I’ve got around $1,800,000 in home equity locked up in one property. The property was originally purchased for $1,520,000 at the end of 2004 with $305,000 down and a $1,217,000 mortgage. The property is now worth an estimated $2,600,000 with a remaining $800,000 mortgage at 2.375%.

Although it’s nice to have $1,800,000 of home equity (31% LTV), it’s essentially “dead money” that’s doing little to improve my net worth or lifestyle. I controlled this property when my equity was only $305,000 after the initial downpayment, so the leverage power is no longer as strong.

Because roughly 67% of the average homeowner’s wealth is trapped in home equity, being “house rich, cash poor” is a common situation. As a result, homeowners have traditionally turned to home equity lines of credit (HELOC) to extract equity to pay for life’s many expenses.

One look online and you’ll find that HELOC rates are generally 1% – 2% higher than your current mortgage rate e.g. 3.75% for a 30-year-fixed vs. 5% for a HELOC. In addition to higher interest rates, using a home like an ATM machine may get homeowners who lack discipline in trouble down the road.

If only there was a better way to extra home equity at a lower cost. Enter Patch Homes.

The decision to pay off debt or invest is a personal one that depends on a lot of factors: risk tolerance, your number of income streams, liquidity needs, family expenses, job security, investing acumen, retirement age, inflation forecasts, and bullishness about your future in general.

I’ve had hundreds of people ask me this question about paying down debt or invest over the years. As a result, I’ve racked my brain for months to figure out a viable Debt / Invest framework solution that can be used by many.

The solution I’ve come up with is called, “Financial Samurai’s DAIR” or “FS DAIR” for short. The idea is to come up with something easy to remember, challenging, logical, and effective, much like the 1/10th rule for car buying to help folks maximize their wealth. Even though plenty of people have objected to my 1/10th rule for being too restrictive, I strongly believe the rule has helped people minimize financial regret and boost the incredible feeling of progress and financial security.

Since we are all CFOs of our finances, we need to figure out the most efficient use of capital. My goal is to make personal finance simple so ACTION can be taken. All talk and no action leads to nothing. I’d like to “DAIR” you to follow my debt pay down rule to achieve financial freedom sooner, rather than later.

Debt is an interesting animal. Most of us get into debt because we WANT something we cannot afford. We want a private school education so we borrow $50,000 to learn something we can learn for free on the internet. We want to live a fabulous lifestyle in our 20s so we put everything from fine dining to designer clothes on our credit cards. We want to stop paying rent, so we leverage up 4:1 to own a property that will crush our finances if we need to sell in a down market.

Make no mistake about it. Debt is a manifestation of greed. Which means I’m one greedy bastard! I wanted to live a nicer lifestyle and I wanted to get rich as young as I possibly could. In my 20s and early 30s, the biggest risk I feared was not taking enough risk.

Some of you might be thinking you aren’t greedy for having debt. But deep down, you know what I’m saying is true. Not only are you greedy, you’re impetuous to boot. But don’t be ashamed. If managed properly, greed can often be good when it comes to reaching financial independence sooner.

In this post, I share with you my debt history followed by a debt optimization framework to help you build wealth faster while minimizing the chances of a financial blowup.

We are an indebted nation thanks to our desire for more and our financial system’s ability to grant us more. When used appropriately, debt can help provide for a better life and make us wealthier. When used indiscriminately, however, debt can destroy our financial dreams.

Below is a list of the most indebted nations according to Trading Economics. Currently, America is at ~104% debt-to-GDP and historically ranged from a low of 31.7% to a high of 122%.

Whenever your country’s debt is greater than its GDP, it’s probably a good idea to encourage your politicians to exercise fiscal restraint lest they take your country to hell during the next financial crisis.

Notice how many of the most indebted countries such as Greece, Italy, and Portugal continue to struggle since the 2008-2009 financial crisis.

Let’s review the following types of consumer related debt and rank them from worst to best. We’ll also take a look at the latest interest rate by debt type.

