How do you view debt?

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ctreada
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How do you view debt?

Post by ctreada » Mon Aug 22, 2016 2:19 pm

Curious how people on this board view debt.

It can work for you or against you obviously. You can lever up in real estate -- although not as much as you used to be able to -- and generate a lot of equity. Or you can be stuck needing to move with an illiquid asset and/or with a house you hate.

Just curious how the fine, intelligent folks on this board view debt as a risk/opportunity. It seems like half the posts here are congratulatory about getting out of debt, and the other half are perfectly fine with a lot of debt.

stoptothink
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Re: How do you view debt?

Post by stoptothink » Mon Aug 22, 2016 2:24 pm

I'm extremely debt averse, to the point where I pay off our credit cards multiple times a month, even though I have never paid a penny of interest. It took me ~15yrs to complete my education (BS, MS, and PhD) because I was determined to never take out a loan (successful). We also are paying off our mortgage at an accelerated rate, so that we'll have it paid off in ~8yrs. After that, don't plan on ever borrowing for another purchase again. I understand the illogical nature of my views and that I am literally leaving money on the table buy not utilizing debt, but I guess it comes from growing up very poor and being surrounded by people up to their eyeballs in debt.

grettman
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Re: How do you view debt?

Post by grettman » Mon Aug 22, 2016 2:27 pm

stoptothink wrote:I'm extremely debt averse, to the point where I pay off our credit cards multiple times a month, even though I have never paid a penny of interest. It took me ~15yrs to complete my education (BS, MS, and PhD) because I was determined to never take out a loan (successful). We also are paying off our mortgage at an accelerated rate, so that we'll have it paid off in ~8yrs. After that, don't plan on ever borrowing for another purchase again. I understand the illogical nature of my views and that I am literally leaving money on the table buy not utilizing debt, but I guess it comes from growing up very poor and being surrounded by people up to their eyeballs in debt.
+1,000

bigred77
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Re: How do you view debt?

Post by bigred77 » Mon Aug 22, 2016 2:29 pm

I view it as a tool to be used (or not) based on individual circumstances.

Low interest, tax deductible, non-callable debt (like a mortgage) used prudently by someone still in their prime accumulation years... seems reasonable.

High interest (credit cards) or callable (margin) debt are probably best avoided. Debt used to increase discretionary consumption should probably be avoided.
Last edited by bigred77 on Mon Aug 22, 2016 2:43 pm, edited 1 time in total.

Texanbybirth
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Re: How do you view debt?

Post by Texanbybirth » Mon Aug 22, 2016 2:41 pm

Almost always like the plague, except credit card debt that we pay off each month. (I can't recall ever paying CC interest.)

My mortgage is like a giant gorilla riding on my back. Financially, I know it makes sense. That doesn't help the feeling, though. I can't wait to post about paying off my mortgage, if BH/the internet exists in 28 years. :D

I (pray that I) will never take out an auto loan again. We've paid for three straight cars with cash.

I guess it also comes from growing up in a blue collar household. I didn't have a lot of fun helping my dad haul around phone books to earn cash on summer break. I hope to take steps to avoid that. (Thanks to both of my parents for their hard work in raising us.)
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TexasMu
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Re: How do you view debt?

Post by TexasMu » Mon Aug 22, 2016 2:45 pm

grettman wrote:
stoptothink wrote:I'm extremely debt averse, to the point where I pay off our credit cards multiple times a month, even though I have never paid a penny of interest. It took me ~15yrs to complete my education (BS, MS, and PhD) because I was determined to never take out a loan (successful). We also are paying off our mortgage at an accelerated rate, so that we'll have it paid off in ~8yrs. After that, don't plan on ever borrowing for another purchase again. I understand the illogical nature of my views and that I am literally leaving money on the table buy not utilizing debt, but I guess it comes from growing up very poor and being surrounded by people up to their eyeballs in debt.
+1,000
X2

MathWizard
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Re: How do you view debt?

Post by MathWizard » Mon Aug 22, 2016 2:57 pm

Debt is leverage, and amplifies risk, so I avoid it in general.

