How far can you get in modern America without debt?

I’m not even talking about credit card debt. I’m talking about stuff like mortgages, student loans, and automotive loans.

Once upon a time, you could work your way through college to pay for tuition relatively easily. Or, you could get a job with a high school diploma that paid well enough for you to buy a house and support a family.

Those days are long gone. Now you have to have a college degree to get most white collar jobs. If you want to work with just a high school education, you’d better have a decent car or access to public transit (see the common minimum wage job form question “do you have reliable transportation?”), especially since you’ll probably have to work multiple jobs with all kinds of potential for scheduling conflict. And that’s all before we even get into the idea of home ownership, which is both part of the “American dream” and highly touted as a good long term financial move. Starting your own business? That will probably require a loan or two itself.

So suppose you wanted to get ahead in the world without debt, and without relying on family. Assuming you started at middle class or lower, how far do you think you can get in modern life? How far SHOULD you be able to get?

I reject the basic premise of the question that debt is a bad thing. Well managed debt is a useful tool, and rejecting it for religious or other non-rational reasons isn’t a good decisions. Treating a useful financial tool as something awful to be avoided doesn’t make sense. Other than the aberration of the post-war US economy, which isn’t likely to repeat, when has it been possible for someone to move from middle class or lower to owning their own home and business without taking on debt or getting help from family? As far as I know, people have always needed debt or family money to be financially successful outside of a few really lucky exceptions.

Well, it certainly has always implied a giving of a certain amount of power to other entities that may not have your best interests in mind. One reason this topic came up in my mind was all the recent bank scandals (e.g. Wells Fargo) and the widespread problems people have paying back student loans in particular these days. Besides which, just because it’s useful doesn’t mean it’s not stressful, or necessarily desirable. And if you’re asserting that going into debt is an integral part of getting ahead in modern American life, well, that’s something that could be an avenue of discussion.

Going into debt or getting money/favors from family is an integral part of moving from ‘middle class or lower’ into a higher class for the mast majority of people at all times and in all societies advanced enough that ‘middle class’ is a meaningful description for some people in them. Remaining at higher than middle class requires relying on family for basically everyone, since you need that money to sustain an upper class lifestyle.
Life is stressful, and simply throughout history has required the vast majority of people to do things that they’d rather not do. I mean, it’s not like having a job lacks stress, or is desirable outside of the benefits it can provide in most cases - those people getting factory jobs to buy a house would likely rather have done something else with their time than pull a lever to make widgets. And I’d like a cite for the idea that home ownership without mortgages or family money was common in the 1950s (or whatever era you’re thinking of), because that’s not something I’ve heard of before.

I think your basic premise that debt is bad and that avoiding it is good is flawed, and that you’re viewing the topic of debt unrealisitically.

Pantastic is right … debt is a wonderful thing when properly managed … if we borrow to buy a car at $300 per month payments, and this allows us to take a job that pays $900 extra per month … that nets $600 per month in our pocket for the first five years, then it’s $900 per month extra income … and effectively we get a free car after … [ka’ching] … we could do this by saving until we could buy the car outright, but we’d be five years late and have to live like a church mouse during that time … better to borrow …

However, the OP mentioned student loans and the problem here is that the student has to finish the program … if not then the student has a ton of debt and no degree to pay it off … if one fails Algebra four straight years in high school, there’s nothing about college that’ll get them to pass …

Anyway, just wanted to point out that the skilled trades are a very good way to get ahead in life without college … especially right now there’s a terrible labor shortage in the building industry … wages are high for carpenters, plumbers, electricians, dry wall finishers etc etc etc … the main downside to the skilled trades is that the work is physically demanding, it’s hard work (which explains the labor shortages hahaha) …

I agree with others that state it depends on what type of debt it is.

Years ago I was told that"investment debt" is ok, “fun debt” is isn’t. I haven’t had cause to doubt that since.

College is an investment. I get a lot of push back on that, but it seems clear to me. If you go to Harvard and get your PhD in art history, don’t come bitching later that you can’t climb out of your $600,000 debt. I went to a community college for two years, transferred to a small state school and didn’t have much debt at all.

I also think that if you want to be a top surgeon or sit on the Supreme Court, than an Ivy League is the way to go. But for most of us, get good grades and work hard. Most of my friends were never asked where then went or what their grades were for their second job.

