Sweep Still Works With Higher Line of Credit Interest Rates

August 3, 2023

By focusing on the COST of interest and increasing cash flow, the Sweep system still pays off debt quickly.

Yes, the interest rate matters but it’s not the only thing you should be focused on when it comes to accelerating your debt pay off.  Keep in mind the goal is to continuously increase your cash flow by eliminating debt payments.  

When targeting a specific debt like a loan, it is going to highly depend on the terms.  Is it a 5-year car loan? It could be a 10 to 20-year student loan.  Do you have a 30-year mortgage?  When we work with our clients, we initially strategize to see if there is a way to eliminate a debt in full upfront in order to increase cash flow as soon as possible.  As the cash flow pays down the balance quickly the overall interest cost is less.

Eg;  Using an amortization calculator, for $12,000 or principle on a $500,000 mortgage loan at 5% with a 30-year term, the total interest is about $28,000 over the term of the loan if making only the minimum payments.  On the other hand, $12,000 on a higher interest 7% line of credit will cost about $71 of interest in the first month.  When Sweeping it down correctly, the debt should pay off faster on the line of credit and not get anywhere near the cost of leaving the same principal on the original mortgage.

Another factor to consider is what is your most immediate goal.  For some it’s improving credit, where targeting credit cards is the first move.  For others it’s lowering debt to income ratio where smaller consumer loans would be the first move.  Then it’s how do I pay off the mortgage as soon as possible.  This can build equity, provide access to capital and eliminate the largest payment in preparation for retirement.

My point here is that the Sweep system allows you to stay fluid and be flexible to adapt in an ever changing environment.  How you apply your Sweep strategy is what you have control over despite not having control over the actual interest rate. In times of rate uncertainty, it’s always important to circle back with your Sweep coach to bounce ideas on what options are at your disposal.  

These include choosing longer HELOC (Home Equity Line of Credit) promotional rates, inquiring about retention rates, FRLOs (Fixed Rate Loan Options), refinancing to an ARM (Adjustable Rate Mortgage) and recasting.  So when things come back around to lower rates, we are in prime position to go and take advantage of them.  The big takeaway is that rates are always going to change, but there’s always something you can do and what’s best for you is going to depend on so many factors.  That’s why it’s best to sit down with a Sweep coach to get the conversation started.

To discover how our Cash Flow Coaching program can transform your financial journey, reach out to us now at (808) 533-4455 or drop us a message at support@sweepstrategies.com. Don’t wait, take the first step today!

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