I only use debt when there is something far more valuable that the debt can allow me to do.

1) Higher Education: I used debt to get myself a PhD, increasing my human capital greatly.

2) Car: In grad school, I was teaching and needed a more reliable car. I went into debt on that car.
Similarly on a car when my car died in the last years of grad school. Here the debt was short term so that I could
continue to make money. Those are the only 2 cars I've ever financed.

3) Marriage: Again in grad school. Had to borrow money to pay for the wedding ring set. My marriage is worth much more
than the small amount of money I spent.

4) House: I bought a fixer-upper in a good school district, next to an elementary school. My kids got a great education.
We are considering paying off the house now, 17 years into the original 30 yr note (have refi'd several times).
If we do, we'll be out of debt completely.

As with stoptothink, this may come from growing up poor, and not ever feeling like I had a safety net. I am much more
financially concious than someone whose parents could support them in a pinch without much strain, as I could my children.

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ruralavalon
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Re: How do you view debt?

Post by ruralavalon » Mon Aug 22, 2016 2:59 pm

My two cents.

Incurring debt is like spending money that I haven't earned yet.

Carrying high interest debt is aweful, to be paid off rapidly at all costs even if it hurts.

Our family home was a large old house, which needed a lot of fixing and updating when we bought it.

We have never bought a brand new car, anytime that a car needed to be replaced there was always a higher priority for our money (like college tuition for children).

Being debt free is awesome.
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Re: How do you view debt?

Post by nisiprius » Mon Aug 22, 2016 3:08 pm

Image
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mhc
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Re: How do you view debt?

Post by mhc » Mon Aug 22, 2016 3:10 pm

Debt is a necessary evil when first starting out. I view it as a form of slavery that I try to avoid. I set a goal to be out of debt by age 40, and I have not been in debt since.

It can be a useful tool if used wisely, but I prefer to avoid it.

imabeliever
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Re: How do you view debt?

Post by imabeliever » Mon Aug 22, 2016 3:17 pm

just depends i guess.... not all debt is 'evil/bad', and like most things in life, moderation is probably the best choice :)

car loan 0% = good debt, if one is going to purchase a car (new) and has the means to pay for it. why not? that's "free" money.

credit card debit 15-20% APR = bad debt.

home equity loan @ 4-5% to pay off cc debt = good debt (and don't do that again on your cc!) ;)

those are pretty generic and vague examples, but there you go... not all debt is bad. it is what kind of debt, how much of it do you have, and what/why are you accumulating it?
yes you can do this!

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Re: How do you view debt?

Post by HomoLudens » Mon Aug 22, 2016 3:18 pm

ctreada wrote:Curious how people on this board view debt.

It can work for you or against you obviously. You can lever up in real estate -- although not as much as you used to be able to -- and generate a lot of equity. Or you can be stuck needing to move with an illiquid asset and/or with a house you hate.

Just curious how the fine, intelligent folks on this board view debt as a risk/opportunity. It seems like half the posts here are congratulatory about getting out of debt, and the other half are perfectly fine with a lot of debt.
The way I see it debt is a necessary evil.I operate with a presumption of guilt: debt is considered evil until proven necessary. Even if it is proven necessary, it's still on double secret probation (thank you Dean Wormer) in my playbook and we part ways as soon as we can.
"'Thoughts without content are empty, intuitions without concepts are blind." Immanuel Kant

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Re: How do you view debt?

Post by englishgirl » Mon Aug 22, 2016 3:22 pm

Debt increases the amount I have to earn to cover my expenses. As I am approaching the time where I am hoping to quit the "day job" and rely totally on my own business, the flexibility I gain by reducing my fixed expenses as much as possible is worth more to me than most needs I have to buy stuff now. I'd rather save up in advance for something, knowing that if I have a lean month earnings-wise I can have the flexibility to save less that month, than buy something using debt and have to prioritize that debt payment over other things like eating or paying the electricity bill.