A house is in the middle to me. Traditionally, a house isn’t a great investment. Certainly not as good at the market. And that first mortgage payment is virtually all going to the bank and little to you, so the more you have to put down the better of course.

And fun debt isn’t great. The Mustang you want? Paying a lot for that. The vacation that you’ll be paying 20% for over the next year? Brutal.

It’s also a pay me now or pay me later world. My friends that lived high on the hog early in life, and still in debt now, and have no idea how they are ever going to retire. I’ve be fortunate, but I planned, pay off my little debt, bought a house that I could really afford, paid it off early, never carried a credit card debt and I’m semi retired at 54. Gotta pick your spots.

All debt isn’t bad. But ask yourself if the debt your about ready to jump into is really worth it.


I’ve done pretty well.

I went to college back when it was still relatively affordable. My family and I were able to pay for it without exorbitant loans.

I borrowed to buy my first three cars. But ever since then, I’ve paid for them up front.

I borrowed money to buy my first computer.

But I literally have not borrowed any money in over twenty years.

The downside of this is I have no credit history. I was planning on buying a house and the banker seemed shocked when I told him my background. He recovered somewhat and assured me it wouldn’t impossible for me to get a mortgage. But I noticed he never got back to me.

So personally I guess the wall is that if you don’t accumulate small debts on a regular basis, you won’t be able to acquire a large debt. And if you reach a certain age without having accumulated debt, you’ll encounter a reluctance to loan you money.

I would suggest, as far as you like. For example, I have a close friend that has done very well, an estimated $2m net worth (probably more), with no borrowed money, and no extraneous good luck, other than a positive employment and housing market. To qualify, I’m from Canada, and the numbers used are demonstrative. You could nit-pick them pretty easy. Inflation is not considered as the positive and negative effects should be relatively equal.
It depends on how strict your “no help” parameters are, but based on middle income families, consider this scenario:

A $400K mortgage @ 3% for 25 years with a $2000/month payment costs $600K. Paying $1000 rent and investing $1000/month for 25yrs @ 5% yields $600K. Mortgage; costs $600K/$400K asset. Rent/save; costs $600K/600K asset.

In my friend’s example, he began working after high school. Entered a trade, work was steady. No help from family.
His spouse lived at home with family and worked part time to pay for her own university degree costs. No loans, but room and board assistance from family, which most middle class families could and would do.

Married, the rent/saving approach is tripled ($2000/person=$4000 less $1000 rent)
My friend could have done fairly well on his own. They did much better as a team.

They bought a rundown house in a good neighbourhood for cash (much below the $400K number above). Astute buying and sweat equity advanced their cause. They drove used vehicles with no loans until they could afford new. And bought a second house in their latter years for rental income and equity growth.

Debt is definitely an excellent economic tool when used properly, but IMO, you can, with discipline, do quite well without it.

No reason you can’t do the same today.

Maybe the Canadian housing market is vastly different than the US housing market, but here the rent on a house is normally significantly higher than the mortgage - in my area it’s usually 1/3 to 1/2 times as much to rent a house as the mortgage payments would be. In your scenario you’re getting a house worth $400k to live in for 25 years in the ‘mortgage’ scenario, but living in a much cheaper rental property in the ‘renting’ scenario. The monetary advantage doesn’t come from renting vs buying, but from living in a cheaper, worse home for 25 years. For example, in my area $1000/month rent will get you a 1075 sq ft house in a not-bad, not-great area, while a $400k purchase will get a house in the 3000-4000 sq ft range (and I saw one over 5000sq ft).

I don’t think that choosing to rent a house 1/3 to 1/4 the size of the house you’d be buying in the same plan really makes any kind of case for renting as a better economic choice. It would be more sensible to compare buying the 1075 sq foot house for $800/month mortgage, then saving $1200/month at 5% interest, then selling off the house and using savings to but a big house after 25 years - but the mortgage comes out way ahead then.

I have no debt and enough savings and investment to last me the rest of my life at a modest standard of living. I am 45.

I started middle class and never took student loans as I worked full time from when I was a senior in high school. I took 7 classes my first three years of high school so that in my senior year, I only had 3 classes and went to work after I got out of school at 10am.

