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

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.

When you don't buy a reliable car, you can't get to work on time or at all.
I'd rather have a $20k reliable car, than a $5k unreliable car.
 
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.

What opportunities have I avoided by avoiding debt that I cannot achieve with savings?

When you don't buy a reliable car, you can't get to work on time or at all.
I'd rather have a $20k reliable car, than a $5k unreliable car.

Sure, if those are the only options (they aren't.) But a 5K reliable car would suit me just fine.
 
When you don't buy a reliable car, you can't get to work on time or at all.
I'd rather have a $20k reliable car, than a $5k unreliable car.

I have a $7k reliable car. It works for me and it doesn't make me late for work. We have several cars, so one breaking down isn't going to put us into a bind or make us miss work. Like I said, it works for us. We drive our used cars all over the place - on long trips and everything. If you take care of a car it will generally take care of you.
 
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.


We don't avoid debt, we just try to be smart about it. We plan to buy a vacation home in two years when our house is paid for. We are in our early 40's. We also save. We do lots of buying and selling too, we invest in items that we know are valuable and resell them. We haven't limited our opportunities - we have opened up the opportunities because we have money that we set aside for them , we don't have to go and ask someone to borrow the money first.
 
What opportunities have I avoided by avoiding debt that I cannot achieve with savings?

Time preference.
If you had used leverage to buy stock when the market bottomed out, during recession, you'd have more than made your money back.

Sure, if those are the only options (they aren't.) But a 5K reliable car would suit me just fine.

Sure, but those aren't always easy to come by.
Again, debt for time preference.

I need a reliable car today.
Waiting to buy reliable car, when my budget is set to $5k, limits my abilities to continue to earn income.
It's an opportunity cost.
 
I have a $7k reliable car. It works for me and it doesn't make me late for work. We have several cars, so one breaking down isn't going to put us into a bind or make us miss work. Like I said, it works for us. We drive our used cars all over the place - on long trips and everything. If you take care of a car it will generally take care of you.

And that's fine for you, in your situation.

I personally hate the no debt, for almost any reason mantra.
It doesn't work for everyone, in all situations.
 
Keep your debts low or non-existant.
 
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.
As I understand it, if you pay a 30 year mortgage like a 15, the amortization works out to be the same as a 15.
 
Trying to completely avoid risk, will result in little reward.

That is a good recipe for bankruptcy. You're right, Dave Ramsey doesn't work for everybody, just for the lower classes. The people to whom the financial rules of the aristocracy do not apply.
 
That is a good recipe for bankruptcy. You're right, Dave Ramsey doesn't work for everybody, just for the lower classes. The people to whom the financial rules of the aristocracy do not apply.

No it's not.
Ramsey is good for people with little or no self control.

If everyone, including the "lower classes," didn't use some amount of leverage and/or risk taking, we'd still be technologically in the stone age.
 
No it's not.
Ramsey is good for people with little or no self control.

If everyone, including the "lower classes," didn't use some amount of leverage and/or risk taking, we'd still be technologically in the stone age.
You put it in quotes like there is no such thing as class:lol:

Leverage is a terrible thing if you are poor. The only way for a poor person to make real money is to take unwise risks, and the only way for a poor person to take wise risk leads to little money. This is probably difficult for a person of privileged means to understand, but it has to do with transaction costs. A poor person can't make a lot of trades, because each trade costs money. The same transaction costs apply equal to rich and poor but the rich don't feel them because of th large sums they are dealing with.

You are being far too simplistic thinking the rules are the same for all classes. The poor cannot effectively take risk without either making unwise bets or bleeding slowly on the transaction costs of many wise bets that a rich person can easily afford. So no, you are wrong, it is not just about self control, it is about the poor simply no having enough capital to reach escape velocity with their money.
 
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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.

Just dont walk into a car dealership with a load of cash, they will call the cops. I know, dont ask how. Its painful to remember.:)
 
You put it in quotes like there is no such thing as class:lol:

If you believe that class matters, then you're going to be stuck in classes and classist type thinking.
I don't care why class I'm assigned to, because it doesn't matter.

Leverage is a terrible thing if you are poor. The only way for a poor person to make real money is to take unwise risks, and the only way for a poor person to take wise risk leads to little money. This is probably difficult for a person of privileged means to understand, but it has to do with transaction costs. A poor person can't make a lot of trades, because each trade costs money. The same transaction costs apply equal to rich and poor but the rich don't feel them because of th large sums they are dealing with.

This year is the most I've ever earned, in my life.
I'm going to top out around $40k.

The last preceding years, I've earned around $25k.
Leverage isn't just with stock trades, it's also involved with everything.

The right amount of risk appropriate leverage, is not always wrong.

You are being far too simplistic thinking the rules are the same for all classes. The poor cannot effectively take risk without either making unwise bets or bleeding slowly on the transaction costs of many wise bets that a rich person can easily afford. So no, you are wrong, it is not just about self control, it is about the poor simply no having enough capital to reach escape velocity with their money.

No, it's 90% self control.
Leverage allows you to take advantage of situations, that you otherwise, wouldn't have the cash to do.
There's always an opportunity cost with living cash only.
 
You put it in quotes like there is no such thing as class:lol:

Leverage is a terrible thing if you are poor. The only way for a poor person to make real money is to take unwise risks, and the only way for a poor person to take wise risk leads to little money. This is probably difficult for a person of privileged means to understand, but it has to do with transaction costs. A poor person can't make a lot of trades, because each trade costs money. The same transaction costs apply equal to rich and poor but the rich don't feel them because of th large sums they are dealing with.

You are being far too simplistic thinking the rules are the same for all classes. The poor cannot effectively take risk without either making unwise bets or bleeding slowly on the transaction costs of many wise bets that a rich person can easily afford. So no, you are wrong, it is not just about self control, it is about the poor simply no having enough capital to reach escape velocity with their money.

I think it depends on your definition of poor. One thing the poor can do, if they are physically capable, is work. I said before in another thread, I can't tell you how many times I have offered work or relayed information about possible work opportunities and people who claim to be desperate do the work or apply for a chance to do the work. Then you see them a few weeks later at the store buying beer and cigarettes. I refuse to feel sorry for them after that. I have a sister like that, everything bad seems to happen to her and she never has enough money to cover it, yet when I try to help her out, she refuses every idea that I give her. Makes no sense to me. So it is true that many poor CAN do better for themselves and they just refuse.

And there are plenty of people who make small amounts of money who do just fine with a simple life. There are also people who make lots of money, in comparison, and are always broke. What you do with your money is very important. Money is active, if you don't tell it what to do then it leaves you.
 
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