Here are a Few Rules to Consider Before Borrowing Money

1. Do you really need to purchase what you’re purchasing? I know someone who wanted to buy a mountain house. After talking about it, he decided that renting was a better option. Why? Less maintenance, cost, and he wanted the flexibility to rent in other locations around the country. A great source is VRBO.com https://www.vrbo.com/

2. Could you use cash or other investments without borrowing money?

If the answer is a no, then here are some guidelines to follow…

1. Borrow from the lowest interest rate possible.

2. Borrow from an interest rate that may be tax deductible.

Examples of where you can borrow money

1. Home equity line (if you own a home and have equity)

*The interest rates can be favorable and possibly tax deductible. It has been my experience that working with a smaller local bank can provide more creative debt solutions. An option in the Myrtle Beach area, is Anderson Brothers Bank. https://www.abbank.com/

2. Buy on a credit card (if you do not intend to pay back within a 30 day period the interest rates can be astronomical. This should be a last resort.

3. Borrow from cash value life insurance.

4. Can borrow from investment accounts.

There are 3 ways you can borrow money on your investments.

1. Margin

You can buy at margin rates on your investment account which can be a higher option.

2. Third Party Non-Purpose loan. (TPNPL)

This is a line of credit on your equity accounts (much less). This can be equivalent to the line of credit on your home.

The main difference is on the TPNPL you cannot buy stock, so you must take the money out and use it.

3. 401(K)

You can borrow up to 50,000 dollars if your account is that value. Due to the pandemic you can borrow up to 100,000 in 2020. When making this decision you can potentially hurt your total return on that 401(k) until the loan is paid.