Week 34: Reduce Expenses, Tactic 9

What can you do this week?

• Look at all the loans you currently pay interest on.

• Sort them by balance and by rate of interest being paid.

• If any of them can be changed via refinance or accelerated payoff, evaluate if either is worth it.

• Get tactical on how you can make this happen.

Interest Paid Is Not Your Friend

• Put simply, money paid to service debt can’t grow and compound on your behalf. Some forms are unavoidable while others are a gross misuse of resources.

• 7% interest is usually not considered a very high interest rate for many assets financed.

• A $20,000 loan with a 10 year term takes $7,866 in interest to payback a total of $27,866.

• That same $232 monthly payment over 10 years that repays a $20,000 loan would instead become an investment valued at $40,000+ compounding at that same 7% rate.

  

  Your Collateral Affects Your Rate

• What is a reasonable rate to pay is often based on credit history.

• Another is your collateral source.

• If you’re looking to efficiently borrow, get clear on what assets you have and the rate to borrow against it before taking out new debt.

• Margin or portfolio lines of credit against taxable investment assets is one that gets forgotten by many. Not a good long term option but beats other debt collateral forms for short term needs.

  

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What Asset Is It Financing?

• Generally interest paid to finance appreciating assets is called good debt

• Real estate, business loans, and other assets with potential to provide a return in excess of the debt cost are some examples.

• Car loans and credit cards (generally) are not good debt because either the interest rate charged is difficult to overcome in potential return (credit card) or the asset financed depreciates rapidly (car).

• One way to view your interest rate is your hurdle rate. The below example for a mortgage applies to really any interest expense. So what you are financing can often be as, if not more important than, how you are financing it.

Is It Deductible?

• For decades a home mortgage benefit was that interest was deductible for those who itemize their taxes.

• After the Tax Cuts and Jobs Act (TCJA) in 2017, standard deductions were raised so that fewer Americans could deduct interest without other expenses to help them get over that amount.

• Some homeowners who purchased more than 5 years ago and at lower rates have found this benefit harder to find while newer homeowners maybe able to deduct their interest.

• Below is the 2024 standard deduction for tax returns filed in 2025.

  Filing status	2024 standard deduction
  Single; Married filing separately	$14,600.
  Married filing jointly; Surviving spouse	$29,200.
  Head of household	$21,900.

• While every tax benefit helps, taking on larger mortgage debt solely for the deduction rarely makes financial sense.

Get Strategic On Payoff

• There are many debt payoff calculators like this one to choose from online but below is my planning software’s module.

• In this example, the client has credit card debt at 25%, a mortgage at 3.75% as their primary debt.

• Simply adding an additional $200 per month to debt payoff not only wipes out the $3,700 credit card debt early but also pays off the remaining 25 years of their mortgage 5 years earlier.

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