Are you free of debt?

[onewhippedpuppy]

I would definitely agree that there is a big difference between using debt as a tool and abusing it to purchase things that are beyond your means. Sadly the average American is the latter.

[Bill Douglas]

My days of using the credit card to pay the mortgage are gone. The credit card trick did work and I've done well by borrowing large sums, but not again.

[daepp]

Yep - 'cept for rental property.

Paid off my So Cal home 10 years ago when I was 41, sent 3 kids to private school, and now two are out of college debt free. One more to go.

It IS possible. Lots of saving, no inheritance, living below means etc. Wife only worked from home (she's a cpa and stayed home to raise our kids.)

[-Levi-]

Nope, at 28 years old I have nearly $700,000 worth of debt.
The good news, that's in our investment home and primary residence. If we sold and walked away we should be around 120k ahead thanks to our crazy real estate market.
Gotta start somewhere and with colorado homes averaging 300-400k at my age you are not simply buying a home with cash :/

[SeanPizzle]

No debt here. 47 and paid house off at 41. Walked from corporate job 4 months ago and started my small business. Debt is a great motivator to keep running hard on the treadmill because the Beast must be fed. Once we pared down our monthly outflow, it became harder and harder to justify killing myself with stress to make other people money.

[KFC911]

Originally Posted by SeanPizzle

No debt here. 47 and paid house off at 41. Walked from corporate job 4 months ago and started my small business. Debt is a great motivator to keep running hard on the treadmill because the Beast must be fed. Once we pared down our monthly outflow, it became harder and harder to justify killing myself with stress to make other people money.

Similar to the way my brain works....told the corporate world to kiss my butt at 48 several yeas ago, and I had it made in the shade . No regrets whatsoever...I saw too many folks involuntarily watch the wheels fall of back in '08....in debt up to their eyeballs and stressed to the max . Not my idea of living...

[look 171]

I have always owe some money on my personal home by choice and with today's interest rates, why not? I don't owe much. Owe some money on the some of the properties but they all pay for itself and then some. I have never had car payments, ever. during my younger years, I bought old POSs and drove them around until the wheels fell off them, then buy a better one just to get around. if I don't have the money for it, I don't need it. We live pretty simple lives and we enjoy the heck out of it. Can't me to go to dinner in a place with a monkey suit. I don't need it.

Equipment for the business was purchased throughout the years when we make money, I made sure I put it back into the business so I didn't have to borrow when something breaks. I didn't go out and buy a speed boat when we had a good year. My father taught me well.

[HardDrive]

2 mortgages(main home, rental property), but otherwise debt free. Mortgage balances are roughly 50% of the properties overall value. Both locked in at absurdly low rates.

Nothing wrong with debt as long as it's being use for leverage. Paid $258k for the rental property 5 years ago (it's in a nice area of Seattle). I wouldn't take less than $475k for it today.

[impactbumper]

Mortgage only with 50% equity in it where i can write a check today. Cars are paid off, no cc debt, also no business debt either. I am 38. I learnt the hard way 7-8 years ago on the verge of BK and promised God, if I am given a chance I would never occur debt. Those were the times when i was starting my business and there were too many challenges. I busted my ass off, worked 18 hours and paid everything off.

I live a humble down to earth life.

Sometimes I envy my friends living in $700-800k homes, which probably i can mortgage easily, but at this point, I am after experiences. I want to travel, I want to visit different cultures. I am into fitness, so I do not go out, I do not drink, smoke, party. I do not dress up $500.00 jeans. I am okay though. I will never forget those days where I could not go to sleep worrying about what will happen tomorrow.

Now it is all about saving, and guaranteeing my family's future.

I pray God everyday to bless me with health and work, also steer me away from temptations. Unless life takes a tragic turn, I or someone in my family gets sick (pretty decent insurance too) I intend to keep going this way.

[glewis80SC]

Only the house for us...one credit card just in case, will never finance a car again. 11 years left on our 15y mortgage, if it all falls in line house payed off right at retirement. I owe it all to my wife she is the frugal one.

[VillaRicaGA911]

Only debt is mortgage on a 15 year fixed that I throw extra at, should have house paid off in about 2-3 years (have only been in the house 1 year). So well before I am 50 will be debt free. I don't understand the concept of using debt to fund investments. What if as mentioned earlier in this thread your health turns, you become unemployed or something else happens? How clever was your investment plan then? Plus being debt free or like in my case only your house payment you can do some really cool stuff like my wife and I did a few weeks ago. When it was time to get her a new (used) car we were able to donate our old and still very good car to someone at our church. The best feeling in the world to totally change someone else's life. I will never go back into debt and trust me had been in plenty of it in the past.

[wdfifteen]

Originally Posted by VillaRicaGA911

Only debt is mortgage on a 15 year fixed that I throw extra at, should have house paid off in about 2-3 years (have only been in the house 1 year). So well before I am 50 will be debt free. I don't understand the concept of using debt to fund investments.

You buy a house for $200k. Borrow as much as you can on it. Invest $50k of your cash to rehab it, sell it for $300k. How long would you have to work at your W2 job to make $50k?

Originally Posted by VillaRicaGA911

What if as mentioned earlier in this thread your health turns, you become unemployed or something else happens? How clever was your investment plan then?

