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Personal Debt? Is is necessary? A good thing or not?

melons

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I'm interested in knowing how others feel about personal debt. Sometimes I am shocked by some otherwise seemingly intelligent people, at the amount of debt they admit to carrying and the choices that they make with their money. Personally, I don't carry any debt, other than my home. That statement hasn't been true my entire life though and there was a time that I believed that everyone carried debt, that it was just the "American Way". I've changed my mind on that philosophy. I am a happier, more peace filled person without the car payments, loans and credit card bills.
 
I'm with you...zero debt.
 

i owe on my car, and that's it. i tried the credit card thing in my 20s, and it was a mistake.

i can see several scenarios in which i would have to go into debt, and they scare the hell out of me. first, assuming i get married eventually, my house isn't big enough for a family. second, i live an unreasonable commute from the most likely jobs in my field. when my current gig ends, i might have to move. and third is, of course, unforeseen medical expenses. even with insurance, a lot of us are a serious illness away from having to borrow, or even insolvency.

so i would say that my plan is to avoid debt as long as possible. i'm saving while i can.
 
Debt is a tool. I charge everything I can and pay it off each month. The card floats the money while it sits in my acct earning next to nothing and I get plenty of bennies for my trouble.
 
Don't have a credit card, don't really want one. I don't want to have any debt, my parents got in a lot of trouble because of debt and I don't want to follow that path. The only thing I want to owe on ever is a house, I don't even want to owe on a car. I'll probably get a credit card when I start working in order to build up my credit score, so I can get a good mortgage, but I'll use it like a debit card, pay off the amount every month, so I won't have to pay any interest.
 

Sometimes, people really can't help putting unexpected expenses on their credit cards. An unplanned trip to the clinic for $300 to get antiobiotics for strep throat; a broken arm; a car repair; a root canal (owieeeeee!!!). That's why it's so important for people to establish and protect good credit. So one can look for credit cards that charge the least interest. Like here's one with zero interest for 18 months on balance transfers and purchases: Compare 0 Credit Cards | Low Interest & Interest Free Credit Cards

If one has excellent credit, this card's a slam dunk. In my opinion, anyone who isn't confident they can handle pretty much any expense that comes along ought to have this particular card. Or one like it.

If one is disciplined, a credit card is a wonderful convenience. I use mine for every purchase I can, but I pay off the balance each and every month. I get "Amazon.com" dollars to spend on their site. They are wonderful intermediaries for that unsatisfied purchase I've made a number of times. It's a bit of insurance that one won't be fleeced by paying cash or check for something.

For some people who don't have discipline, though, it's an easy way to live beyond one's means and get trapped into never-ending monthly payments to the tune of 12-27% interest a year.

In general, I'd advise people to go into debt only for a home or car. Borrowing money for anything else can lead to trouble...although sometimes we have no choice.
 
AliHajiSheik said:
Debt is a tool. I charge everything I can and pay it off each month. The card floats the money while it sits in my acct earning next to nothing and I get plenty of bennies for my trouble.
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Debt can be a tool, but everyone is not that disciplined. I would say that it is really great that you are able to manage that way!

We had a tendency to yank out the credit card every time something unexpected popped up in our life instead of preparing ourselves to handle those unexpected emergencies. So credit cards never worked for us, mostly I guess because we weren't prepared for the unexpected so we ended up relying on them to get us through...

I can see the credit card idea working for gas, groceries and the basic necessities but in my opinion with large purchases, cash is king, negotiating with cash has resulted in better deals than charging and getting rewards from the credit card company. I am sure that isn't always true though.
 

In real estate, people will often say, "Give them a cash offer. I'll be able to really negotiate with them then!" Wrong! In real estate, every deal's a cash offer at the closing table.

Car dealers actually take a HIT when a customer pays cash since they get a commission on financing deals they put through. As usual, things are not always what they seem. And logic is often suspended.
 
I'm a lifelong advocate of living within 60% of your means. In other words, if you make $1000 a month, you should save $400 and live on $600. You can actually do this if you're willing. It's simply a matter of discipline.

