How do you feel about debt?

[hrv]

If you a

I looked it up, last year I made $900 in cash back from credit cards.

If you are smart with them they can work.... I have one for airline points and put everything on it and pay at the end of month or when it gets posted....Have flown to London a few times and to Destin FL a few times for less than 100 our of pocket for the round trip flight....BUT most people are NOT SMART with them and get into trouble very fast...

 

[alarmguy]

I guess it depends on the area somewhat. Utah seems to have an infinite money glitch in place and still sells things no matter what price. We are about $500k for an average nothing special house now. Assuming 20% down you might borrow 400k @ 2.85% today for a $1654 payment. 4% takes you to $1909. Not that big of a change and still under rent cost. That payment at 4% is doable for two full time chik fil a employees are todays wages.

Go to 5% and now your at $2147 and these numbers are of course without the taxes and insurance included, lets say $300 for that. I think that is the pain point, 5%.

Yeah, but here is the catch;
"Assuming 20% down you might borrow 400k @ 2.85% today for a $1654 payment."
and
"4% takes you to $1909"
Yeah, it very well maybe a big deal for the buyer, they may not qualify at the higher payment. So if the public cant get qualified for a small nothing special house the owner takes a hit if the interest rate is higher. That is a 40% higher interest rate.

If the payment was so easy to do with two Chick Fil a employees there wouldnt be home as low as 500k on the market as so many people would be able to buy a home or there is a glut of homes. More or less homeowners are not selling their homes at a discount for as many people as possible to be able to buy their home, they are selling to the buyer who can afford the price, the bank determines what that price will be based on prevailing interest rates.
BTW- just discussing, I do understand what you are saying and yes the housing market is variable by area but mathamatics holds true except for those exceptions. I agree 500k isnt a lot for a home but that home wouldnt be for sale if it had that value and so many people could afford it.
Agree, 5% still a bargain to me would really correct the market, actually I would LOVE to see the day it would maybe tempt me to make one more final last move before the day comes (hopefully decades) where I am no longer on this earth *LOL*

 

[alarmguy]

IMO, this is an oversimplification. You are not accounting for equity; it is not a wash as compared to someone who was paying rent. I agree with your premise of minimizing interest expense, but you have to have a payment you can live with. A 30 year loan can act close to a 15 year loan if one pays extra each month. It is risk aversion. Credit is a tool; just like any other tool used properly you drive the nail. Used improperly and you bang your thumb. Ouch!

You know what I did? I got sick and tired of my fixed mortgage. I traded it in for many 3 and 5 year variables with teaser rates. I then made the same payment as my 30 year fixed. This is in accord with your point of minimizing interest expense.
I also put every bonus, tax return, etc into the loan balance. I drove used strippie Toyota pickups while the parking lot was full of drop dead gorgeous Beemers. That's how I paid off my home.

Ahhh... but that is where we get into the debt discussion.
"A payment you can live with" in past posts I mentioned paying a 30 year mortgage in 15, something I always have done being self employed I had a safety net incase something happened to the business. I have had a few homes, and a few private mortgages, always paid everything off ahead of time, with that done came putting my money to work in other ways.
The vast majority is addicted to debt, they never pay off their mortgage early, in fact, as their balance goes down, they take out a second mortgage on top of the first mortgage (home equity line of credit) to buy more stuff they can not afford and to keep up with the "Jones" next door who are buying all that fancy stuff the same way.

Let me put it another way, just because a bank offers a 30 year mortgage why would someone think they can afford a home if it cant be paid pff in a reasonable amount of time which would be 15 years?
Like I say, we are addicted to debt as a people, but by no means not everyone, just 80% or more of the population!
When banks start offering 45 year mortgages people will still looked at like they can afford that house they are buying. I say just because a bank is lending it does not mean they can afford it.

Back to 30 year mortgages, why would someone pay for a home over 30 years instead of 15 when the first ten years alone barely pay back any principle on the home.
Anyway, this post and all my posts are not about "me" or "you" Im talking about the rotten choices the general public makes. People do not use credit as a tool, they use it like a drug. I can see based on your post, we arent that far apart in this discussion.
The general public is not educated on finance.