I borrowed to invest in my business specifically so I could become "unemployed." I was tired of working for people who weren't as smart or ambitious as I am. Ten years after I created my first company a publisher offered me $2.2 million for part of it. I think my investment plan was pretty damn clever.

[Macroni]

Originally Posted by VillaRicaGA911

I don't understand the concept of using debt to fund investments.

Personally: would you have borrowed as much as possible to buy shares of google at IPO?

Commercially: Check balance sheets of Microsoft / Apple / Google all have debt.


IMO: It is not about debt you are carrying. It is about the cash flow you are generating.

Health concerns: Buy insurance.


Borrowing is especially prevalent in asset strong / cash poor situations.

[GH85Carrera]

There needs to be a second part of the question "Are you free of debt" and that is do you have the assets needed to live comfortably.

When I left home to go out in the world and find my way in life I was free of debt. I only had a paid for 914 and a killer stereo system as my olny assets. Just moving to Oklahoma and paying the utility deposits and establishing residence in a crappy apartment put a few hundred bucks on my credit card and emptied my savings. A few year later I had enough saved to buy a house. That put me in debt for many years. I can remember the bad old days of wondering how I can pay a utility bill and still eat. I made a promise to myself to be debt free by 40. I did not make that on my birthday, but before I turned 41 I was debt free and had a decent house.

Now many years later I have a cool toy car, my wife has a nice car, I have a cool classic daily driver car. We live in a house I could never have dreamed of owning when I was younger. My wife is retired and I work at a fun job that is hardly a "job" compared to most people with jobs. I wear shorts and a t-shirt to work all summer and everyone I work with is great.

Being at a point in life where I have the "stuff" I want and no debt whatsoever and money in the bank is growing is a lucky place to be. It took me over 40 years of work to get here.

[Craig T]

I think the second part of the question related to debt should be "What is Your Net Worth?"...or to avoid competition.."Is Your Net Worth in the Black or in the Red?". What is the value of your assets and saving after subtracting your debt?

Many Pelican investors have made good arguments for using low interest debt as leverage on APPRECIATING assets. e.g. rental property, small business, primary residence, etc. I'm one of them. I don't consider having $400K in mortgage on $800K in real estate debt. I consider it $400K in equity. If the rent covers the P&I and taxes, it's a cash flow neutral appreciating asset. As rents increase (and they always do), it eventually becomes cash-flow positive. Plus, equity increases two ways, paying down the loan and appreciating home values.

Taking a 3.5% loan on a rental property with a 30% plus downpayment is a smart use of debt. There is some risk of a housing collapse if it's a short term investment, but real estate has proven to be a pretty solid investment long-term (>10 years)...And there have been very few RE corrections that dropped more than 30% in value.

As others have said...Car loans and credit card purchases for vacations and luxury items is just buying things you can't afford...Living above your means. Other than consumables, a new car is the fastest depreciating item I can think off. I couldn't imagine borrowing and paying interest on such a bad investment. I'd drive a 85 Ford pick-up with a primer'd door first.

[LakeCleElum]

Originally Posted by Craig T

Taking a 3.5% loan on a rental property with a 30% plus downpayment is a smart use of debt. There is some risk of a housing collapse if it's a short term investment, but real estate has proven to be a pretty solid investment long-term (>10 years)...And there have been very few RE corrections that dropped more than 30% in value.

I have to agree with you Craig. Mortgage rates are at historic lows. When I was getting out of college to buy my first house, rates were in the range of 8-10%....I put a huge amount down to assume a 5.25% loan at the time and paid that off in 2 yrs.
calu
In college, a room mate studied accounting. We knew that advantage of paying a loan off early. As for tax write offs, most people might save $1 for every $3 spent. I say: You flush $3 down the ****ter and I give you $1 back. How long are you going to do that?

[Shadetree930]

Originally Posted by Craig T

As others have said...Car loans and credit card purchases for vacations and luxury items is just buying things you can't afford...Living above your means.

A 0% auto loan is not always living above your means. Even a 2.9% loan may make sense depending on portfolio return rates.
It is a good use of other people's capital as long as you can cover the debt liability with cash if the need arises.
Different story if you have to worry about how you would cover that same debt if the zombie apocalypse comes.

[Macroni]

Originally Posted by Shadetree930

A 0% auto loan is not always living above your means. Even a 2.9% loan may make sense depending on portfolio return rates.
It is a good use of other people's capital as long as you can cover the debt liability with cash if the need arises.
Different story if you have to worry about how you would cover that same debt if the zombie apocalypse comes.

I agree.

I always assumed in the zombie apocalypse, the one with the greatest debt would be the smart one......

[aschen]

I think all of us get the fact that there is an opportunity cost associated with not using debt to your financial advantage


The counterpoint is that you might not need any sort of ROI if you already have everything you need paid for and continuing expenses are not an issue.

The discussion is philosophical and not mathematical in nature, IMHO. living at the minimum risk level is freeing for some, and you wont be able to catch that value in any simulation

[carreradpt]

When I retired at age 54, my wife and I moved to FL and bought our retirement home paying cash. We have absolutely no debt and owe nothing. I have a great pension and our savings have survived very well thru all this turmoil. We use a credit card for everything and pay it completely every month. Have been retired now since 2010 and we haven't touched a cent of our savings to the consternation of our financial advisor. WE buy what we want and/or need when we want it but we don't go crazy. Living the dream!!