| When it comes to the arguments for adopting a debt | | | | it allows us to keep our $3,080 instead of giving it to |
| repayment program, there are some fairly common | | | | corporations that enjoy much larger earnings than we |
| ones. However, a lot of us often overlook the | | | | do. |
| secondary arguments and these are what keep us | | | | To exemplify the matter, let's assume the average |
| from leading a debt-free lifestyle and achieving | | | | American has an after-tax income of $30,000. By |
| long-term prosperity. Since we already know that debt | | | | paying an additional $3,080 to creditors, we are giving |
| restricts our savings ability, let's take a look at a more | | | | away more than 10% of our after-tax dollars (this is on |
| deep-rooted evil that comes with debt. | | | | top of taxes, insurance, and everything else). Why |
| Keeping the wealth building theme in mind, we will take | | | | would we do this when we receive such little benefit in |
| a look at the average American who owes $22,000 in | | | | return? It doesn't make sense. With this in mind, we |
| credit card debt. Assuming this average American has | | | | should take an even greater interest in a debt |
| been able to get better rates on credit, we will use an | | | | repayment program, particularly one that will show us |
| average annual interest rate of 14% (instead of the | | | | what our after-tax dilution rate is and we can reverse |
| more typical 19%). At this rate, with this much debt, our | | | | that trend. |
| average American pays $3,080 in interest charges to | | | | With the above in mind, if our average debtor satisfies |
| his or her creditor every year. A debt repayment | | | | a debt repayment program and starts saving that |
| program will turn this around and put that amount in our | | | | $3,080 instead of giving it away, after a five-year |
| pocket, right? Wrong. | | | | period the after-tax income (within a Roth IRA in |
| At first, it might sound like $3,080 is not all that much | | | | particular) will translate into a cash-APPRECIATION |
| money to pay over the course of a year. But if you | | | | rate of roughly 8%. Again, not as nice as when the |
| compound that same amount over five years and at | | | | money was being paid out, but remember the odds |
| that conservative 14%, that works out to $26,250 for | | | | are stacked against the average consumer. Since |
| the creditors. That's the price of a new car. As | | | | most people do not see salary increases to the same |
| consumers, it is unlikely that we could put $3,080 to | | | | tune every year, 8% is not only decent, but it amplifies |
| work at 14%, but even if we could see a compounded | | | | the reasons for adopting a successful debt repayment |
| rate of 10% over the same period, that same $3,080 | | | | program. |
| works out to only 23,764 for us! In other words, a debt | | | | By understanding cash dilution and how much debt |
| repayment program does not "level the field" as it | | | | true amounts to in dollars and cents, adopting a debt |
| were. | | | | repayment program makes perfect sense for the |
| With the odds stacked in the creditor's favor when it | | | | average debtor. Showing you how to reverse the |
| comes to rates of return, we should take a greater | | | | cash dilution rate and turn it into a savings rate is |
| interest in adopting a debt repayment program. Why? | | | | something that most debt repayment programs should |
| Because not only is $23,764 is better than nothing, but | | | | do, or strive to do. |