I worked a mall job for 6 months, then a better mall job for 3 years. I then worked for an Apple (computer) dealer for about 6 years doing repairs and sales. After that I went to work in IT for an ad agency for about 6 years.

This whole time, I was teaching myself to write software and eventually was able to create a software product and start a business. In 2002, I quit my day job, moved overseas and have been self employed ever since. I have never carried a credit card balance, paid cash for everything (home, car, airplane) and live well below my means… I do not have cable TV or a smart phone.

Overseas I was able to live on about 15% of my monthly income as I lived in a Third World country but had an American income. Of course I had to deal with daily power outages and could not drink the tap water.

It is certainly possible.

“Okay, then, since you’re saying that I have to sell myself to powerful corporations just to get ahead, that’s a powerful indictment of America, capitalism, or both.”

One of the reasons I posted this thread is that I do know people who’d respond this way, and I’m not entirely sure what I think of it. Maybe I’ve just been brainwashed about socialism or something, but I actually have hesitation both ways, and thought this might help work through what I’m thinking.

No it doesn’t. My brother started middle class, took loans for medical school and became a doctor. He is now in the 1%… or maybe 0.5%. He has generated his own wealth through his valuable skill as a doctor.

I don’t have his wealth but have moved up in wealth and “class” though a bit of luck and a lot of time and effort at starting a business. My brother and I can certainly remain where we are without help from anyone.

How far can you get? Pretty far depending on talent.

I know nothing about the American or Canadian market, but over here at least, it varies enormously. You would expect that the ratio sale value/rent wouldn’t be necessarily identical everywhere, but at least in the same ballpark. But I saw figures for a large number of French towns and cities, and this ratio is all over the place, to a ridiculous extent. In some places, rents are so high (by comparison with real estate prices) that you could buy the place with the rent money in less than a decade, while in others rents are so low (again, by comparison with housing values) that the rent you’ve paid over a lifetime wouldn’t be enough to buy.

So, over here at least, whether it makes more sense financially to rent or buy depends a lot on where you are (and it might very well be that the situation is exactly the same in Canada).

I would also note that besides the mortgage/interests, you have other expenses when you own a place : repairs, taxes… that must be taken into account when comparing with renting. And repairs in particular can be ruinous.

The big advantage of buying is that it forces you to save money, since people will extend a lot of efforts to pay their mortgage and avoid foreclosure. While in the case of renting, making it equally worthwile requires that you save and invest the extra money, something that most people won’t do, or at least not to a sufficient extent to be eventually in an identical or better situation than the person who bought.
In any case, I hardly ever hear anybody actually making this kind of calculations and try to figure out what makes more sense. People have a clear idea of what they want, generally buying if they can, and it’s so “common sense” that paying a rent is “throwing money out of the windows” (since you have nothing to show of for it in the end) that they seem to never even simply envision that renting could in fact be a better deal depending on circumstances.

Only if you have a talent that’s financially rewarding.

It’s great if I have a talent for medicine or banking or the law. I can go sixty thousand dollars into debt to get my degree, confident that I’ll be able to land a high-paying job and pay that debt off.

But suppose my talent lies in teaching or chemistry or mathematics? I’m still going to need to borrow a lot of money to get my degree but I’m not going to have a six-figure job waiting for me when I graduate.

That’s simply because there is more demand for doctors than mathematicians.

I am not sure what area you live in, but this is definitely not true across the board.
Here, you are look at 10 to 12 dollars an hour, if you find someone who isn’t using mostly undocumented workers at 6 to 8 dollars an hour or so.

Wage could be less, depending on which one of those skills you are talking about.
Drywall finishers here get sub poverty wages, they are a dime a dozen.

Depends on your connections and what you earn/luck into. Between scholarship and extremely flexible (probably too flexible) parents, I have a Master’s Degree, changed my career after 3 years and change, and am finishing an Associates in an unrelated field without any student debt. Most people I know couldn’t pull that.

Depending on how able parents are to save, how much work students put into filing for scholarships, and how realistic of a path the parents and children set for working and going to college (ie. something other than going straight for an expensive 4-year degree or more straight out of high school), it’s possible and even encouraged to go out of one’s way not to incur student debt for your degree or just a bare minimum.

