How do you think Banks make their profits? By using your capital that their paying someone 1% on a certificate of deposit and earning a substantial premium at probably 3-4% on top of that. Or they’re charging you and earning 4-5% on money they borrowed from the Federal Reserve at 1.75%.
Do you have sufficient additional funds for emergencies and opportunities? If you use liquid funds to pay down a debt and you have no other liquid source to turn to in the case of a medical emergency for example, where will you get the money? Borrow it again in a time of emotional turmoil? You know you could use the funds and have the satisfaction of knowing you could pay off the debt at any time, but is it really the smartest financial decision? So many people feel it’s not responsible to have ANY debt whatsoever but making smart choices with our finances sometimes involves a prudent and careful use of leverage. Abuses abound with credit card, autos and other consumer debt, but we’re talking about careful use of debt, especially if you have reserves to pay it down if push came to shove.
Any opinions are those of Thomas Fleishel and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. All illustrations are hypothetical and are not intended to reflect the actual performance of any particular investment. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. Diversification and asset allocation do not ensure a profit or protect against a loss. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.
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