SoFi started in 2011 and is a lending company that recently surpassed $15B in funded loans as of 2017. They have 225,000+ customers, 240 employees and have raised $1.9 B in equity funding after raising $500M from Silver Lake in February 2017.

The company was founded by Mike Cagney, Dan Macklin, James Finnigan and Ian Brady, four students who met at the Stanford Graduate School of Business. They got together because they wanted to make lending and refinancing easier for borrowers using social lending.

The gist of their business is that lenders are willing to lend at a lower rate to people similar to themselves versus complete strangers. In other words, alumni should be more willing to lend to students and fellow grads of their alma matter because they share the same educational qualifications and should have a strong likelihood of repaying their loans.

SoFi is considered the largest and most successful fintech lender today. They are based right here in San Francisco, and I’ve met many of their employees. It’s worth checking to see if you can get a lower student loan rate with SoFi. The cost is free.

SoFi Company Overview

Date Founded: August, 2011

Founders: Michael Cagney, Ian Brady, Daniel Macklin, James Finnigan

Headquarters: Building A, 1 Letterman Dr #4700, San Francisco, CA 94129

Description: Social Finance (SoFi) is a finance company that offers a range of lending and wealth management services. The company primarily caters to early-stage professionals and offers variable and fixed rate parent, personal, mortgage refinancing, and more.

Contact: pr@sofi.com | (866)357-6342

SoFi Management 2017

SoFi Funding History – $1.58 Billion

Feb, 2017, $500M from Silver Lake, bringing total funding to $1.9B.

Social Aspect To Lending

What I found most intriguing about SoFi’s student loan refinance program is that it has this great unemployment benefit clause where it will pause your debt repayment schedule if you lose your job. Interest will still accrue while you are looking for work, but at least you’re saving some cash flow when you need it most. Now that’s some pretty good unemployment insurance!

SoFi also offers other benefits that traditional lenders don’t. For example, career advising, networking events (which I’ve attended), and entrepreneurial support to help borrowers achieve financial and professional success. To date, SoFi has helped about 70 SoFi members secure new jobs through its Job Search. Another 30 have gone through their Entrepreneur Program. Participants from SoFi’s first two classes boast two acquisitions, one merger and several rounds of multi-million dollar funding.

What I really like about SoFi is that their underwriting process takes into account merit, education, and quality of employment history, in addition to the traditional income, credit score, and existing debt levels assessed by traditional banks. I firmly believe that if I went through SoFi’s mortgage refinance process back in early 2015 when the 10-year yield was at 1.68%, my refi would have passed.

SoFi’s Two Main Products

Student Loans:

* Fixed rates as low as 3.375% variable rates as low as 2.345% with auto pay
* Zero origination/prepayment fees
* Offer terms from 5, 10, 15, 20 in both fixed and variable
* Can refinance both private and public student loans.
* Offers Unemployment Benefits
* SoFi also offers a 7 years repayment term for student loan refinancing

You can apply to refinance a student loan here.

Personal Loans

* Fixed interest rates start at 5.70% APR and variable rates start at 4.77% APR (with autopay)
* Can lend up to $100K
* No origination/prepayment fees
* Unemployment benefits

You can apply to consolidate your high interest rate loans here.

SoFi Loan Application Snapshots

Here are a few snapshots to show you what the application process looks like for borrowers on SoFi.

Welcome screen:

Step 1 of populating your Profile is basic personal information:

Step 2 is where you enter your education information including your graduation date:

Next is typical employment information including your current employment status and salary:

And here’s a snapshot of what the application form looks like for their mortgage products:

It’s all very straightforward and doesn’t take that long to complete.

Take Advantage Of SoFi For Lower Rates

Everybody who has a student loan or high interest personal loan should get a quote from SoFi to see if you can refinance your existing rates.

Click here to get lower rates on your student loans. It’s all about leveraging technology and the massive amount of funding SoFi has garnered (over $1.5B) to take advantage of lower rates..

About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.

About Financial Samurai: FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.