It's a
lot of fun. Yeah. I think again, the
bigger thing is the cash flow and having
that full working with someone of us,
it's the concept of
banking yourself and using those are one

(56:08):
piece of the pie, but understanding how
that is accrued, how real estate might be
impactful to you. How
in a positive way or negative
and also student loans and all those
things we need to be thinking
holistically. And so that's what we do as
a team here is we're holistic thinkers

(56:28):
and being able to say that's a bad
debt, like going and buying a Gucci
purse that you can't afford is
probably not the best idea. Maybe
Stephanie will tell you and not me, but
you know. That's a way of
thinking about how to use the debt

(56:49):
wisely. So thanks guys for joining us
too. If you want more of these, we want
to do more of these lives with our team
here and
do more things that impact you. Not just
debt. I mean, we all are in a world of of
this debt interesting thing.
So we just want to make sure we're

(57:10):
providing more value. So if you have
comments, if you want us to share some
things, put them in there. We'd love to
know. And who knows, we will bring it
back in next month's episode or
something. Yeah, and I
did put two comments in
over on YouTube, those that might be seen
on Facebook. If you have a myth we didn't
cover that you'd like to see in a future

(57:32):
video, we want to hear from you. And we'd
also love to know which debt myth
surprised you most. Was it the credit
card minimums?The. Let's see if I can
remember all of these the.
Parent PLUS loans and, you know, compared
with other ways to pay for college, was
it the not touching your home equity and

(57:52):
that there's this HE loan option, home
equity loan option?Was it
reverse mortgages?Was it 401K loans?Or
was it how bank and yourself type policy
loans work?I'd love to know which one
surprised you most and I'll let
somebody else wrap us up. All right,
Stephanie, close us out. I'll jump in. I
mean, I hope this was really informative

(58:13):
for any everybody. I know this was all
game-changing for me when I learned it
for the first time. And yeah, just
do your exploration and see what's out
there because there are all sorts of
tools that you can use. And as you've
seen on this webinar, you know, not
everything is created equal. Boom. Mic
drop. Thanks, everybody. Oh, and Dee
says parent PLUS loans is definitely a

(58:34):
surprise. That origination fee. Yeah, all
the things. Thanks, Dee. Glad you'rehere.