Use extra money from refinancing to pay off debts

March 08, 1992|By Dick Marlowe | Dick Marlowe,Orlando Sentinel

So you have refinanced your home to take advantage of lower interest rates and are pondering all the exciting possibilities of having a few extra bucks at the end of the month.

Looking at an array of temptations, enticements and opportunities, the options seem almost infinite. In the end, however, there are only a couple of choices. You can spend it, or you can save it.

Although the first option is the apparent choice of President Bush, at least through November, the second choice is probably better for you. In the long run, the second choice also will be better for the nation; there has never been a nation that attained economic strength through encouraging its citizens to go into debt.

Now, what to do with the money? Before you start shopping for a new car or looking for that perfect investment, read on. I don't know any investment that is a reasonable bet to pay more than 18 percent. Investing money at 6 percent while paying off debt at 18 percent is somewhat like trying to climb a gravel mountain -- sliding back two steps for each step forward.

According to the best advice I've come across, the first move most people should make after lowering the mortgage payment is to use the extra bucks to pay down other debt. The way to do that is to start cleaning up the little stuff first so that you can start seeing progress. As the little debts are paid off, start hacking away at the big stuff, concentrating on those that are costing you the most. Credit cards are usually a good place to start.

Paying off high-interest debt is a simple but amazing strategy because it also paves the way for the next step in the family financial restructuring -- saving and investing.

Many beginning investors have no need to look beyond their employer or their own individual retirement accounts to get a head start toward financial independence. The 401(k)s offered by many employers not only provide a safe and easy means of squirreling money away, they also come with matching contributions from the employer.

For reasons that are sometimes hard to understand, investors pass up some of the best ways to plant seed money and watch it grow. According to Cuyler Findlay, chairman of the American Association for Retired People Investment Program, "Less than 15 percent of the country's 67 million eligible workers put money into fully deductible IRAs last year." Meanwhile, he added, pensions are being phased out in favor of 401(k) plans -- which allow employees to choose from money market or equity retirement plans.

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