I have had a mortgage for 20 years or so, and I'm very happy I'll (hopefully) be living mortgage free from now on. The various mortgages I have had over the years have let me get the point of owning a property, so they have been good for me. But they've also kept me stuck in jobs that I haven't necessarily liked, just to keep paying the high expenses I had created for myself.
Sarah

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ruralavalon
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Re: How do you view debt?

Post by ruralavalon » Mon Aug 22, 2016 3:26 pm

HomoLudens wrote:The way I see it debt is a necessary evil.I operate with a presumption of guilt: debt is considered evil until proven necessary. Even if it is proven necessary, it's still on double secret probation (thank you Dean Wormer) in my playbook and we part ways as soon as we can.
True.

And funny, made me laugh :D .
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Sammy_M
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Re: How do you view debt?

Post by Sammy_M » Mon Aug 22, 2016 3:31 pm

I don't view debt as evil, it's just a slippery slope that a lot of people use unwisely.

My general guidance would be:
Don't buy what you don't need.
If you use debt, maintain ample liquidity.
Pay down/off any debt that is > Prime + 3%. Then fund your retirement accounts.
Pay down/off any debt greater than prime + 1%. Then start investing in taxable.

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Re: How do you view debt?

Post by DetroitRick » Mon Aug 22, 2016 3:40 pm

I view it as bigred77 says above, as a tool. It all depends what I need it for. Through most of my life, I've had some - student loans, insurance loans, auto loans, mortgages. My debt level has never been controlling, or over what I feel is modest. Right now it happens to be quite low.

I have always religiously avoided credit card debt because of, particularly these days, obscenely high rates. However, I would be perfectly willing to take a mortgage loan at today's rates, even in retirement under certain circumstances.

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Re: How do you view debt?

Post by pennywise » Mon Aug 22, 2016 4:16 pm

mhc wrote:Debt is a necessary evil when first starting out. I view it as a form of slavery that I try to avoid. I set a goal to be out of debt by age 40, and I have not been in debt since.
+1

In general debt=servitude, since when you owe you have a financial master that must be obeyed. Both my husband and I far prefer to be debt free and so that is how we have always tried to live our lives. We own our home with no mortgage hanging over us, we buy new cars for cash (but only once every decade or so), we pay the credit card bill in full each month. We save enough that emergency expenditures can be paid for immediately. We postpone major projects until we have the money to do them with cash.

And so we are free. We could walk away from work tomorrow and live comfortably for the rest of our lives with a roof over our heads and a miniscule overhead because we don't do debt. Perhaps theoretically we aren't playing the financial leverage game but we're completely satisfied with never owing anyone anything.

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prudent
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Re: How do you view debt?

Post by prudent » Mon Aug 22, 2016 4:23 pm

I understand the concept of how debt can be useful but we do not want to be in debt for any reason. It's not for us.

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Re: How do you view debt?

Post by michaeljc70 » Mon Aug 22, 2016 4:24 pm

I look at the opportunity cost. If you say "all debt is bad", I think that is short-sighted. Debt is a tool and needs to be used appropriately.

A couple examples:

Many people can not buy a first home without a mortgage or doing so would take many, many years of saving. During that time they would presumably rent, gaining no equity or appreciation.

Many people cannot start a first business (or subsequent larger business) without borrowing. There could be a big payoff from starting the business (obviously could fail too).

After the age of 25 I never financed a car. However, if the only incentive was 0% for x years, I'd take it as there is no cost to me.

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Re: How do you view debt?

Post by Artsdoctor » Mon Aug 22, 2016 4:28 pm

I don't view debt as inherently evil. I don't know how I could've bought my home without a mortgage or gone to medical school without a loan.

Throughout "accumulation mode," I limited my debt to something that had the potential to appreciate financially (a home, an education). As I near the end of my work years, I'm paying off the mortgage not because I few it as evil, but because I no longer want the expense.

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Re: How do you view debt?

Post by simplesimon » Mon Aug 22, 2016 4:36 pm

I agree with others that debt is a tool but I view most personal debt as bad since average people use it to finance consumption (bigger car, house, vacation, whatever).

I hate that the mortgage markets have pushed property values sky high in my area. Just because a lot of people are willing to give up future income means I have to too if I want to live in a good neighborhood.

