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ABOUT BRIDGER PENNINGTON
Bridger Pennington is the founder of 3 investment funds that have done over 217 deals in the last 4 years. He recently launched a hedge fund with over $10m in commitments.
He has started helping others launch their own funds through Investment Fund Secrets, an online program with over 10,000 students designed to help them start investment funds without working on Wall Street or having an Ivy League degree.
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LEARN ABOUT: Investing During Inflation
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How Inflation Destroys Debt – Part 1
#shorts
Inflation, often seen as the enemy of the economy, can actually have a surprising benefit when it comes to reducing debt burdens. While too much inflation can be detrimental to an economy, a moderate and controlled level of inflation can help borrowers, especially those with fixed-rate debts, such as mortgages and loans. In this two-part series, we will explore how inflation can indeed destroy debt and the reasons behind it.
When inflation occurs, the general price levels of goods and services increase over time. As a result, the purchasing power of a currency diminishes. While this may seem like a negative consequence, it can play in favor of debtors. This is because debts are typically fixed in nominal terms, meaning the amount borrowed remains the same, regardless of inflation.
Let’s consider an example to better understand this phenomenon. Suppose you took out a mortgage loan of $200,000 at a fixed interest rate of 4%, with a term of 30 years. Initially, your monthly payments would be calculated based on the principal amount and the fixed interest rate. However, as inflation occurs over the years, the general price level increases. This means that the purchasing power of the currency decreases, making the $200,000 loan less valuable over time.
Due to inflation, your income might increase along with the general price level. This means that, in relative terms, your monthly mortgage payments become more affordable as time goes on. For instance, after a few years of inflation, you might be earning more, but your mortgage payment remains the same. This results in a smaller proportion of your income being allocated to your mortgage payments, effectively reducing the burden of the debt.
Moreover, if you expect inflation to continue and even increase in the future, you can potentially benefit from borrowing money as it becomes easier to repay with inflated currency. However, it is important to note that this strategy works best for fixed-rate debts. Variable-rate debts, such as credit card debts or adjustable rate mortgages, can present challenges as the interest rates are directly tied to inflation and can increase as a result.
It is also important to consider the consequences of high inflation rates or hyperinflation. In such scenarios, where inflation reaches extreme levels, the damage inflicted on the economy and individuals can be severe. Inflation erodes savings, increases borrowing costs, and creates economic uncertainty. Therefore, a balance must be maintained to reap the benefits without falling prey to the potential negative consequences.
In the forthcoming second part of this series, we will delve deeper into the relationship between inflation and debt and uncover additional insights on how inflation can impact borrowing and personal finances.
In conclusion, while inflation may be widely seen as a negative force, it can actually benefit individuals with fixed-rate debts, reducing their debt burdens over time. However, caution must be exercised, as inflation should be managed and balanced to avoid reaching levels that can harm an economy. Stay tuned for the next part of this series to explore this topic further and gain a comprehensive understanding of the intricacies of inflation and debt.
What a crock of SHIT.
Huh???? That is such BRO logic! LOL
A 40K house from 1975 will NOT be worth 450K in 2022 UNLESS A) You re-modeled, put on an addition and updated all the major systems (200 K easily) B) If the other property values have also risen in that area – what if they fell? So now instead of 450K, you can only get 200K for it because the area has declined over 40 years…
Inflation is not a good thing, sorry Biden Bro.
rn they just raise the interest rate if you dont have a firm non variable interest rate on your loan which most people dont
Must be talking to Joe Bidens advisors. Lol
That's cool now tell us how to stop debt from forming to begin with …
Here did the math for you:
With a start of 30000 and 40 years run this is what you end up with at which intrests rate:
5% = 211199
6% = 308571
7% = 449233
8% = 651735
9% = 942282
and lastly
10% = 1357777
At a 5% interest rate, which is about the best I could find when I looked for offers in order to make sure my calculations were as accurate as I could make it, you would still owe half your houses value, though that does mean you have technically managed to double your own investment…
Any higher interest rates and you are either basically at the same point you started or you are losing money.
So no, inflation is no beneficial for paying off debt.
This is so clearly out of touch with reality. You’re forgetting about interest rates! How could you forget about interest-rate. How are you going to give financial advice and not take into account 30 years of potentially sliding interest rates. This whole video is retarded. And it’s people like you were trying to pacify the American population to accept these high inflation rate. Stop lying to people.
Between interest, increased cost of living in all other areas and depreciation of the collateral over time i would say this is probably only true in very limited scope and for short time frames
Everybody talking about interest but it isn’t affected by inflation either.
And what about half a million $ debt we have to get to buy that old house. Then take out second mortgage to repair and maintain? How is that debt gonna get crushed? Coz there is a limit for inflation b4 economy collapse.
This makes 0 sense!
????
Inflation makes everything cost more. Putting people in debt
Don't believe everything you hear in youtube shorts.
Please stop giving advice when you clearly know nothing
lol.
0% loan? Ok show me the bank 🙂
Sound logic.
I have a bridge to sell you. Intrested?
Probably graduated with a liberal arts degree.
And u think this is a good thing? Lol
Cool…so what about the people in their twenties right now…..they gotta wait 40yrs before they can fix their debt?
Banks set interest rates over inflation otherwise they would lose money.
Did you forget that the average salary was much lower? That interest rates existed ? What you are missing is the fact that most people were fiscally prudent with their money. Now what if in 30-40 years you're neighborhood is now a slum? Still worth 400,000? I think not.
If you purchased a house in 1975 the average mortgage rate was around 9%. If you paid none of that debt off in 30 years your debt would be $409,132.30. If you paid none of it off and we 40 years your debt would be $942,282.60.