We are frantically trying to get out of debt (except for our mortgage).
I started wondering why we are busting our asses to get OUT of debt when nearly everyone we know is getting into debt - they have bigger houses, newer cars, more toys, opportunities to travel …
Are we suckers for trying to save and invest and eliminate our debts?
How do you approach debt?
That gets a resounding hell no!
Debt is like prison. You screw yourself by getting into it, and then once you’re in you just keep on getting screwed.
Personally, I don’t think there’s anything worse than debt. I will do anything and everything in my power to avoid falling into it - I consider it about equivalent to death and avoid it accordingly. (and no this is not easy for me, I’m very strapped for cash. But at least I don’t owe anybody)
No, you are not suckers. Don’t pay any attention to those people. It doesn’t have anything to do with you. Worry about your own financial health (and all other kinds of health) and secretly laugh as wyou watch others go down in flames (and many will.
Bankruptcy laws have gotten much tougher. That means there is little doubt that $40 or $4000 you waste today will mean that you are going to have to slave it away in the future one way or another. It may mean that you never get to retire. It may mean that you can’t afford to help your family when they need it even though you have what was tens of thousands of dollars worth of stuff now just a heap of obsolete junk.
I have pulled myself from debt a couple of times. I love writing checks to pay stuff off.
Cut your spending except for the things that truly make you happy or you really need. Buy used instead off new. You can cut an amazing amount off typical retail (and I mean for good stuff) if you learn the ways. In that way, you won’t be lacking much at all.
I think you are very wise, and as far from being suckers as can be.
My house (which is a pile of shit, really, but still) is 100% paid for. This feels truly amazing. No mortgage! Woo hoo. Just taxes and insurance - low around here.
My cars are both paid for. I’m trying not to fall into the trap of oohhhh I wanna newer shinier car…but I’m probably going to get a car loan within the next few months. Because, ummm…I want a newer, shinier car. 
Mainly, the idea of having something catastrophic happen (I’m currently single; there’s nobody who will pay my bills but me) and losing my home terrifies me.
I’m in Flint Michigan, where GM is coming apart at the seams. People who were counting on the fat retirement and another decade of big paychecks and benefits are seeing that go down the toilet fast. This is going to put many people in a world of hurt. So many are mortgaged to the hilt, vacation home, newer cars…my realtor told me that in her experience, the percentage of working blue collar types qualified for home loans was much higher than the middle & upper management folks, who tend to have hundreds of thousands of dollars in debt.
We owe on the mortgage (only another 4 years or so) and a few more payments on our new furnace (interest free). We own the cars and pay the credit card in full every month.
Debt doesn’t seem like a big deal until:
In my opinion, the only things you should pay interest on are homes and equity loans (buy your car on an equity loan and write off the interest). If you can’t afford it, don’t buy it. Save your expendible cash and work toward the goal.
(Jeez…I can see my house from atop this soapbox!!)
Yeah, I’d agree that credit can be a useful tool, but one that should be used very carefully.
I’m lucky in that my parents set a good example, and I’ve been able to get through my twenties without accumulating any debt other than what remains of my student loans, which are steadily dwindling… now under $11,000 – yay!!
So, no, definitely not a sucker. Whatever gratification the jones are getting now… you’ll be able to enjoy more later, because you’ve been avoiding paying the interest on it.
Have you checked your credit report? If you score low, you may want to consider getting a credit card just to use in lieu of cash, and pay it off at the end of each month. Excellent credit not only effects CC interest payments, it also is used in setting insurance rates, and I think even more things are influenced.
If your credit is excellent, then you have no need to carry debt. Why pay interest on anything?
taps Kalhoun on shoulder to let him know that someone else wants to use the soapbox
Here’s my opinion, which I’m aware is ragingly un-American and for fuddy-duddies (I’m 31, btw) and would cause the economy to collapse if everybody did it.
I think debt is bad (regardless of interest rate or anything else) unless there is a very good reason for it. That means that if you can, you shouldn’t get into it, and if you do, you should get out as soon as reasonably possible.
Very good reasons for it include housing (it’s unavoidable if you want to own a house in any place I’d want to live in), education, cars, and things like furniture and pots and pans that you need for home or clothes that you need for work. Even so, if it were possible to avoid going into debt for those things, it’s better to avoid it.
Education, housing, and major home appliances are different from other things on that list- I think it’s worthwhile to get a more expensive house or education if it’s of better quality even if you do have to go into debt, but I wouldn’t say that about cars or anything else, as long as the cheaper version is functional and reliable. (Of course, I’m biased on the car thing- my desire for a newer shinier car won’t overcome my fear of negotiating with car salespeople, at least not on the six-year timescale that I had my old car)
Things which are not very good reasons include pretty much anything bought with a credit card, unless you’re temporarily unemployed and that’s your only choice. They especially include weddings, vacations, and other temporary things. They also include stuff that isn’t absolutely necessary like vacation homes and toys.
I pay my credit cards in full every month (as does Mr. Neville- well, he mostly uses one of mine). In the few periods of my life when that wasn’t true, I was very uneasy until it was true again. I don’t even know what the interest rate is on my credit cards, because I don’t care- I don’t carry a balance, and I don’t get cash advances (that’s what ATM cards are for).
