Infinite Banking- Charging Yourself Extra Interest

This post is part of our Frequently Asked Questions resource page.

The idea of paying, or charging, yourself extra interest is more of a philosophy than a rule, and is commonly taught incorrectly, in my opinion. The idea of paying yourself more interest than the insurance company charges is simply a way of forcing yourself to pay off the loan to the insurance company quicker. Higher interest results in increased payments, which snowballs (adds additional principle) the loan, resulting in a faster payoff. Once the loan is paid back completely, the payments you are forcing yourself to pay will be used to add additional premium to your policy, or to start a new one.

This, for me, gets a little confusing, and tedious to manage. The philosophy is actually quite simple, and should certainly be applied to the overall Infinite Banking Concept. Here’s what I do.

Instead of trying to create extensive amortization schedules, track payments, and become a loan officer, I use the philosophy that my money is more valuable paying off loans and saving interest than sitting in my bank account. If, at any point, I have extra money, I apply it to my loans. This reduces my overall interest expense, ultimately increasing the long-term efficiency of the strategy. Money saved is money earned right? I am essentially trying to pay off my loans as fast as I can, and if I have no more loans to pay off, I add those funds to the cash value, or start a new policy.

The great part about having your own private banking system is that you have less fear of paying things off quickly. When I borrow from a bank or other financial institution, I hesitate to make extra payments, because I know that if I need that money, I’ll have to qualify to get it. Using my own banking system allows me to pay things off quickly, knowing that I can access that money anytime I need it. I find this to be a significant part of this strategy, much more valuable than I am capable of expressing on paper.

Hopefully this helps explain how what it means to charge yourself interest. Please let me know if I better clarify anything here.

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By Jake | Follow Jake on Twitter