 

[alarmguy]

...
Otherwise, we pay cash for most everything and raised our kids that way. They started working at 14 and were in pretty good shape starting life. What is killer on them is the cost of housing and cars. I can’t afford the house I owned 15 years ago, which would have been good for them as a first home…. I feel for them.

Ahhh ... I see those words quite often from some people and I mean those EXACT words (well very close to those exact words) and when I do I remember back in 1988 when we were driving around with a real estate agent, looking for our first home, inventory was very low, I guess much like it is now and there was no covid to blame it on.
The homes we were looking at were very modest in size, 3br, 1.5 baths, good community, good schools on Long Island.
It was a bear, we were really looking and eager to buy something, get out of our 2 bedroom apartment with our newborn 1st daughter.

Time and time again, our real estate agent ... and she was sincere talked about her own kids too. Told us = " I really feel for young people today trying to buy a house" Everything is just so expensive. This was back in 1988!!!

The bottom line is, homes are always affordable to the public, the ability of the public to pay for the home determines the price of the home.
So we bought a good modest home at the time, sure, needed some work but respectable.

Want to know the price? At the time, that was considered such a hardship for young people? On Long Island NY, (Nassau County) with some of the highest property tax rates in the USA and I would assume top 10 home prices ?

Purchase price for this little fixer upper was $140,000 and the public felt bad for us.
Same house today would list for $500,000+ (depending on condition) and Nassau County property taxes of $11,000 a year (eleven thousand) and you know what?
Its that price because the public can afford it and the young can afford the payment.

 

[alarmguy]

It's the compact that already baked into society. It just means you're too cheap and don't to pay what everyone else pays. Basically government all over the world can take things away from you if you don't pay taxes and even throw you in jail. It's not like there's some other society that you can go to where you don't have to pay.

Lets not forget, we are the government through our voting. If you dont pay your fair share, it gets sold to someone who will.

 

[DwightFrye]

I suspect a lot of what happens with home purchasers and 30 year mortgages is that they start with a 30 year loan because that's all they can afford for a monthly payment, and over time if they are making more income they end up spending it on other things thinking "oh, $2000 a month for the house payment is nothing, I can spend money on X, Y and Z too".

Then they don't bother refinancing when the rates drop or making bigger or extra payments to pay off the loan in a shorter period of time.
People are their own worst enemies sometimes.

 

[PimTac]

The general public is not educated on finance.

It’s a sad truth. Families should be more aware and educated on finance and the education is out there. Yet they don’t take advantage of it.

Seeing what comes out of the public scrools, I wouldn’t trust them to teach it either.

 

[Dave Hess]

I suspect a lot of what happens with home purchasers and 30 year mortgages is that they start with a 30 year loan because that's all they can afford for a monthly payment, and over time if they are making more income they end up spending it on other things thinking "oh, $2000 a month for the house payment is nothing, I can spend money on X, Y and Z too".

Then they don't bother refinancing when the rates drop or making bigger or extra payments to pay off the loan in a shorter period of time.
People are their own worst enemies sometimes.

I agree, but many people want to enjoy that extra money than pay extra every month on mortgage.

 

[dareo]

30 Year vs 15 year, at least for me, and in this current time where 15 and 30 year rates are nearly identical:
Being self employed and also a short term stock trader my income varies wildly, so reducing mandatory monthly bills is nice. Anytime i want i can dump extra money into the loan. That payment being as low as possible insures i can more easily keep the house if hard times hit.

I just saw a 2007 condo 3/2, that i know sold for only $170k when they were new. It just hit the market at 395k! Let's say your the OG buyer with 20k down or 150k total mortgage:

15 year Mortgage: You just paid it off and can collect the full sale proceeds. You paid $400/month extra for this shorter term.
30 year mortgage: You owe $96k if your original rate was 4% and you never refinanced or put anything extra down. You still collect nearly $300k from the sale. You put that $400/month into conservative investments that yielded only 8% or 2x your loan rate and now have $139k in your portfolio.

To be fair, most people don't stay in a home 15+ years. Sometimes they move in 3 or 6 or 9 years. Often the price of the home stays flat or might even go down. IF you bought that same condo today for $395k, a high price imo, you might not have much equity inside of that 3-6 year range regardless of 15 vs 30 year. Beyond the short term you can expect the value to go up, the loan balance to go down and your income to go up. That 30 year loan gets effectively smaller as inflation pushes your earnings up, assuming you get raises.

