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debt

Discussion in 'Survival/Preparedness Forum' started by RWBlue, Feb 15, 2009.

  1. RWBlue

    RWBlue Mr. CISSP, CISA CLM

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    Jan 24, 2004
    there is talk in another thread about debt, debt reduction, debt accumulation...I figure we shoudl pull it out into a seperate thread.
     
  2. I've got a house payment at 5.something% and a car payment. Everything else goes toward raising 4 kids. Those little rugrats are expensive. I had a mountain of CC debt 5 years ago due to some uninsured medical bills, but I paid them off to the tune of $700/month for 3+ years and it feels great.

    I don't have much more than a few months of cash in savings but I'm working on it now that the cc debt is gone. I spent a bunch of money over the winter on stuff related to this forum though. :D
     


  3. Cajunmudman

    Cajunmudman

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    Louisiana
    Since stocks stink, and I think the worst is yet to come, and bond yields stick also. I took out a loan on my 401(k). I will pay myself 6% interest over the next 12 months. I used the money to pay off a credit card that had a balance and was charging me 15%. I still got a lot left in the 401(k) so that if I am wrong and we get a nice move in the market, I will participate some. But still, no matter what, paying yourself 6% is wayyyyy better than paying the bank 15%, even if the market goes up 20%. The oppertunity cost, isnt that high.
     
  4. ar15_dude

    ar15_dude Believer

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    Feb 28, 2008
    so this is the start of the topic?

    Okay, I'll say it, and those of you with debt won't like it one bit.

    Debt is evil. It robs the debter, and makes him slave to the lender.

    People pay more money in interest than they do for the principle of the house.

    It is a two edged sword and leverage: in a growth market, you can make money by borrowing money to flip real estate. In a down market, you can lose whatever principle you have.

    Me saying this is a little like closing the barn door after the horse gets out, but owing the bank money when you lose your income can mean you are homeless.

    My three ways to maximize the power of your money, regardless of your income:
    1. never borrow money for depreciating assets (cars, furniture, mobile homes) cause you pay far more than its worth. Only drive a car you can afford to buy out-right.
    2. only justification to borrow is for a house, and only if it can be paid back in 5 years or less. Only buy as much of a house as you can pay it back fast.
    3. only spend as much on your credit card as you can pay each month, never pay interest.

    Flame away, but I feel much more secure owning what little I have outright.
     
  5. Cajunmudman

    Cajunmudman

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    Jul 2, 2008
    Louisiana
    Spot on bro,

    And if you read what all lawmakers, and "advisors" are saying, they want us to go MORE in debt. They are doing everything they can to make debt more readily avaiable. Heck, the news even says that if we all reduce debt, that it will make the economy worse. This is mind boggeling. As the Magambo Guru states: "we are all freakin doomed."
     
  6. silentpoet

    silentpoet

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    This Old Caddy
    I am working to get debt free. I have set up an emergency fund to make sure I don't get into debt for stupid repairs or other things like that. I have been slowly working on getting caught up on my debts. Now I am trying to get ahead and eliminate them. I am switching jobs to a different company that pays a bit more for the same type of work. In general I have been doing a good job of not adding new debt for over a year now, aside from the house. It is a process of becoming more secure. We prep because we have concerns and wish to remain secure. We have all seen layoffs, either in the news or in our own lives. People with good jobs who lose that income to serve their mountains of debt. When you don't have debt and have savings and other preps, losing your job is probably more like a vacation than anything.
     
  7. Cajunmudman

    Cajunmudman

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    Jul 2, 2008
    Louisiana
    Plus when you dont have debts, and in a good financial situation, it is a whole heck of a lot easier to tell some one to " GO %$#@ themselves and this job". Which to me, is the single sbest reason to be debt free.
     
  8. racerford

    racerford

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    Apr 22, 2003
    DFW area
    People believe it is possible to truly own their own home, and thereby be safe, at least from a place to live perspective, in an economic downturn. I am not convinced it is possible to completely own your home. Just try not paying your property taxes.......


    In time, you will find the government owns your home.........

    At best, you can get to a place where you can rent your home from the government for a relatively small fee. It is a very sad thought.
     
  9. certifiedfunds

    certifiedfunds Tewwowist

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    Houston
    Unless you take them in deep enough.

