On the topic of debt

[Gary_in_Indiana]

Alan,

I look at real estate as a business venture unless it's your personal residence so we're on the same plane there.

As to buying cars and tractors without debt, that is something I absolutely do and believe in doing. Please understand I don't go out and buy new. I buy used that I can afford. I drive a seven year old truck I've had less than two years and bought a smaller tractor than I wanted because I could afford it.

You asked if I thought just because someone couldn't afford to do that if I thought they should do without. I don't. I don't think someone needs to tie themselves to 5, 6 or 7 years of $400 payments for a pickup truck, either. I know I don't, anyhow.

I do have a business (actually one that's mine and one with a partner) and am willing to take on debt there. In fact, even though right now each is debt free I'm currently looking at borrowing on the one with a partner as we're currently expanding into a new market and business is better than we'd hoped at this stage and cash flow soon may lag behind receivables for a short time. The trade-off there is continuing a strong rate of growth and accepting some short term debt or refusing the debt and slowing growth dramatically. I'm not opposed to debt in this situation at all.

I hope this explains things a bit better for you.

 

[Gary_in_Indiana]

<font color=blue>"Didn't mean to steal your thread away Gary"</font color=blue>

Not a problem at all. If you look at my profile you'll see that the term 'floor plan' isn't foreign to me. /w3tcompact/icons/smile.gif

 

[Boondox]

Gary -- My wife and I have no consumer debt -- not even a mortgage -- and it's changed our lives. It started when we paid off that first car...and continued making payments to a special bank account. When it came time to replace the car, we were able to pay cash. Getting on top like that freed up hundreds of dollars each month that we could use to avoid other interest payments. It's given us a degree of financial flexibility and independence few of our friends enjoy... and eliminated one tremendous source of stress.

Enjoy the freedom; you've earned every bit of it!

Pete

 

[Alan L.]

Paying cash for what you can afford its a very good idea. I bought a 95 Ford pickup to drive to work about 18 months ago and was able to pay about $8500 cash for it. I drive to work and back about 120 miles per day, so it now has 109K miles (66K when I bogt it).

I am a partner in a CPA firm, and the firm has no debt and we pay cash for all purchases. Personally I'm not a wealthy man although with a good professional living, needed a tractor, but didn't want to spend what little spare time I have working on the thing, so I bought new, with financing. I now owe about $5K on a '99 B2710 which is of course worth a lot more than that. I don't regret making the purchase, as you can't really keep 24 acres without a tractor. Plus, this is pretty much a one time purchase.

Ever since consumer interest became nondeductible it has been very inadvisable to carry any credit card debt at all.

 

[looch]

No one has mentioned the strategy of paying off early. My wife and I both have decent jobs. We moved into our house 4 years ago. We bought a second car (Jetta diesel) to handle the trip to work (85 miles). We would have loved to pay cash - but just didn't have it. Our idea is to finance our loans so that the payment is ridiculously comfortable - just in case something happens. Then, if all is going well, we make extra payments whenever we can, cutting the pay period by more than half. Not sure if the same applies in the US, but here a typical personal loan is fixed interest and can be paid in full at any time without penalty.

 

[Gary_in_Indiana]

Pete,

I'm glad you've been able to free up all that extra cash for dog food and chew toys. /w3tcompact/icons/grin.gif

Seriously, thank you for the kudo. I appreciate it. /w3tcompact/icons/smile.gif

 

[Gary_in_Indiana]

Alan makes a great point about personal interest not even being a deductable item any longer.

pbenven makes another with the idea of early payouts on obligations. It takes discipline to do it but the rewards are great.

 

[BillG_in_TX]

<font color=blue>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</font color=blue>

Another factor on the 0.0% interest loans is that you are usually giving up the cash rebates. I have been shopping for an Explorer, and the options are: 0.0% for 3/4/5 years, or $2500 cash back.

The way I figure it, the breakeven on a 4 year loan at 6% is financing about $20,000. If I wanted to finance more than that, it makes sense to take the special rate. If I finance less than that, I should take the cash rebate and finance through the credit union (or pay cash).

Bottom line - the 0.0% rate costs $2500. Not many things are "free"./w3tcompact/icons/hmm.gif

 

[john4nh]

I think being debt free is great!! It is a good feeling to be without debt.

I myself was debt free for a while, then my wife grauduated college and started making good money. With our combined income going over six figures, it put us in a tax braket that I did not like. I understand that there are two things you can do: Let Uncle Sam spend it or you can spend it. The meaning being real-estate. We have purchased a couple of rentals in the past two years, with the right offs we get from that we hope not to be paying in more then we already do. I would like to be able to say were gonna pay (15%) or something but Iam not exactly sure where were gonna be at this year yet. I think being debt free is good if you have a way to not pay such a high amount in taxes. Nothing illegal though, I believe we all should pay our fair share, but we all work to hard to just give it away.

Just curios what the CPA's on board think about this? BTW we are carrying about 300k in paper (real-estate). But have a nice postive cash flow every month.

 

[cowboydoc]

When I bought my truck the rebate was only $1k. They also had an upfitters rebate which was $1500 but couldn't be combined with the customer rebate. I also got an AQHA rebate for $500 and a rancher association rebate as well as a customer loyalty rebate. In my case I got $3000 worth of rebates plus the 0%. I figured it all ways and couldn't have done any better.