In short, do the math for your situation, make a grown up decision and don't waste the rest of the money you save on a 30 year and you'll be fine.

 

[javacontour]

Ahhh ... I see those words quite often from some people and I mean those EXACT words (well very close to those exact words) and when I do I remember back in 1988 when we were driving around with a real estate agent, looking for our first home, inventory was very low, I guess much like it is now and there was no covid to blame it on.
The homes we were looking at were very modest in size, 3br, 1.5 baths, good community, good schools on Long Island.
It was a bear, we were really looking and eager to buy something, get out of our 2 bedroom apartment with our newborn 1st daughter.

Time and time again, our real estate agent ... and she was sincere talked about her own kids too. Told us = " I really feel for young people today trying to buy a house" Everything is just so expensive. This was back in 1988!!!

The bottom line is, homes are always affordable to the public, the ability of the public to pay for the home determines the price of the home.
So we bought a good modest home at the time, sure, needed some work but respectable.

Want to know the price? At the time, that was considered such a hardship for young people? On Long Island NY, (Nassau County) with some of the highest property tax rates in the USA and I would assume top 10 home prices ?

Purchase price for this little fixer upper was $140,000 and the public felt bad for us.
Same house today would list for $500,000+ (depending on condition) and Nassau County property taxes of $11,000 a year (eleven thousand) and you know what?
Its that price because the public can afford it and the young can afford the payment.

I see what you are saying. The only time I've borrowed against the house was when the court said I had to buy out my ex-wife and give her her share of the equity in the marital home. Of course she didn't get much as she still owed her first lawyer who sold her a bill of goods regarding how much I'd have to pay, etc.

It ended up being cheaper to pay $1k/month in child support than remain married to her cheating @##.

But yeah, I see people who have taken that equity. I hear the commercials on the TV or radio suggesting the same, etc.

And yes, that home was about 1/3rd of what we could afford on only my pay.

I think our current home is less than 1/2 of what I could technically afford on my salary only. Never felt the need to spend as much as they say we could both afford to spend.

oilBabe plans to retire in June 2024, and we will probably sell and downsize as we don't really need 4 bedrooms and 27xx square feet for the two of us.

 

[alarmguy]

...

oilBabe plans to retire in June 2024, and we will probably sell and downsize as we don't really need 4 bedrooms and 27xx square feet for the two of us.

We are in that same scenario! We talk about it a lot, when we moved south 15 years ago we had this house built for (what I feel)a song and a dance compared to Long Island NY where we moved from, and its a NICE house, we are sq footage (3000) 5brs open airy REALLY high ceilings ... kids grown, moved out on their own.

We just dont know, we think about Florida sometimes with less sq footage, (love the idea of northern Florida) and we think about staying in this area with less sq footage.
Our kids are within 1 hour for one 2 hours for the other and always will be so that is the tough one for me to move further to Florida, though we can do that with a 5 our car ride from where we live.

Anyway, as much as we look around here, prices have ballooned for what you get at reduced sq footage (and reduced features/construction materials) and as much as we thought we like moving to a new home again, we REALLY got used to having all this room *LOL* and if we stay local we feel we may pay the same price for a smaller home then what we are selling because the smaller home would be brand new.
We planned we would retire one day when we had this one built with the master on the main floor and other 4 brs on the second, of which one of them is a really nice personal home office for my wife and I, we love the room, two computer stations, printers. file cabinets ect.

Right now my wife has a work station from her company nicely fit into another one of the bedrooms which was my daughters bedroom (now moved out and still all her furniture in there and useable for a bedroom) leaving only 2 unused ones but nice to know if guests every stop by we do have hose two nice extra bedrooms also nicely done.

Anyway ... we love our house and not sure what we will do after all we do live in SC now, costs are low. Its central to our children and central to the mountains and ocean. The smaller new home prices have skyrocketed and not so sure how much more the large homes have gone up in value but maybe more than I think, we are in strange times right now coming out of Covid.

Besides FL we do think about a smaller home near the coast of SC and attractive idea but again at a cost that is almost lateral to what we have here. Either way, we love looking at new homes, that is part of the problem! *L* There is something to be said of 15 years in home ownership and not having anything break when buying new. We are at the stage of doing some small upgrades, carpet, small facelift for the kitchen stuff like that. Oh... and paint which is ongoing.

