How do you feel about debt?

[99Saturn]

Doesn't make me uncomfortable - as many others have stated there's a risk tradeoff, and clearly the interest rate matters. We also tend to stay very much within our means, don't tend to be scratching the itch for a new car, etc.

I was happy to graduate higher ed with student loans, while funding an IRA, 401K and/or brokerage. I'm happy to carry a mortgage given our interest rate and throw the money not being used into an IRA, 401K, brokerage, etc. In an oversimplified sense its a interest rate versus a 30 year return on something like VOO to me.

 

[Pablo]

As others have pointed out. CREDIT CAN be used wisely.

For example no way would I use my CASH to buy and hold two houses. Would make little sense. One house? OK.

I have not bought a vehicle with credit since ever. I buy new and hold. But I save the money. Then I maintain and hold a good long time, unless the car burns me bad as the WRX did. Point being I just don't think borrowing for a car makes sense, unless maybe 0-1% or something and still it's a PITA.

As for day to day and even hired help, larger products/projects. Fidelity Visa Signature Rewards (paid in full every month) has been very very good to us in points and CASH right into an savings/investment account.

 

[alarmguy]

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

Debt is for people too immature to save their own money to buy things.
I liken it to being a child, there was always that kid that never had a enough money when you were out with him and always had to borrow money and promise to pay it back.
It just makes no sense for the majority to borrow money from someone because you were too immature to save it or not mature enough to wait until you can afford it. Lets be real the "someone" is banks now. Like hello, how to people think these banks build huge castles in the skies? Invest money like crazy, make billions in the stock market? Easy, the public pays them on the loans they take out.

I can see one exception, housing but even then, people buy more then they can afford to pay back in 15 years so they take out a 30 year loan and for the first 15 years of of payments on that 30 year loan they still owe almost the same amount of money, all they did was pay the interest on the loan, now in years 15 to 30 they will start paying off the house! *L* Its laughable pay off double the amount of money that they borrowed because they didnt want to work hard or do without luxuries to pay it off in a mature way over 15 years.

I think most of this immaturity is only due to the lack of public and private education when kids are in grade school, that will never change, the financial institutions will make sure the public is never educated or they will go out of business.

This nation is hooked on debt and sooner or later, it will all fall down. Go ahead, flame me!

 

[Cujet]

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.

During periods of high inflation coupled with a stagnant market, a well purchased home with a low interest rate mortgage is a good thing. There are times where debt, even in large amounts, is a non issue.

I don't have any debt, own my home and cars/airplane, etc. I am concerned that my investments won't match inflation and the end result is a net loss of wealth. Right on the cusp of retirement. I expect a market correction, coupled with inflation in the near future, and I don't see any viable methods of wealth preservation.

 

[JeffKeryk]

Are we talking about debt or credit? They are 2 different things.

Credit is using other people's money to purchase an asset. That asset can be appreciating or depreciating. Sometimes both over the long run.
Debt is oweing more than the sum value of your assets.

Owner's Equity = Assets - Liabilities.

 

[supton]

This nation is hooked on debt and sooner or later, it will all fall down. Go ahead, flame me!

While I agree we are hooked on debt and it will bite us eventually, I have to wonder if the falling down will happen. Civilizations rise and fall, but usually not that quickly. Over the last 20 years of my adult life I’m not sure how many recessions, dips and bailouts I’ve seen.

There are those who head to the hills as “preppers”. I mean no disrespect to them, as they keep various skills and knowledge alive: but how many decades have these people been around, and was it worth whatever they stockpiled if they never got around to using it? If it makes them happy, then fine. But was it worth it?

 

[alarmguy]

Are we talking about debt or credit? They are 2 different things.

Credit is using other people's money to purchase an asset. That asset can be appreciating or depreciating. Sometimes both over the long run.
Debt is oweing more than the sum value of your assets.

Owner's Equity = Assets - Liabilities.

" sum value of your assets"
The only problem for the less informed is "sum value of your assets" is only determined at the time they are dispersed. (sold)
Its like the stock market "unrealized gains"
An example, if, however unlikely (though it has happened) runaway inflation increases mortgage rates to 9%, home prices will get slashed accordingly by, what? 25% at least? Stock market by 35%? All could however unlikely happen in the next 12 months.

Above is just an example but debt based on assumptions is never safe for the majority of the population, only the smart which is 10%? 20%? benefit and some of those people are right in this forum~!

For others (not you) the cost of a home is always the same payment mostly. Its just a matter of who is getting the money, the bank in interest OR the seller in home price. The payments are always and only what the public can afford to pay, just a matter who is getting what portion of the payment. So for those companying of home prices, the payment isnt any higher then if the home price was lower, you would jsut be paying more interest. Supply and Demand / what the public can afford sets the payment.

 

[MasterSolenoid]

I HATE debt.
I paid my 15 year mortgage off in 12.5 years.

Because of the pandemic, I put every purchase on a credit card (2% cash back).
Credit card set up for auto pay - I have never paid interest.

When a business hands me a receipt, I ALWAYS make sure 'balance due' is $0.

I also manage my money as to NEVER pay bank fees.

I say, "manage your life like a business, do you want it to fail or be a sucess?"

 

[GrtArtiste]

I won't burden this thread with the hows and whys of my incurring large credit card debts. Suffice to say that only about 25% of it was what I would call very unwise (hey, I'm not perfect) but the rest was because I felt at the time that I had no better alternatives. My accounts have always been current and my CR was 745 the last time I looked. What bothers me is that if the banks had been charging anything close to a reasonable interest rate (10% ?) my debts wouldn't be nearly as large as they are. I know that people like me are being charged 24% because so many others have walked away from their debts. And I know the banks are somewhat greedier than they used to be and gross mismanagement of some hasn't helped.