I started work at 14 and followed this rule. So, when I was 20 and decided to go overseas to find work and adventure, I had enough savings to afford to go. When I was 30 I had enough savings to open a store in the newly extended Las Vegas Hilton. Etc. To me, reserves are the key to opportunity. Many dreamers come to me with grandiose business plans and if they just had the money......but of course, they don't because they have debt instead.

Now I'm 69 and "retired". For the last decade, I've spent MORE than I've earned because I help out certain family members. I can do this because of my savings. I'm now going deeper into the landlord business, I just won my bid for my 7th rental unit. I intend to end up with 10 rental units and I will pay cash for them, because of my savings.

My parents were depression era people and never spent money on anything. I'm not quit as frugal as they were but in principle, I followed their neurotic fears by saving money and never using credit. I've only bought one house on credit when I moved from Korea to Las Vegas. I wanted to conserve my cash for my new business. After that, I always paid cash and lived in inexpensive homes.

I use my credit card for EVERYTHING and it is automatically paid in full each month. I use the points to buy books on Amazon, my one compulsion, because I read authors too obscure to be found at the library.

I've never met anyone with the same philosophy as myself. Nobody wants to live below their means because the NEED McMansions and Beemers. Fortunately, I don't.
 
specklebang said:
I've never met anyone with the same philosophy as myself. Nobody wants to live below their means because the NEED McMansions and Beemers. Fortunately, I don't.
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We've never met, but I share the exact same philosophy. Have my whole life. I "liked" your post after your first sentence. I've always lived beneath my means, making saving a priority. It's served me well. I'm not wealthy by most standards, but I am by mine. I can do most anything I please and help others when I choose. Life is good.
 
Yes, I think you and I were separated at birth. We have really done things the right way and have enabled ourselves to assist the ones we love who weren't as good at this as we were.


 
I am 100% against debt in every way. I was raised that if you can't afford it, you can't get it. I don't own a credit card, only a debit card. If I want something I save for it.

As far as cars go, I started with an 85 Toyota pickup, then an 87 BMW, then 91 BMW, then 03 Ford Escape, then 08 Opel. Each time I bought a car, my financial situation was better, so I could afford a car closer to the actual year, and paid in cash.

The only things I think are reasonable to go into debt for are college tuition and a mortgage (because if you do it right, you're not really in debt because you have the equity of the house).

I've always been frugal because my parents taught me to "Live like nobody else now, so that you can live like nobody else later."
 

I guess I wouldn't know about either of those things. We built our house, so when we were negotiating it was on much smaller terms. Cost of lumber, roofing materials, appliances... each thing was negotiated separately so we built our home for much cheaper than we could have purchased one in our area. And our first house was an assumption ... someone was getting behind in payments and about to lose the house.... it was an assumable loan, so we jumped in, caught the payments up and purchased the house. It was the best move we ever made in our lives, created the cash to help build the second and final house. So, I guess my point is, I have never dealt with real estate agents or any of that side of the deal.

We don't use car dealers at all....LOL...we buy from individuals. It has served us very well. So I guess I wouldn't even know about car dealers....my hubby buys and sells lots of cars himself (though that isn't his full time job). We don't trade in cars either. But that is just the way we do it. It works for us.

So I guess my point is, stay away from real estate agents and car dealerships...and cash is generally king.
 

Depends on what you're spending your money on. If you're making investments for the future - i.e. trying to finance your college or post-undergrad education, buying a vehicle, or a home - then going into debt not only makes sense, it's pretty much inevitable. Or, say you're a small business and you need a little capital to get started. That's also a good reason to be in debt. It's pretty much a truism that you have to spend money in order to make money. Now if you're just blowing away your cash on goods that you can do without, then no, it's not a good idea.

So really, it depends on what kind of debt you're in and what you're spending it on. If you owe credit card debt but you pay off your balance every month, then like another poster said debt is simply a tool.
 