Consumer income does not scale like a business does. Debt for a business is okay in my view.

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blueblock
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Re: How do you view debt?

Post by blueblock » Mon Aug 22, 2016 5:01 pm

Generally speaking, and ignoring some exceptions, debt is BAD.

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Re: How do you view debt?

Post by kaudrey » Mon Aug 22, 2016 5:10 pm

Debt is a financial tool. If you can manage it and still reach your other life goals, nothing wrong with that.

We have two mortgages (we have a rental property) and a HELOC, and a 0% car loan. Cash flows are fine and we save for retirement. My goal is to be debt free in retirement, but see no reason to be that way today.

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Re: How do you view debt?

Post by Dandy » Mon Aug 22, 2016 5:11 pm

Moderate debt to improve your skills and a mortgage on a house you can afford are reasonable uses. I'm not a fan of using debt for leveraging for other real estate or non real estate investments.

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Re: How do you view debt?

Post by Hector » Mon Aug 22, 2016 5:11 pm

I think
- taking student debt is not bad if expected return is better than opportunity cost.
- taking mortgage is not bad if buying is better than renting.
- taking routine credit card debt and paying every month is not bad.
- credit card debt is not bad it if is taken at 0% with no fees.
- borrowing is not bad to make investment or do business if you are certain of making higher return than interest on borrowing.
Last edited by Hector on Mon Aug 22, 2016 5:26 pm, edited 1 time in total.

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Re: How do you view debt?

Post by Dottie57 » Mon Aug 22, 2016 5:17 pm

Debt makes me nervous.

I paid off my mortgage in about 17 years. In 2008 I might have lost my job but not my home.

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Re: How do you view debt?

Post by itstoomuch » Mon Aug 22, 2016 5:30 pm

Depends.
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Re: How do you view debt?

Post by joebh » Mon Aug 22, 2016 5:42 pm

How do you view debt?
I view it as just one factor of net worth.

Without context, debt is neither bad nor good. "Debt free" might be a good thing or a bad thing.
All debt is not equal. For example, Uncle Sam favors some debt but not others. And a particular dollar amount of debt for one person isn't the same as for another.
Debt can be useful, or it can be debilitating.

I have a mortgage, although I could pay it off if I so chose.
I use credit cards and pay off the balance each month, although I could pay cash or use a debit card.

Even most of those who abhor debt have a mortgage.
At various points in my life, I've been totally debt free. Never did I feel the need to scream about it.
Last edited by joebh on Mon Aug 22, 2016 7:05 pm, edited 2 times in total.

Tal-
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Re: How do you view debt?

Post by Tal- » Mon Aug 22, 2016 5:51 pm

Debt is always to be respected and feared.

Beyond that, I have, and am comfortable with a fair amount of debt. We have debt on our primary house, because financially that's the right call for us. We have a HELOC on our house that is waiting for a rainy day. We have debt on my car, because we're paying <2% in interest. We have debt on rental properties because they are still cashflow positive, and a solid long-term investment. I took out a fair bit of debt for college, but that enabled me to have a successful career. And we use our credit card for everything, paying it off each month to capture the incentives.

In all of these situations, debt has allowed us to grow and mature our personal finances, and put us in a far better position than we would have been in if we didn't use debt. But, I think we have been able to do so because we have a healthy respect and fear of debt.
Debt is to personal finance as a knife is to cooking.

cheapindexer
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Re: How do you view debt?

Post by cheapindexer » Mon Aug 22, 2016 6:14 pm

Wonder how much our views on debt will change if we live long enough to see inflation/hyperinflation ...

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Re: How do you view debt?

Post by Ron Ronnerson » Mon Aug 22, 2016 6:18 pm

If the rate is low enough, I don't mind debt. For example, I'd be happy to accept a loan where the rate is low enough that I could earn higher after-tax interest elsewhere. As another example, if an effective mortgage rate (after tax deductions if applicable) is lower than inflation, it may be fine to keep the debt and pay it off slowly. Most debt, however, tends not to have such favorable terms. When it doesn't, I'm for paying it off. Taking out debt to get an education or to buy a house can be very worthwhile also.