Would you be staying in Illinois?

 

[javacontour]

We are in that same scenario! We talk about it a lot, when we moved south 15 years ago we had this house built for (what I feel)a song and a dance compared to Long Island NY where we moved from, and its a NICE house, we are sq footage (3000) 5brs open airy REALLY high ceilings ... kids grown, moved out on their own.

We just dont know, we think about Florida sometimes with less sq footage, (love the idea of northern Florida) and we think about staying in this area with less sq footage.
Our kids are within 1 hour for one 2 hours for the other and always will be so that is the tough one for me to move further to Florida, though we can do that with a 5 our car ride from where we live.

Anyway, as much as we look around here, prices have ballooned for what you get at reduced sq footage (and reduced features/construction materials) and as much as we thought we like moving to a new home again, we REALLY got used to having all this room *LOL* and if we stay local we feel we may pay the same price for a smaller home then what we are selling because the smaller home would be brand new.
We planned we would retire one day when we had this one built with the master on the main floor and other 4 brs on the second, of which one of them is a really nice personal home office for my wife and I, we love the room, two computer stations, printers. file cabinets ect.

Right now my wife has a work station from her company nicely fit into another one of the bedrooms which was my daughters bedroom (now moved out and still all her furniture in there and useable for a bedroom) leaving only 2 unused ones but nice to know if guests every stop by we do have hose two nice extra bedrooms also nicely done.

Anyway ... we love our house and not sure what we will do after all we do live in SC now, costs are low. Its central to our children and central to the mountains and ocean. The smaller new home prices have skyrocketed and not so sure how much more the large homes have gone up in value but maybe more than I think, we are in strange times right now coming out of Covid.

Besides FL we do think about a smaller home near the coast of SC and attractive idea but again at a cost that is almost lateral to what we have here. Either way, we love looking at new homes, that is part of the problem! *L* There is something to be said of 15 years in home ownership and not having anything break when buying new. We are at the stage of doing some small upgrades, carpet, small facelift for the kitchen stuff like that. Oh... and paint which is ongoing.

Would you be staying in Illinois?

Probably not IL. The only reason we bought here was to stay near to my daughter. Her ex-husband was Navy so she could move pretty much anywhere.

Now that the kids are all adulting, no real limitations.

The short term plan is to remain in the STL metro, and probably the MO side, say Jefferson County until I retire, unless I can nab a similar position say in TN when Oracle opens it's new offices there. I'm thinking I've got 6-7 years before I feel like I'm set to retire from this job. Probably still have to work for benefits for a few years, but I won't have to pull afterhours on-call rotations and the like. Just something that is a median wage job with benefits to not tap Social Security for a few more years.

Both my mother and grandmother are still alive, grandmother turning 98 this year. My grandmother may outlive my mother. Mother would be what keeps me here for a while. For oilBabe, her mother lives a couple of hours South of here as well, making JeffCo MO a good interim spot for us.

The long-term plan is probably out West. We looked at MT and ID this past summer for our 9 months / year place. Spent the MLK weekend in AZ looking at it as a potential wintering location. We do think we could do Jan-Mar in AZ or a similar location, while spending the rest of the year further North.

We already have one kid in Seattle, and expect the others to move out West. The other is going to spend a week with his sister already there, presumably looking at jobs. He now has 3 years of programming experience and could probably get a decent job in that area if he wanted to.

The youngest (my bio child) is still looking to find her way, but she's 23 and has her undergrad degree. It's just a question of where she wants to live. I think she feels tied here because of her maternal grandmother, so we shall see where and when she goes.

 

[Revving2Redline]

Well it's just my opinion but it should be avoided as much as possible. As my grandparents would say back in the old country sometimes you see people walk around missing extremities for owing debt. My dad's parents lived in the Middle East and you should see what they do to people who steal. I don't like owing money and I fight like the Dickens to get it paid off and paid down. It's kind of like people in their student loans. They signed an agreement to pay it off. My daughter signed an agreement and after she's done with her tour then Uncle Sam's Misguided Children will pay for her to go to college. You can lose a lot of friends owing money and if you owe a certain amount of money to the wrong people then you can lose more than just a friendship.

