iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
Pamela Yellen

GET UPDATES FROM Pamela Yellen

Creating Your Own Consumer Credit "Magic" -- Without Any Tricks

Posted: 09/07/11 03:56 PM ET

Presto chango, I can make your credit card bills disappear forever. Ditto auto dealership interest charges and - in a performance worthy of a curtain call - perhaps even your student and home loan.

This is real consumer credit magic, but without any tricks.

I've done it. A few hundred thousand of my devoted readers have done it. And you can do it, too.

It won't happen with the swoosh of a wand. But if you're patient, determined, and disciplined, it will materialize and you'll feel like the consumer finance wizard that you always wanted to be.

Before I reveal the process that lets you "bank on yourself" - bypassing finance institutions altogether - let me highlight two of the main benefits.

First, you'll be able to get your hands on money, hassle free, whenever you want and for whatever reason you want - without ever turning to a credit card or finance company. The money you'll use will come out of a special account that you build, but - and get this - even when you tap this unique source of funds, you continue to earn uninterrupted interest and any dividends as if the loan money were still sitting on deposit.

Basically, you spend your own funds but they keep right on earning you full income!

The second benefit is macroeconomic in scope. It means more jobs for your friends and neighbors and greater financial strength for our country.

As I've pointed out in my two most recent columns, America is in the grip of economic stagnation, due largely to the reluctance of consumers to continue shoveling more high-interest debt onto the mountain of obligations they've already accumulated.

Since about 70% of America's gross domestic product (GDP) is contingent on consumer spending, when we stop borrowing to buy new cars, home remodeling, luxury vacations and the like - our economy stops growing. Technically, the trend is called deleveraging, and it's got our top economists and elected leaders wringing their hands with worry.

The good news is that using the proven method I'll highlight here, consumers can go out and once again buy big-ticket items. As they do, we'll reprime our nation's financial engines - only this time using a far more stable kind of funding to fuel our growth.

How this works is straightforward. I'll briefly explain it here, but to be certain you understand and execute the strategy effectively, you'll also have to take a couple of additional steps. Don't worry, they will be more than worth the effort.

In short, there is a little-known financial tool embedded in some specialized dividend-paying whole life insurance plans. These plans pay their owners dividends and incorporate powerful turbo chargers, known as riders. When designed and executed correctly, the policies and turbo chargers grow your cash value on an accelerated basis, especially in the early years.

In plain English, what that means is that policyholders not only instantly protect their loved ones in the event of their untimely death, they also quickly create a means to easily borrow money - no credit applications or loan committee approvals ever again required.

That isn't even the most magical feature, however.

The true alchemy appears after you do take out a policy loan - say, for example, $30,000 to purchase a new car. Not only do you get to drive off the dealer's lot in a spanking new vehicle, but your life insurance company continues to pay you your guaranteed, pre-set annual cash value increase, plus any dividends on your account as if the $30,000 you paid the auto dealer were still on deposit in your account. (Note: Only a handful of life insurance companies offer this feature.)

It's like having your savings and spending it too

Which makes it a better option than directly paying cash. How? When you save up money in a savings or money market account or CD so you can pay cash for something, when you take your money out to make the purchase, you're earning nothing on that money. Borrowing from a dividend-paying whole life policy that pays you the same dividend regardless of any loans avoids this trap.

What's the fine print? There is some, isn't there always, but most of it is actually very positive.

For example, you can pay back your policy loan on your own schedule, not someone else's. If you skip or reduce some payments, no one will dun you or ding your credit rating. As long as your policy remains in force, policy loans are not taxable.

The loan you take out from the insurance company does still charge interest. (Even magic has its limits.) But the rates are often less than you'll find from conventional lenders and rather than air-expressing your payments off to benefit some mega credit card or finance company, your interest payments ultimately benefit you, the policy owner.

How is that possible? Because as a policyholder in these special insurance companies, you are like a shareholder. At the end of each year, if your insurance company earns a profit, it distributes those funds to policyholders in the form of a dividend. The dividends are not guaranteed. That said, for more than 100 years the handful of companies that offer a product that has all the features needed to maximize the power of this strategy have never failed to distribute a dividend.

It's as if VISA or MasterCard were to declare, "Hey, we made a lot of money this year; let's share our profits with cardholders." Keep dreaming

Note to Readers: The subject of insurance policy loans is often misunderstood by both financial advisors and consumers alike. I encourage you to learn the facts about policy loans and dividend-paying whole life in this lively and informative blog post I wrote.

Lest you think what I'm outlining here is some "fringe" strategy, know that the latest statistics from the life insurance industry report that, in the aggregate, consumers have borrowed more than $122 billion on their insurance policies. That, dear friends, is no fringe.

And among the famous people who've used this method, Walt Disney started Disneyland by borrowing from his whole life policy when no banker would lend him a dime, as I detail in this article. And J.C. Penney used his policy to meet payroll and keep the company's doors open during the depths of the Great Depression.

I caution that you should never permit just any financial planner or insurance agent to try to guide you in setting up this extraordinary financing tool. Too many opportunities can be botched or overlooked if you don't structure this correctly or the wrong policy is used*.

Even the great Houdini never conjured up an illusion as powerful as this reality. Basically, with no tricks and no risks, you make your credit card and finance company bills vanish, while growing a nest-egg you can truly predict and count on.

It's good for you. It's good for our economy. And, in this rare instance, it's too good not to be true.

*On my website, you can easily connect with an authorized agent who has received extensive, specialized training on this amazing financing option and knows which companies offer the policies most appropriate for it. There is no cost, obligation or other come on.

New York Times bestselling author Pamela Yellen is the founder of www.BankOnYourselfNation.com, a website dedicated to helping people achieve lifetime financial security and self-reliance. As president of www.BankOnYourself.com, she's helped hundreds of thousands grow their wealth safely and predictably.

 
 
 

Follow Pamela Yellen on Twitter: www.twitter.com/PamelaYellen