VeriPlan helps you to understand the true danger of consumer debt

Debt danger and financial planning for debt

VeriPlan's Future Debt Tool requires only one user setting. That setting is the loan interest rate that you project you would have to pay, if your future income would not cover your expenses and you were to run out of financial investment portfolio assets. Without an adequate investment asset buffer, a financial setback like disability or extended job loss coupled with high consumer loan interest rates can put your family into an unrecoverable downward financial spiral. It will not take long in experimenting with VeriPlan loan calculator software to realize that you always need a substantial investment portfolio asset buffer for when financial risk actually materializes.

In the situation where your projected financial assets are depleted, you could still have real estate property and other assets to liquidate. VeriPlan will not automatically assume that you would choose to sell off your property and other assets to avoid incurring unfunded consumption debt. Any future decision about asset liquidation that you might make would depend on a variety of factors, including investment returns, investment asset salability, capital gains taxes, your need to use the asset, etc. Instead of projecting the automated sale of such assets, you might prefer to retain them and to use them as collateral for a future loan at lower interest rates.

If VeriPlan's unfunded consumption debt management logic is invoked, for many users it will be when their projected financial investment portfolio assets were depleted in retirement. However, this VeriPlan logic will also be activated automatically at any point in your lifecycle projection, when your financial assets are projected to depleted. If exhaustion of your financial assets were to be temporary, then your projected positive net earned income in subsequent years could help you to recover. If so, VeriPlan will automatically project repayment of this debt. To recover from such an adverse situation, your future net earnings would have to be sufficient to pay back both the loan principal plus the accrued interest on the loan, while your income also covers your expenses at the time.

Personal financial crises are particularly insidious, because of the very high cost of consumption debt. While subsequent positive net income might allow you to recover at some loan interest rate levels, even higher loan interest rates could prevent a recovery entirely. In addition, a personal financial crisis is the very circumstance in which the credit card industry, for example, is most likely to increase dramatically your interest rates on your credit lines. In such a circumstance, VeriPlan's total assets graphics will look like your asset portfolio fell off a cliff. VeriPlan starkly graphs the real danger of unmanageable consumer debt in your particular circumstances.