Let us show you what we mean.
Say you have a student loan of $20,000 that you want to pay off. The length of the loan is 20 years at 7% interest. Your payment would be $155.06/month. Your total payments over 240 months would equal $37,214.35 with your interest cost of $17,214.35. This seems like a large amount of interest and it is. But what if you had $20,000 in a savings account that is earning just 5% interest?
By keeping your money in savings and allowing it to continue to grow uninterrupted, you would have $53,065.95. You would have earned $33,065.95 in interest over that period of time. With this scenario, you would come out ahead by $15,861.60, all by keeping your money in a savings vehicle first, over paying those monies directly against your debt.
A better idea-roll the debt into your control
The idea is that you want to put your money in a place that earns uninterrupted compound interest. What if there was a place where your dollars do more than one job? Each dollar doing multiple jobs increases efficiency over time!
Build it up, roll it over
The Infinite Banking Concept (IBC) involves creating a storage system for your money that is guaranteed to grow and gets better every single year. It does this through design. While you can practice IBC with a shoe box (the idea of borrowing money and paying it back with interest, also known as Economic Value Added (EVA)), we have found that setting up a Specially Designed Life Insurance Contract as a savings vehicle is currently the best system. This beats out using other forms of credit like Bank Loans, HELOC’s, 401k loans, and personal loans.
Specially Designed Life Insurance Contract (SDLIC) has been around for over 150 years. It predates the tax code and has been a safe place that people used prior to the advent of the qualified plans and easy stock market entry for the average person.
What this does is creates a financial tailwind with your debt paydown. Each dollar is growing tax deferred, even if you have borrowed against it. As you build up your cash inside the SDLIC you then use the collateralized loan feature to pay down the debt that is outside your control. By moving the debt to your control you have many options.
- You can defer the payments as long as you wish
- You can pay just the interest each year. (Interest in this account is simple interest calculated yearly on the outstanding borrowed amount)
- You can set up a payment plan of your choosing for as short or as long as you wish.
The idea is to concentrate on getting 100% of your outstanding loan balance rolled to your SDLIC and into your control. Then you can concentrate on paying down that loan. We recommend charging yourself at least the interest that you would have paid to the outside creditor. Each payment you make to your policy loan is available to be used again and again. This allows you to recycle your money over and over.
Isn’t the debt snowball the best method to pay off debt? No, because you are giving up control of your money and your money does not earn uninterrupted compound interest! Secondly, you lose protection. By using SDLIC you get access and control of your money plus protection in case something would happen to you. What if you just pay off your debt directly to the debtor, then you get hit by a bus? At least you were debt free right? But that money is gone forever. What if, in this same scenario, with the same dollars, you pay off your debt, and your loved ones receive several hundred thousand tax free dollars regardless of whether your debt is paid or not. Now that’s control!
Another idea is, what if you concentrated on paying off your loans and still owe money but lose your job? This happened to many people during the great recession in which case they had to default on loans because they didn’t have the cash reserves to weather the storm. Again, if your debt is rolled over to your control and you lose your job, you can decide to reduce your payback or stop paying all together until your job situation is fixed. Maximum control and Maximum efficiency.
Use our contact form to schedule a 30 minute strategy session to learn how the Infinite Banking Strategy and the Roll Over Roll Down Debt system can work for you to give you and your family Financial Peace of Mind, Financial Protection and create a Financial Tailwind. https://dynastywealthpartners.com/contact/