I know of people who laid out plans ahead of time to pay all cash for a small home, or at least a sizeable down payment that left them with a minimal mortgage balance. But again, it can be a matter of luck, work, and circumstance to be able to do this or even to maintain a fixed 30 year mortgage.

As others have pointed out, our economic system is based on debt, or taking out money you don’t currently have but will have if given enough time in order to make more money in the time it takes you to pay off the debt (and beyond) than if you never accumulated debt in the first place. So debt is not necessarily a bad thing; it’s only bad if you are not able to pay it back (ie. you took a huge risk or you never had a good plan of paying it back in the first place).

Respectfully, I would say that those people are being melodramatic. I would particularly say this if they could not soberly describe how debt works. If they can’t, that tells me they are just appropriating someone else’s feelings/sound bites on the matter and have not really thought about the issue beyond a surface level, if at all.

That said, I can empathize. I used to think like this before graduating high school and taking some accounting and economics classes in college. Corporations are abstract legal concepts that are neither evil nor good. They are run by people who can act with evil, good, or (most likely) neutral intentions that can have positive, negative, or neutral impacts on others. The manipulation of money and capital is not magic, though one could certainly argue against it being a given sized portion of our economic engine. Like everything, businesses, corporations, money, etc. is a tool. How it’s used is the main determiner.

This is pretty much nonsense. Though I understand you, Leaper, aren’t really advocating this position; it’s a straw man you’re exploring. I’ll keep using “you” in my response, but recognize I do get the distinction between you and “you”.
What does “get ahead” mean to you? Serious question. You use that term like it has some universal meaning known to all. I have several different guesses for what it might mean to you.

If by “get ahead” you mean economically outperform most of the other people in your age group, geographic area, etc., then you need to do the things that contribute to economic outperformance. In other words, this isn’t about absolute performance; it’s about *relative *performance. You’re in an arms race and the other people are all racing. You *can *choose to sit out (or dawdle, or saunter) but don’t expect that sitting out is a winning strategy against competitors who’re actively racing.

There are several paths to *relative *economic outperformance. One is to work harder than the others. One is to work at something that’s got a higher payoff than the others. Another is obtaining more education than the others, *provided *it’s deliberately aimed at something with an average or better payoff. Another is to start a business which succeeds.

Hard work is selling yourself to the tyranny of labor. Attending school is selling yourself to the educational system without getting any more than a possibly worthless promise of benefit later. Starting a business is selling yourself to even harder labor, plus the risk of bankruptcy.

A business has the neat feature that it gives you leverage. A person, even a surgeon, can only work so many hours a week. His/her income is limited to his/her hourly rate times that many hours. A successful business has no such limits. Your income is limited only by how big you can make it grow, less the ever increasing costs of hiring ever more people to work there while you skim off some of the value each of them works to create.
Last of all there’s debt. In business, debt is called “leverage”. Leverage is good when a business is profitable and it’s a backpack full of anvils when the business is unprofitable. Pure Tin & Yang there. It can vastly increase your profits or vastly increase your losses.

Personal debt can be used to spend money you’ll never earn. That’s a fast path to bankruptcy.

Personal debt can be used to spend money you’ll earn in the future. That’s a slower path to bankruptcy.

*Unless *the debt is used to improve your economic performance vis-a-vis your competition. If it’s used that way, it’s positive leverage.

The person who borrows 100 grand to pay for a BS in Computer Science and successfully graduates into an 75K/yr job with growth to $150K 10 years later is in a very different place than a person who borrows the same 100 grand to buy drugs he snorts for two years then drops out of school. Or the one who borrows the money and successfully gets a BS in Art History while “finding him/herself” and graduates to waiting tables at TGI Friday’s. All three people took on exactly the same debt. Very different outcomes.
“Getting ahead” financially is really about developing some capital so you have money working for you in addition to your own labor working for you.

You can accomplish that more easily with a big income than a small income.
You can accomplish that more easily if you can tell good investments from bad.
You can accomplish that more easily if you aggressively maximize your income.
You can accomplish that more easily if you aggressively minimize your expenses.
You can accomplish that more easily if you aggressively manage taxes to the degree the law allows.
Finally, you can accomplish that more easily if you aggressively manage debt as the two-edged financial sword it is.

Because the world is an arms race you will “get ahead” of your fellows exactly as much as you succeed at doing the 6 things above.