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Re: How do you view debt?

Post by dharrythomas » Mon Aug 22, 2016 6:31 pm

Solomon said it best thousands of years ago: The borrower is servant to the lender. Proverbs 22:7

Read and understand "The Richest Man in Babylon"

Debt is dangerous and excessive spening will get you in trouble. You are paying more for your purchases in order to enjoy them sooner. For most people in debt, there is no margin for error. I learned in my mid-20s. We don't live that much worse than the neighbors, though our vacations are often cheaper and I have a great deal less invested in cars.

Be the lender. :wink:

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Re: How do you view debt?

Post by celia » Mon Aug 22, 2016 6:45 pm

We (generally) think debt is bad (except for student loans that advance your career). And we believe a house is not an investment (unless it's a rental). Of course, you still need to live somewhere. :D
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Re: How do you view debt?

Post by Tycoon » Mon Aug 22, 2016 6:48 pm

I avoid debt.
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Re: How do you view debt?

Post by The Wizard » Mon Aug 22, 2016 6:52 pm

A tool it is, yes.
Better to have way more savings than low interest debt.
Good to eliminate all debt as you get older and pay for new cars in cash, for instance.

Bottom line may be how much debt service you have as percentage of income.
Debt service plus other obligations, actually...
Attempted new signature...

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Re: How do you view debt?

Post by Dirghatamas » Tue Aug 23, 2016 1:30 am

Hate debt. Makes me queasy. I realize my position is irrational but there it is. I have only had debt for one thing: my mortgage, in my life. Even that made me uneasy so I paid it off as soon as possible while I was still in my twenties. I drove my beater/ college car after graduation till I could pay cash for a new car. If I were to buy another house in the future, I would pay cash.

I obviously understand the math as to why debt can give you leverage and used sparingly e.g. for mortgage, could be a good idea. One can also use margin for investing. I just can't handle it emotionally.

The flip side is that never having debt probably allowed me to be a more aggressive investor. I have always been 100% stocks for now 24 years. That would have made me nervous during the bear markets of 2002 and 2009 if I also had large debt.

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Re: How do you view debt?

Post by michaeljc70 » Tue Aug 23, 2016 6:53 am

Dirghatamas wrote:Hate debt. Makes me queasy. I realize my position is irrational but there it is. I have only had debt for one thing: my mortgage, in my life. Even that made me uneasy so I paid it off as soon as possible while I was still in my twenties. I drove my beater/ college car after graduation till I could pay cash for a new car. If I were to buy another house in the future, I would pay cash.

I obviously understand the math as to why debt can give you leverage and used sparingly e.g. for mortgage, could be a good idea. One can also use margin for investing. I just can't handle it emotionally.

The flip side is that never having debt probably allowed me to be a more aggressive investor. I have always been 100% stocks for now 24 years. That would have made me nervous during the bear markets of 2002 and 2009 if I also had large debt.
So you see a lot of risk in debt but not being 100% in stocks?

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Re: How do you view debt?

Post by ponyboy » Tue Aug 23, 2016 7:35 am

Whats debt? Havent had any since my early 20's.

I dont like it...I dont like to owe anyone anything...although we're going to buy a house in approx 2 years so that will suck a little. Plan on paying that off as fast as possible.

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Re: How do you view debt?

Post by Better2bWise » Tue Aug 23, 2016 8:02 am

Tal- wrote:Debt is always to be respected and feared.
Many have said debt is like a tool. What kind of tool would you liken it to remove the barrier in your life...a garden trowel, a shovel or dynamite?

If it is a garden trowel it won't hurt you unless you are self inflicting pain but it takes a long time to get the job done.

A shovel might work faster with some temporary back pains.

Dynamite will do the job but in retrospect maybe not the best idea because of the direct damage to you or the future to those around you. A little may cause lasting effects.

I guess I am calling out everyone to look at your tool for what it really is and if we just use the tool because it is easy and risk is exciting. Also, does it change the type of items we purchase in time with lasting effects.