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You sound like a very smart person, indeed. I love your approach. And you are another example of people who are able to use their credit very wisely.
 

I do agree that using it as a tool can be a good thing. We are paying for our son's college out of our savings right now, so he didn't have to borrow money for college. We didn't want him to start life in debt if he didn't have to. I understand that all kids don't have that luxury and borrowing for an education is the way to go versus not getting one at all. I also have a niece in college who borrows for school and she wastes a lot of that student loan money on junk. So there is good and bad. Many college kids need that opportunity to pay for school, so borrowing is the answer for those kids.

As far as cars go, I disagree. I don't think you should borrow for things that generally depreciate in value. That is just my opinion though. We don't borrow for cars anymore, we stopped that when we were about 30 years old, ten years ago.

Mortgages are pretty much inevitable for the average American. 30 year mortgages ... I disagree with completely. 15 year mortgages are the best way to go.

My Dad was self employed business owner his whole life. He borrowed for business his entire working years. He ended in debt that pretty much valued his business. That didn't work out too well for him in the end but I am sure it works out better for some.

I am not saying that all debt is necessarily bad debt, but I do think it should be used only when it is really necessary and when the person using it has the discipline to handle the debt.
 

I agree, my only quibble is what exactly does depreciation have to do with anything?
 
See that's where I'm "lucky" I guess, I get a full Pell Grant, and I won't have any debt coming out of school, well unless the Pell Grant get's decimated in the next two years. Hopefully it won't, because I really don't know where I'd get the money to finish school.
 
I got hooked on credit cards in college, spend the 3 years after paying em off and I still have 30K in Student Loans.

Avoid credit cards, they're only for the disciplined and TBH if you can afford to pay off the bill monthly just use that money for the spending. There are better ways to improve your credit.

I've heard some of the more disciplined here say they use it for the benefits, I personally haven't found any benefits truly worthwhile. Cashback is nothing, travel miles can barely be used, and the gas savings have never been worth it IMO. I'm curious about these Amazon dollars, but its probably best I not know. Never incurring debt again ever. I already have property and a paid off vehicle, should I ever want more it will be from a position of savings. My first two cars were affordable (~5K) so I got them in cash. I should have done the same with my last, though new was nice, being without a monthly payment is nicer.
 
Debt structured in a smart manner is perfectly healthy and acts as an investment in certain scenarios (Loans for a business venture, Student loans etc.) The pitfall many find is the issuance of credit held debt on frivolous and meaningless items that hold no long term value.
 

I have an Amazon credit card. I'm not sure how much I get for how much I spend, but right now, I think I have about $90 I can spend on any item(s) on site -- having just spent about $75 last week. I don't carry a balance on my credit card. I only have one -- Chase Amazon. Use it for everything and pay it off at the end of each month....so it's like free money. Also keeps my credit rating in the 700's.
 

Once I find a job I might have to get that. Can't beat free Amazon money!
 
StillBallin75 said:
I agree, my only quibble is what exactly does depreciation have to do with anything?
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If you are going to pay interest on something, to me, it only makes good sense to pay interest on things that will be of at least the same value to you once you are finished paying. It is just a rule of thumb my husband and I have chosen to follow. It works for us, even if it doesn't make mathematical sense.
 
StillBallin75 said:
I agree, my only quibble is what exactly does depreciation have to do with anything?
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After I posted an answer to you, I thought about it a little more. Think about this way.... if you buy a $20,000 car at 5 percent interest. The moment you drive it off the lot is goes down in value probably $2,000 to $4,000 immediately. You are paying interest on that depreciation...even though you never gained at all from it. I guess that theory works a little better on new cars than used cars though, because used cars don't generally lose as much in value when they are driven off the lot. Anytime you borrow money on something that depreciates though, you are in essence paying interest on the lost depreciation.
 
As others have said, debt is a tool, not a sin.
When you completely avoid debt, you also avoid opportunity (aka opportunity cost).
Trying to completely avoid risk, will result in little reward.

Dave Ramsey is not for everyone.
 
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