 

[jstert]

debt is slavery. sure, some business and mortgage debt may well be financially useful, but like all debt it is best retired as soon as possible. credit card and car loan debts are toxic and best avoided. above all live well within your means and tell usurers to bug off.

 

[MasterSolenoid]

Not to get off topic, but -
People will complain about how much interest they will pay on a 30 year mortgage.
I say, "save your money and invest it and see how much interest you will earn after 30 years".

 

[supton]

Not to get off topic, but -
People will complain about how much interest they will pay on a 30 year mortgage.
I say, "save your money and invest it and see how much interest you will earn after 30 years".

Problem is, you have to live somewhere during that 30 years. If you can keep the payment close to rent, is it all that bad? even if higher than rent, it still does something for you as the years go by.

 

[B1974]

Payed house off in 2012 after 9 years (25 year mortgage) by paying double the principle every two weeks and selling my toys (1996 VFR750 and 1999 CBR1100XX). Vehicles are all paid for and credit cards ALLWAYS paid in full at end of month.

My bank account has great growth every month.

 

[Hermann]

Luckily and through planning I have no debt that incurs interest charges. On a rare occasion I will do a 6 or 12 month no interest deal. Nebraska Furniture Mart is an example. My car and home are paid for. On purchases on my B of A Cash Rewards card for example last month earned me $36. 23 in rewards which I transfer to savings every month. I paid off my home in 2017 and while still working I used that $700 a month to add to my stock market account. Mostly I have Apple and the SPY. These stock have nearly doubled since purchased. These are investment stocks, not trading stocks. Right now I am enjoying some of my good fortune and planning. Notice I mentioned planning first and last. That's what it takes IMO to be successful. YMMV

 

[Bud]

Before retirement I had debt. Retired at 60 debt free and stay that way. I have two credit cards and use them for everything, and the balance gets paid in full monthly. American Express gives me 3% back on groceries and 2% back on gas. My Visa for everything else.

 

[MasterSolenoid]

Problem is, you have to live somewhere during that 30 years. If you can keep the payment close to rent, is it all that bad? even if higher than rent, it still does something for you as the years go by.

Oh, I agree with you.
Nothing wrong with paying a mortgage.
But alot of people don't think about compounding to benefit themselves (as in saving money).

 

[eljefino]

I am concerned that my investments won't match inflation and the end result is a net loss of wealth. Right on the cusp of retirement. I expect a market correction, coupled with inflation in the near future, and I don't see any viable methods of wealth preservation.

If you are in the same boat as everyone else though your buying power will remain comparable.

Using money as a store of value short-changes the rest of the economy in which that money could be doing something.

Everyone says, well my IRA is doing great I can buy X. Well, it's true when you actually buy X but until then it's just a fantasy. If X remains just a little out of reach, that's because your competitions IRAs are doing as well as yours.

 

[JeffKeryk]

Oh, I agree with you.
Nothing wrong with paying a mortgage.
But alot of people don't think about compounding to benefit themselves (as in saving money).

If you are paying rent you are paying someone else's mortgage.
At least if you buy a property, there is a chance you will see appreciation.
And ya gotta have a place to live, right?

I can tell you, having a home free and clear, especially when housing prices continue to escalate, is a great feeling.

 

[pghvolvo]

Most people don't realize that debt isn't a problem in the good times. When the economy starts to slow and people are getting laid off is when debt will destroy many peoples lives. Us older guys can tell you the stories from the late seventies and early eighties of what happened to people who were in debt. I remember seeing a story on the news of a steelworker who was going to lose everything when the mills started closing around the area. They showed his house and two cars out front while interviewing him. That home today is a $250K to 300K house today and the two cars were at most a year or two old and of course he and the wife were making payments. Back then he was making great money ($40K-$50K plus) six figures in today's money.

We saw the same thing happen in 2007-2012, when those people and companies that were sitting on a lot debt had to go bankrupt to get out of it.

The elephant in the room today that wasn't there twenty years ago and later is the trillions in student loan debt that people under thirty five have acquired. That problem escalated when the Government waved payments due to the Covid shut down and these individuals took on more debt because they didn't have a student loan payment. The payments were suppose to start back up Feb 22 but the Government just kicked that can down the road into the fall of 2022. I read somewhere that over 80% of the people with said debt would be financially destroyed if they had to start making payments on their student debt. They don't have the jobs capable of supporting them financially while having to make their student loan payments.

Here's where it gets worse for these people, they may had waved the payments but the interest is still racking up on their student loan debts. The other issue is you can't not use bankruptcy to eliminate your school loan debt.

Mortgage debt is still debt. You should be striving to pay off the house as soon as you can. Even an extra $100 a month towards the principle is equal to 24,000 off your mortgage principle over 20 years. I still can't understand those people who use their homes as piggy banks every time they need money. Second mortgages and home owner lines of credit have got to be one of the dumbest things you can do.

Remember when home prices fall due to a bad economy you don't want to one of those people who needs to sell today with your home that is mortgaged to the hilt as they say.

Laugh as you will at the Preppers but those people know what's going on and are making sure that they have their living expenses at the lowest possible rate and carrying zero or as low amount of debt as they can.

 

[CKN]

I had several mortgages at one time. Bought investment property. The rents covered the mortgages. They have been paid off for years and now provide retirement income-allowed me to retire at 55 years of age.