Can you live without it? It might stretch your mind to think of ways but you may never miss it.

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Re: How do you view debt?

Post by Wagnerjb » Tue Aug 23, 2016 8:46 am

I am perfectly content to have a mortgage on my home. I might accept financing for an auto if they offer a bargain interest rate, but that is a pure financial decision and I am also ready to pay cash otherwise.

I have over 15x my mortgage in assets, but it doesn't bother me at all to continue to hold the mortgage. The vast majority of those assets are pretax (401k, IRA, etc) or are in after-tax accounts with huge capital gains (thanks to tax loss harvesting). I have no desire to trigger tax payments at very high tax rates just to pay off the silly mortgage.

Best wishes.
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in_reality
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Re: How do you view debt?

Post by in_reality » Tue Aug 23, 2016 9:05 am

ctreada wrote:Curious how people on this board view debt.
You sound like my wife when we first met! This thread is the most romantic ever.

I had students loans back then but that's it. Moved in with her to save money on rent and pay them off earlier!!!!

Never any since.

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Re: How do you view debt?

Post by b42 » Tue Aug 23, 2016 9:09 am

I view debt like a commodity. I'm able to use someone else's money for a time and in exchange I pay them interest for the use of the money, and of course I'll pay them back at the end.

This appears to be a contextual question because what the debt is used for is important, as it is not all the same.

Without debt I would have not been able to go to the college I wanted to at the time or buy a house when I did. There is an opportunity cost to waiting until you have saved up enough money (such as paying off college as you go, but taking a few years longer where I could have earned a higher salary by taking on debt and finishing in the normal amount of time).

There is the emotional aspect to debt. I'd like to be debt-free, but the reality is that by taking on debt I can make my financial situation better long-term, such as building up equity rather than pay rent. I try to keep emotions out of my financial decisions. I would not want to completely ignore debt on principle because you are taking options off the table that may in effect be beneficial.

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Re: How do you view debt?

Post by michaeljc70 » Tue Aug 23, 2016 9:30 am

My Grandmother is 89. She never had a mortgage, a credit card or even a checking account. Now she is old and broke. So, I don't think not having debt is a save all.

I prefer to focus on my net worth, minimizing interest costs if I have to/it makes sense to borrow money.

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Re: How do you view debt?

Post by Earl Lemongrab » Tue Aug 23, 2016 10:13 am

I'm a fan of low-cost debt when used in a prudent and efficient manner. It's been a great wealth-building tool for me.

Earl

AlohaJoe
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Re: How do you view debt?

Post by AlohaJoe » Tue Aug 23, 2016 10:36 am

Debt is the most important invention in world history.

The internet that you're using to read Bogleheads: you didn't pay in advance for it; it is paid for by your debt that you clear at the end of the month.

The same is true for every single utility you use.

There is no Lifestyle Consumption Model without debt.

No university educations, no mass home ownership.

Your medical services are paid for by capital raised in a debt offering. The hospital was built with a bond.

And so on.

I live in a developing country with severely underdeveloped credit markets. It is far from the bliss that many posts in this thread might lead you to believe. Instead there is a mass of untapped human potential because children can't afford school, schools can't be built, and the loan shark in every neighbourhood is always the richest person.

Nummerkins
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Re: How do you view debt?

Post by Nummerkins » Tue Aug 23, 2016 10:57 am

It's a tool. Use it wisely, misuse it, or avoid completely. That is up to you.

When interest rates were 5-6% I used to take hundreds of thousands of dollars out on credit cards at 0% interest and put the money in a savings account. Interest paid: $0. I still do the same thing on a smaller scale: I have an Alliant card that I got a 0% offer on recently. I took the money and put it into a 3% checking account. Easy, free money.

Chase/Citi had their 5% cashback on everything cards awhile back. I paid my mortgage with them (net gain 3%) and bought piles of dollar coins when the Mint sold them (net gain 5%). No taxes on CC rewards either!

I addition I sign up for credit card bonus offers and earn thousands a year from selling or redeeming the points.