I think some debt is good debt. I just bought a car, and that debt is building credit so I can qualify for a home loan next year. I had to get a cosigner on my car, because, though my credit is clean and my score “intimidating” (quote from the car salesperson), I had no ‘deep debt’, only credit card history, and so couldn’t qualify on my own.
I’m against it.
Here’s a little baby step that worked for me. The worst interest rates are likely appearing on your credit cards. They can carry 18, 19 and more % interest.
If you have been faithfully paying your cards and have not missed a month (I’m assuming this because of your concern) then you qualify for a lower interest rate.
But they don’t tell you this.
I called up the 1-800 Customer service number of my credit card company and told them I got an offer from another card company for a lower interest rate (true). I asked if they could match the offer. The customer service rep didn’t go to a manager and didn’t forward the call…she lowered my interest rate by 6% right then and right there.
This is a good thing for two reasons: 1) the obvious lowering of your rate is good from the start and 2) when you’re being given a credit rating some importance is given to how long you’ve had credit available from a company. If you’ve had the same card for 15 years that’s somehow more positive than if you’ve had the card for only 6 months.
Anyway, give your Customer Service rep a call. Be nice. And see if you can get your interest rate lowered.
There’s nothing wrong with debt per se. As others have noted it’s generally unavoidable if you want to buy a house or fund higher education. It can be quite sensible to incur debt in order to buy an asset that will appreciate in value or produce a good income e.g. investment property, especially if there are tax advantages available for such a strategy. I’d never use debt to buy an asset that rapidly decreases in value like consumer goods, holidays or cars.
The **key ** issue is simply whether or not you can service the debt obligations: not just now, but into the future, and under different sorts of scenarios e.g. illness, job loss, depressed property market. This is what trips up so many people: the lure of quick and easy credit now without reckoning what the future effects could be in the event of default.
Ditto everyone else. We’ve never had a car loan - but we buy reasonable cars, not luxury ones. They get me there in the same amount of time. We do have a mortgage, not a big one, and a good chunk of it is owed to my wife’s father, who is 90. I’m happy for him to get the interest.
We have no credit card debt, and the ones we use give cash back, so the credit card companies are paying us, not vice versa. Exception - a few hundred bucks, 0 interest, on a Circuit City card. Another instance of them effectively paying us.
The money people send to the credit card company can be used to invest, or to do things you enjoy.
We know plenty of people who keep taking out home equity loans. They’re going to get hurt by the cash flow problem, and have nothing left to fund their retirement - not to mention getting screwed when the housing bubble bursts.
Debt is for suckers.
I have mortgage debt, incredible health debt (not my choice or fault) and that’s it. When my car dies I will buy a new one and incur some debt and that one too will be driven until it dies.
I do not like debt and will avoid it when I can.
Oops. Somebody was lying (not a salesperson, no!). If your credit score is “intimidating” it already wraps all those things into one little number. I assume your score was just low but he was guessing what was causing it. He could be right but credit scores get cryptic at the detail level.
You need to get free copies of your big three credit agencies to see where you stand now (at least one report will tell you your score as well so you don’t need to take a salesperson’s word for it).
Debt is scary to me. I watched my mother fling herself into debt over frivolties and then declare bankruptcy when I was a child, and I remember the unending phone calls and letters from collectors and her imperviousness to it all. She had no plans for her future, no retirement plans, no savings, and I certainly didn’t factor in. Lying awake at night at 13 worrying over how I was ever going to get a job so I could get a car and how I was ever going to afford college when it was so expensive made a lasting impression on me.
I’m in debt for the first time in my life because I’ve recently moved and had to furnish my first apartment. I worked my butt off while in college so I wouldn’t have any debt (living rent-free with my grandmother helped tremendously). I have great credit and a very healthy credit line, but I’ll never use it all. I’m determined not to fall into that same trap.
I get very, very nervous when I think of how much I owe (and it’s not even that much!) and if I dwell on it, it will still keep me up at night.
Staying debt-free is a good idea, and saving is even better.
I came into some money a few years ago, when I was working full-time at a good job. I used the money to buy a house, furniture, appliances, and paid off a car loan. For a couple of years, if I wanted something, I bought it. Then I came into some more money (almost 150K), and gave it to my kids. I didn’t need it and felt like sharing.
About a year later, things got bad at work and I quit my job. I haven’t been able to find another one and I’m kicking myself for not thinking ahead. Retirement looks pretty bleak. Social Security and a couple of small pensions, and almost no savings.
Being debt-free isn’t enough, for financial security.
Debt scares the screaming bejeebus out of me. I want to get the damn credit card paid the hell off. And my husband goes to a private law school, which gives me the heebie-jeebies sometimes, but that’s an investment.
We have a small home equity loan (like $2K), but we have enough cash to pay it off if things go south. The fact that the interest is deductible makes it smarter than paying cash on certain things.
Could you expand on this? Even if the interest is deductible, I would think the loan still costs you money. The tax savings just lowers the effective interest rate, right? Are there other benefits I’m not seeing?