 

[CharlesInCharge]

Easy debt has caused prices to skyrocket - medical (more due to insurance, but it is related), housing, and student loans, vehicle loans, and consumer products are examples. People tend to consume less or eliminate consumption when THEY must front the cash. Deferred payments make consumption increase, which allows prices for goods to increase. Also, merchants sometimes have to absorb the 2% CC fee unless they pass it along. Either way, the consumer is paying more for goods for the use of CCs, whether directly or indirectly.

Debt is somewhat necessary, a necessary evil to an extent. It is a ying-yang of the economy because our capitalism requires consumption. You and most of us probably work in jobs that require others to buy things they cannot or should not buy/afford or otherwise reduce consumption thereof. So we all pay for debt, but all benefit in some ways.

If we returned to a cash society, we'd see a radical shift in consumer behavior with many people deferring or eliminating consumption. Colleges would have to stop over-charging, revert to a reasonable price for services, and stop building lavish campuses of self praise if people had to pay cash. Forcing kids into $100,000 loans for an education is wrong, predatory, and irresponsible.

Debt can be a excellent tool for convenience, time-saving, life changing, shopping safety, etc. I doubt I'd ever be able to own a real house but-for a loan. I'd work my entire life to save enough to buy a proper house, although in a cash situation house prices might remain suppressed. No doubt house prices inflate with easier credit and lower rates. But like many have said it has to be used responsibly.

 

[Silver]

Hop on down to the stealership and get you a 10 year mortgage on that new Chevy. Better get the extended warranty too!

 

[Ws6]

Might be a silly question, as none of us really "want" debt, but I think many of us have a different feeling about it.

Some people are personally comfortable with carrying balances on credit cards, financing a washing machine, having 2-3 car loans, mortgage, RV loan, etc. and they are doing ok. Maybe if you get a low enough interest rate, why not kind of thing?

Others will only pay cash for anything and balance their checkbook to a T.

I was lucky enough to graduate college without debt, and owe nothing except my current credit card statements. I charge everything on a credit card for the points, and pay them off every month. I've never paid credit card interest before. So I guess I'm not real comfortable with debt. I had most of the Tesla financed, it was by far my biggest ever purchase. But with the massive fuel savings, I didn't see it as being all that bad, the car just didn't work out. I guess I'm proud of being debt free, but I don't have my own house yet. Waiting for the market to hopefully crash before I make that leap. Not holding my breath for that either.

Some debt is good, some is bad. I have lived my life debt-heavy up front. I don't mean that in a sense that I'm financed to the hilt or anything like that, but I mean that I financed instead of putting money down. I bought my house $0 down...because I got a great interest rate. Had I waited and financed today, even with my awesome credit, I would have had to put down probably around $100K or so to be literally exactly where I am right now for payment and purchase price. To save $100K would have taken me a few years, and wasted money on an apartment, and gotten me...nothing. Literally nothing. At $0 down I have a 78% LtV ratio right now. Why? Because I'm smart with purchases like that and didn't adhere to "Pay cash! Put money down!" because I looked at the big picture.

Some debt is bad. Credit card debt is a tool you can use to boost your credit score early on, but after you have different types of loans you've been paying on for a few years, carrying a balance is bad. It's high interest, and it's likely nothing special you couldn't have saved for. Sure, sometimes emergencies happen, sometimes in succession, but CC debt is not good, and not okay.

Also consider that fixed rate loans on appreciating assets are just leveraging OTHER people's money as your own, and then inflation-proofing it. It's actually what I consider dumb NOT to do. Buy that land (fixed rate)! Buy that house! It's someone else's money that you're investing with YOU being the beneficiary, AND inflation-proofing it! You're literally being paid to use things that other people's money have made accessible to you! It's insane not to do this. My $0 down house? If I chose, I could sell it, profit over 20%, pocket all but the taxes, and have been PAID to live in it for years. All at zero expense to myself (that I didn't recoup with sale). This fear of debt came from Boomer parents who grew into adulthood during a time of 15-20% mortgage rates, and I can see their point absolutely! Times have changed, though, or rather, they had...I know where we're headed, though, and I feel bad for the "savers", because increase in prices have already eliminated their "money down" or more, in many cases, and now they're going to pay that 5.5-6.5% fixed 30 or 4.5-5.5% fixed 15. OOF! So ReSpoNSiBLe To SaVE Up!