Other than this, I have no debt. No mortgage, student loads or car payments. It's good to be free.

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Kosmo
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Re: How do you view debt?

Post by Kosmo » Tue Aug 23, 2016 11:30 am

This is one of those really divisive topics. It's almost political in nature. There are anti-debt zealots out there who think debt is an absolute evil to be avoided at all costs. Those guys are wrong.

Debt is a tool. It is a means to achieve an end. It may be one of several options in any given situation but very rarely is it the only option. Each situation must be evaluated on its own merit to determine whether acquiring debt is the right decision. That applies both on a personal level and on much larger scales such as corporations, cities, and countries. When used properly, debt can be very beneficial.

Tal-
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Re: How do you view debt?

Post by Tal- » Tue Aug 23, 2016 12:51 pm

Better2bWise wrote:
Tal- wrote:Debt is always to be respected and feared.
Many have said debt is like a tool. What kind of tool would you liken it to remove the barrier in your life...a garden trowel, a shovel or dynamite?

If it is a garden trowel it won't hurt you unless you are self inflicting pain but it takes a long time to get the job done.

A shovel might work faster with some temporary back pains.

Dynamite will do the job but in retrospect maybe not the best idea because of the direct damage to you or the future to those around you. A little may cause lasting effects.

I guess I am calling out everyone to look at your tool for what it really is and if we just use the tool because it is easy and risk is exciting. Also, does it change the type of items we purchase in time with lasting effects.

Can you live without it? It might stretch your mind to think of ways but you may never miss it.
It's a big, sharp, chef's knife.

Knifes are always dangerous - and are always to be feared and respected. Every time you pick up a knife, you have the risk of cutting yourself. But, if you're mindful, educated, careful, etc. - the risks of getting cut with a knife are very very slim. If you loose focus, not matter now safe or careful you normally are, your risk of slicing yourself increase greatly.

There's also proper techniques to use a knife. Anyone can pick it up and start cutting, but if you study how to use them, you can become safe and effective. For that reason, we don't let kids use knifes. And when they start to, we watch them closely, coach them, and limit the damage that they can do. We teach them to respect the knife, and how to use it safely.

Knifes are also helpful. You can always cook without a big chef's knife, but it's harder and slower to do so. And as such, cooking without a knife can introduce other risks.

So, I've never thought about it before, but the best SAT example I would have is: Debt is to personal finance as a knife is to cooking.
Debt is to personal finance as a knife is to cooking.

Dirghatamas
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Re: How do you view debt?

Post by Dirghatamas » Tue Aug 23, 2016 1:00 pm

michaeljc70 wrote: So you see a lot of risk in debt but not being 100% in stocks?
Like I said in my post, my position on debt is irrational and psychological. For most facets of life, I tend to be very rational (engineer). When it comes to investing, I have always followed what appeared to be the logical starting point: well diversified, global cap weighted, 100% stock index without any tilts. I don' seem to react emotionally to volatility..so this seems to work OK for me and has for now 24 years of investing. I have not sold a single share so far during the bear markets of 2000-2002 and 2008-2009 so feel comfortable about my risk tolerance.

On the other hand, I just felt uneasy/had worries sleeping at night when I had a mortgage. Felt much better and calmer when I paid it off. Must be something in my childhood or culture/family/subconscious that I don't understand. Yes, I understand the logical paradox of being OK with 100% stocks but uneasy about a mortgage. I understand the math behind leverage especially when it comes to mortgage (due to our tax laws) but just couldn't do it.

All of us have rational and irrational facets to our personalities. Instead of fighting it, better to understand ourselves.

Church Lady
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Re: How do you view debt?

Post by Church Lady » Tue Aug 23, 2016 1:47 pm

  • Establish a good credit history early in life.
  • Never finance a depreciating asset.
  • A credit card used for convenience (gas, groceries, and the like) is OK as long as you pay it off during the grace period. Otherwise, you are financing depreciating assets.
  • An affordable mortgage is an acceptable use of debt
  • Hypothecation is a good use of debt. (This used to be very common in mid 70s to early 80s)
Nothing earth shattering here!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

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