Life insurance to protect heirs from debt

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The expansion in the growth of using credit is partially due to lower interest rates. The paradox is that low-interest rates lessen the interest payments to reduce debt while at the same time motivate people to assume much more debt.

Beware of little expenses; a small leak will sink a great ship. Benjamin Franklin

Debt Affects Family Savings Increased spending is often supported by increasing debt loads. When debt overburdens your resources to repay what you owe, you may need debt counselling that may lead to debt consolidation.

Do Your Math If your expenses exceed your income, you will increase your debt if you rely on credit. Amassed debt can undermine otherwise healthy finances and the ability to invest for retirement. Saving indicates a stewardship that respects the fact that money is the only symbol of trade for a company’s goods and services exchanged for an individual’s energies.

Reduce Debt and Save More The amount of savings often advised is based on the age-old recommendation to save 10-20% of your disposable income.

Interest rates on borrowed money can always increase so it important to realize that low-interest rates do not last forever. Always plan to service the debts that you take on today.

Beware of the potential consequences of taking on significant debt. Life events such as loss of employment or income, a change in family status or a serious illness, can cause a huge drain on finances.

Life insurance protects your heirs It is important to insure all your household debt with life insurance as these liabilities can be paid off tax-free in the event of death. If you are one of the main breadwinners in a family, call your life insurance specialist today.

Talk to your advisor about life insurance to protect your heirs.

What are the warning signs of over-indebtedness?

Too much debt can threaten your future and destroy your peace of mind. Here are five warning signs to watch for:

  1. You are spending more than 20% of your after-tax earnings on debt. Total up all you owe, excluding your mortgage, e.g. student loans, car payments, and credit card bills. Now total up how much of your after-tax income is dedicated to servicing this debt.
  2. You are paying for daily essentials with credit instead of cash. Consequently, you are close to the credit limits on your cards. Credit cards charge notoriously high interest rates, which is exasperated by compounding when credit cards are not paid off monthly. This can also increase your actual gross cost of goods purchased.
  3. You are deferring important expenditures. You may need maintenance work (on your car, your home, and your teeth) as you struggle to get by.
  4. You seem to spend your paycheque the day you get it. This may be a sign that you’re also over spending, an activity that leads to debt.
  5. You are not differentiating between ‘good’ versus ‘bad’ debt. Good debt is money borrowed for productive purposes to help generate wealth over time (such as an education, build a small business, or purchase real estate). Fancy cars, expensive vacations, restaurant meals, and over-indulgent gift giving may indicate a lifestyle that for many do not justify the average household’s paycheque.

If you are in serious debt, consult a debt counselor who will arrange a repayment schedule with your creditors.

Reduce your debts and increase your financial security

With a population of over 300 million people, each US citizen’s share of the American government’s debt load is over $46,000. In 2008, escalating mortgage debt caused a financial crash that decimated the retirement income of many. Debt control is becoming a very important issue.

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Credit interest eats away at wealth Every household has a budget and must live within its means, as well as save for the future. We each must be careful to not allow debt interest repayment to reduce our ability to live comfortably, or retire with financial security.

Interest on debt except for investment or business debt, is paid with after-tax income, and reduces our capacity to pay down the principle on our mortgages, or increase our investments for retirement. Both Americans and Canadian’s per household debt service ratio is edging up as the ratio of household credit debt to personal disposable income advances higher towards 200%.

Shift your financial paradigm away from debt The fact that so many people act without discretion while increasing debt shows that consumers need for a more mature view of finance. We need to examine our true need for each purchase and consider the effect on our family’s income-creating ability before giving in to the temptation to buy more of what we cannot afford.

Essentially to avoid debt, we need to govern our response to each desire to have what we cannot afford. How do we do this? Work at not buying what you cannot afford, meaning living by a responsible paradigm of fiscal temperance. Learning to say to yourself “No. I will survive without this item and will be better off debt-free!”

“If worst comes to worst, meet poverty halfway by retrenching expenses.  That is what I am striving to do, that and to reform before poverty forces me to.  Furthermore, I have established enough levels in my soul where I can get along with less than I have; get along contentedly,  I mean, Not by the calculation of our income, but by your manner of living and your culture, is your wealth really to be reckoned”. Montaigne

Reduce debt for societal justice Good financial discernment directs our actions when considering taking on a debt. If a man, for example, has borrowed fifty dollars from a friend to go to a concert with his girlfriend, the goal of fiscal justice is to pay his friend back what is due to him. Justice, in conformity with right reason, demands that the fifty dollars be paid back. But how and when shall it be paid back? An imprudent man might never pay it back, and so he would fail to observe the rule of social justice in relation to finance.

Develop a strategy to pay back debt To pay back debt requires the resolution to set aside a small sum from our income each week or month until we have allocated repayment of our debts. Look at all of your debts and begin to pay down the higher interest-bearing debts first. Another approach would be to pay off the smaller loans and/or credit cards first to achieve victories sooner while creating the habit of debt reduction.

What is your financial viewpoint? In the end we must be determined to be directed by wise discretion, as to how we use credit in order to attain financial goals. This is for the good of all – family and society. Your financial advisor can guide you how to reduce debt and increase your investment portfolio.