Stragetic debt elimination: the 800 pound gorilla

By Michael McNamara

Blue Sky Consulting, LLC

After spending years in the financial industry trying to keep pace with industry trends, I find it interesting the virtual lack of content when it comes to strategic debt elimination. The 800-pound gorilla in the room is the lack of education on having a strategic plan to pay down debt.

There are two sides to a balance sheet: assets and liabilities. My experience is that most producers only focus on working with their clients on the asset side, with little or no attention being brought to the liability side.

Anyone who focuses all of their financial efforts on eliminating debt can end up debt-free, but also without the ability to generate income in retirement because there are no assets to draw on. Alternatively, someone who focuses all of their efforts on building assets, but has a mountain of debt, will find himself in a place where a lot of those assets have to be used to service debt.

The relationship between growing assets and eliminating liabilities needs to be dynamic and these strategies must work in concert with one another simultaneously.

There are certain perpetual questions that consumers ask about how much money they will need in retirement. That should beg the next question, which is, "Do you want to retire with or without debt?"

I can argue that someone retiring with no debt can live on 75 percent of their earned income, with no change in lifestyle, if they can have a strategic plan to have all debt paid off the day that they decide to not work any more.

Advisors might feel that there would be a competition for dollars. What I mean is that any dollar that is used to pay down debt is a dollar that will the become unavailable to invest or save. There are strategic ways to pay down debt without sacrificing the ability to invest and save and help clients achieve a totally debt free lifestyle.