On the topic of debt

[Gary_in_Indiana]

Maybe it's my age (I'm 48) or stage of life (fairly new to being an empty nester), but I've become really debt averse in recent years. I can justify a mortgage payment because the odds are the asset is appreciating and I'd have to live somewhere anyhow. The fact is I would have that outgo regardless. The only difference is whether it would be for a rental payment or a mortgage payment. I won't, however, do debt for a new truck or tractor or anything like that.

As to business, I have done debt for my business and for that of my partner and myself, but only for capital equipment purchases. Happily, as I write this, each business is 100% debt free. That may well change very soon as my partner and I are expanding into another market (Chicago) right now. If the early indications are borne out over the coming few weeks we may well entail some debt for a few months to facilitate the growth. Even that would be under a year in duration.

It's personal debt I'm really trying to avoid. I just hate the idea of being committed to some long term payment schedule. I do have three credit cards I use simply for the convenience and the automatic records. One is for one business, a second is for the other and the third is personal. Each of them is paid in full every month.

Does anyone else feel the same way I do about avoiding debt or do I need a twelve step program? /w3tcompact/icons/crazy.gif/w3tcompact/icons/hmm.gif/w3tcompact/icons/wink.gif/w3tcompact/icons/smile.gif

 

[fishnhunt365]

Personal debt, is that not the American way, dream or something like that? /w3tcompact/icons/laugh.gif

 

[Anonymous Poster]

Don't seem to matter much any more if you try to stay out of debt or not. I've borrowed money exactly once in my life, and didn't like bein in hock to the bank. I could never understand why bankers treat ya real nice when you want to borrow money and treat ya like crap when ya put money in the bank.
Way things are now, I've concluded I'm rentin my house from the government and government schools. It feels like I gave the neighbor's wife my Master Card, and I just pay the bill. Sure seems like I've worked the last 30 years so somebody else can spend what I managed to earn.

 

[DUMBDOG]

Pay off the credit cards in full each month and only take out long term for major building purchase, as long as it will pay for itself and give you a return on the investment.

 

[jhburke]

We pay our credit card bill as it comes in. To be able to do this we have to use the card according to what we can afford. We get these calls about rolling over into another card with real low introductry intrest. It blows their mind when I say that I don't have a balance to roll over.

 

[cowboydoc]

I agree and disagree. If a person can become debt free I think that is great. But it's difficult to be debt free and keep acquiring. For instance if a piece of land comes up for sale. If I can make that land cash flow then I buy it. For example I've got alot of land that I've bought and financed 100%. If I can cash rent that land for more than the payment is, including the taxes, then I do it. Right now I have alot of debt but I also have alot of land. I don't buy land that is high but rather buy land that is a good deal that I know I would always be able to get out of if I had to.

I also use debt to buy things. If our office needs a new computer or I need something at home I will take advantage of those 6-24 month deals of no interest and no financing. I take the money that would have been used to buy and put it in an interest bearing account, usually a cd for the duration of the no interest. At the end of the time I pay off the bill in full and have the interest money to keep. Right now I have my pickup on a 48 month no interest loan from Ford. For four years I get to make interest on $37,500.

You can use debt to your advantage as well.

 

[Scott_in_WVA]

Is there an insurance that can be purchased to cover one's debts in a situation where one might become unemployed?

 

[Gary_in_Indiana]

Richard,

Your borrowing for rental real estate is the same as what I have done on business capital investment so we're in agreement on that. I've done the same thing on rental real estate because it's business, not personal.

At today's CD rates I don't bother with the short term, small ticket deals at zero interest. The difference on 6 months on a $500 computer isn't worth the paperwork or the drive to the bank to me (and may not cover the gas and wear & tear on the truck, either).

By the way, unless you got a no payment, no interest 48 month loan from Ford, you're not earning interest on $37,500 for four years at Ford's expense. The amount you would have to earn interest would drop by $775-$800/month as you make each of your 48 EZ monthly payments on your truck loan. Still, it's a good deal if you want to jump through the hoops to make it work.

 

[Gary_in_Indiana]

Scott,

Most lenders offer CLA&H on their loan products. That credit life, accident and health insurance is a tremendous source of income for the lenders. If you really want coverage like that you're far better served buying it from your insurance agent.

As to specific coverage for job loss, I have seen it offered but can't tell you much more than that. Again, you might want to contact your insurance agent.

 

[BigDave]

I believe there are three types of debt for me: Investment Debt, Acceptable Debt, & Bad Debt. Investment Debt is debt with growth potential, such as a house or business. I consider that good debt. As this debt is decreasing, the asset value is appreciating. /w3tcompact/icons/grin.gif I call low-interest (<6%) loans for large assets, like a car or a tractor, Acceptable Debt. One key concept that I have for acceptable is that the asset's resale value should not be less than the balanced owed. Say for a very low interest loan, say 0.9%, I only put down 10%. For a higher rate, say 3.9%, I would put down 20%. I actually put 35% down on my tractor since I didn't have a good feel for it's resale value. If I faced with long term unemployment, I could sell my car & tractor to get out from under the debt, and just drive my truck and use my old mower instead. I consider credit cards Bad Debt, because of their high interest rates and potential of not having any assets to offset this debt. I pay off the plastic every month. /w3tcompact/icons/grin.gif