 

[Lubener]

The only debt for me was a home mortgage without PMI which I paid off early.. Never had any other form of debt and never will. It's very difficult to have any financial security later in life if all you had years prior was debt. I would never buy an automobile on time or lease. I buy what I can pay cash for.

 

[K-Man]

I see what you are saying. The only time I've borrowed against the house was when the court said I had to buy out my ex-wife and give her her share of the equity in the marital home. Of course she didn't get much as she still owed her first lawyer who sold her a bill of goods regarding how much I'd have to pay, etc.

It ended up being cheaper to pay $1k/month in child support than remain married to her cheating @##.

You're the only one in this thread who has brought up what can go bad with spouses. Really bad debt is the kind someone else runs up for which you become responsible.

I see plenty of stories about people getting married who find to his/her surprise that the new spouse hid massive credit-card and student-loan debt from them until after the marriage—knowing how their significant other felt about debt. The one who was surprised then has to figure out how to pay off "our" debt. Other stories talk about a spouse who secretly got multiple credit cards and max'd them out, leaving the other to pay them off—and then the guilty spouse gets more credit cards and debt. Still other stories talk about one spouse being ordered in divorce to pay the debts of the other, including student-loan debts.

This stuff is real. It happens. In many states debt will become "community" debt and both spouses become liable even if only one ran it up. Those states don't have to be among the community-property states, which are mostly in the western US.

Your spouse, whether female or male since either can be guilty of irresponsible behavior with debt, must be on the same page as you, and you have to make sure of this before tying the knot. You can talk about disliking debt all you want, but stay on guard against the possibility that your spouse suddenly pops up with $40K in credit-card balances owed and overdue.

 

[PandaBear]

You're the only one in this thread who has brought up what can go bad with spouses. Really bad debt is the kind someone else runs up for which you become responsible.

I see plenty of stories about people getting married who find to his/her surprise that the new spouse hid massive credit-card and student-loan debt from them until after the marriage—knowing how their significant other felt about debt. The one who was surprised then has to figure out how to pay off "our" debt. Other stories talk about a spouse who secretly got multiple credit cards and max'd them out, leaving the other to pay them off—and then the guilty spouse gets more credit cards and debt. Still other stories talk about one spouse being ordered in divorce to pay the debts of the other, including student-loan debts.

This stuff is real. It happens. In many states debt will become "community" debt and both spouses become liable even if only one ran it up. Those states don't have to be among the community-property states, which are mostly in the western US.

Your spouse, whether female or male since either can be guilty of irresponsible behavior with debt, must be on the same page as you, and you have to make sure of this before tying the knot. You can talk about disliking debt all you want, but stay on guard against the possibility that your spouse suddenly pops up with $40K in credit-card balances owed and overdue.

This is why marriage is a matter of a match and honesty. You cannot just marry someone you like or someone who loves you, but also someone you are on the same page with in life goal, whether it is spending it all before dying or saving it for the next generation (yours or everyone's). It is a disaster if they conflict each other.

 

[Tdbo]

I'm with the group that feels that debt is a useful tool if used properly.
My house is totally paid for. I have a 25K HELOC for emergencies. Current balance is zero.
I do have a note on the Pilot. Took advantage of 0.9 financing after I negotiated the best price possible. Put 57% down on it to get payment down to the point that it could be comfortably absorbed into my budget, and conserve investment capital. Owe about 9.4K on it.
I use credit cards for the rewards, convenience and chargeback benefits they provide. I pay them off at the end of every month.
I do have a current exception. I put $757. worth of tires on the Mustang at a Chrysler dealer.
Rationale: Tires were buy three ($1 cheaper per tire than DTD) get the third for $1. Made the tires $143. each vs. DTD's $192.
I got an additional $100. off for opening a Chrysler MC, plus 6 mos. SAC.
I'll probably use 3 or 4 of those months to pay the tires off, so I can dollar cost average the cost into my budget.
Probably never have a use for the Chrysler charge again, as all the benefits are geared toward Chrysler owners.
However, this is an example of how debt can be a useful tool, especially if it can be used in conjunction with self discipline, to prudently manage money and leverage opportunities to save money and conserve capital.