Debt and Inflation
Debt and Inflation, when it comes to financial issues these are two of most spoken works we hear these days.
It is important that we learn the relationship between these two terms.
Inflation always has a deep impact on our power of buying or in other words, its affect on cost-effectiveness on the borrowing money.
There are many cases, in which it is cheaper to borrow money and pay interest instead of paying off the loan itself.
This is exactly opposite to what many financial advisors will advise you.
They are correct in telling you to pay off your loans.
You should understand this and this is important for your financial stability.
The mortgage rates are at a historic low these days and it is very unlikely that you will ever see any lower rates of mortgage ever again.
You are able to get a home mortgage for 4% - 5% and this will be locked for the next 30 years of your house.
On the other hand, inflation has been at around 6% traditionally.
This means that a dollar last year is now worth around $1.
06 now.
If something was bought at a price of $1 last year, it will be worth $1.
06 today.
The inflation does not change smoothly but rather very dramatically and the average has been 6% historically.
This means that a house worth $100.
000 is going to be worth $106,000 after one year and $280,000 in 30 years.
This sounds interesting, as it seems that the value of house will increase but the fact is that the $280,000 in 30 years might even be less worthy than $100,000 today.
For this obvious reason, many experts advise to pay off your loans as soon as possible with lowest interest rates possible.
As getting loan against your house will result in you paying the bank money for the next 30 years and just the interest you will end up paying will be more than the original price of the house.
The concept of acquiring a debt consolidation loan to pay off your existing loans is getting popularity.
By this method, you will end up paying low interest on a single large loan instead of paying high interests on several small loans.
You will not only save money which is going to be paid to the banks as interest otherwise but also save valuable time by making a single payment instead of multiple ones.
It is important that we learn the relationship between these two terms.
Inflation always has a deep impact on our power of buying or in other words, its affect on cost-effectiveness on the borrowing money.
There are many cases, in which it is cheaper to borrow money and pay interest instead of paying off the loan itself.
This is exactly opposite to what many financial advisors will advise you.
They are correct in telling you to pay off your loans.
You should understand this and this is important for your financial stability.
The mortgage rates are at a historic low these days and it is very unlikely that you will ever see any lower rates of mortgage ever again.
You are able to get a home mortgage for 4% - 5% and this will be locked for the next 30 years of your house.
On the other hand, inflation has been at around 6% traditionally.
This means that a dollar last year is now worth around $1.
06 now.
If something was bought at a price of $1 last year, it will be worth $1.
06 today.
The inflation does not change smoothly but rather very dramatically and the average has been 6% historically.
This means that a house worth $100.
000 is going to be worth $106,000 after one year and $280,000 in 30 years.
This sounds interesting, as it seems that the value of house will increase but the fact is that the $280,000 in 30 years might even be less worthy than $100,000 today.
For this obvious reason, many experts advise to pay off your loans as soon as possible with lowest interest rates possible.
As getting loan against your house will result in you paying the bank money for the next 30 years and just the interest you will end up paying will be more than the original price of the house.
The concept of acquiring a debt consolidation loan to pay off your existing loans is getting popularity.
By this method, you will end up paying low interest on a single large loan instead of paying high interests on several small loans.
You will not only save money which is going to be paid to the banks as interest otherwise but also save valuable time by making a single payment instead of multiple ones.