    Its the old, "Owe $100,000 to the bank and can't pay, YOU have a problem."

    "Owe $100,000,000 and can't pay, you BOTH have a problem"
     
  10. UneasyRider

    UneasyRider C.D.B.

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    Dec 1, 2005
    I think that most people today need to answer this question as short term and long term debt, I did. Lets say you are a family with a mortgage, a couple of car loans and some credit cards. Right now it's no problem that your monthly debt service is $1,750 but soon it may be a problem for you if you lose your job or something.

    This was me, I combined it all into a $650 per month payment on a 15 year mortgage that is only 5 years longer than my present mortgage term. So my debt service is now cut by $1,100 per month and my rate of interest is lower and fixed at 4.625%.

    I also get to keep my cash for when stores start to close and really give stuff away cheap.

    Most of our money is in IRA, 401K and 403B accounts and a pension that may be ok or may turn out to be worthless in a hyperinflation situation, we try to keep it as safe as we can but who knows what life will bring. Right now I think that the best stock in America is on the shelves of your local grocery store.
     
  11. RWBlue

    RWBlue Mr. CISSP, CISA CLM

    23,523
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    Jan 24, 2004
    I have never seen this. Unless someone is committing fraud, this should never happen. Remember all your loans are secured with the property or multiple properties. When you go belly up, they should get your property. In normal times, your properties should cover the owed value of the loans.

    I have been told about people who owed a good bit on their house and the bank renegotiated/make half payments until they could get themselves out of trouble.
     
  12. Jim in MI

    Jim in MI

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    Feb 16, 2004
    West Michigan
    It's a corporation thing. A corporation can get big enough and have enough debt that it would be pretty painful to let them fail, and the corp and the bank will go down together.

    My business has 3 corporations that we operate under. The business "name" is one corporation xxx, the real estate is a different one xxx properties, and all of the employees work and get paid for a different one xxx resources. This is to spread the risk.

    As far as I know I don't have one loan out that is secured with property or other assets.

    I pay taxes on income, like you. The business has to balance out every Dec 31st and "saving money" to pay for something we need increases our taxes. Money in the bank is not a good thing come Dec 31st. Taking out a loan makes things a little easier. So....we can pay interest or we can pay taxes.

    When I was 18 I couldn't afford to pay cash for my education, so I took out 120K in student loans, and now I make about 30K per month. Without student loan debt, I would be pumping gas or greeting people at Wal Mart.

    I hear people talk about no debt (which isn't really that bad) but there are other ways to achieve the same goals, risk and s&p wise, with trusts/LLCs and insurance.

    What about MORTGAGE INSURANCE. Don't all of these high risk people have mortgage ins? Why are the foreclosures killing the banks? Shouldn't the banks still be getting paid by the ins. companies. You have to have 20% down to avoid mortgage ins. so what gives?
     
    Last edited: Feb 16, 2009
  13. Usingmyrights

    Usingmyrights Jr Member

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    Jul 4, 2005
    Jacksonville, FL
    I'm hoping to be debt free by summer and still have a little bit in the bank. By the end of the year I'm hoping to have 5 digits in the bank and still be debt free. I doubt that will happen though, because I'm thinking about getting a new (to me) vechicle and there's a few toys I'd like to buy.

    ETA: Just looked at my accounts and decided to go ahead and pay a little more on my CC and signature loan. Other than those two, all I have is the tires for my truck which is no payments/interest for 12 months. I'm going to pay off all of the accounts with interest first, then knock out that one in a month or two.
     
  14. Usingmyrights

    Usingmyrights Jr Member

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    Jul 4, 2005
    Jacksonville, FL
    While I agree people often buy more house than they can afford, paying it off in 5 years would be extremely hard to do unless you make decent money. For you're average income its not going to happen.
     
  15. certifiedfunds

    certifiedfunds Tewwowist

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    Houston
    Trump.

    I ain't trump obviously. Jus sayin.
     
  16. cnutco

    cnutco

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    Jul 8, 2008
    NE GA
    I am in debt... but only my house.

    2 cars = PAID FOR
    1 motorcycle = PAID FOR
    guns and other toys = PAID FOR
     
  17. Big Bird

    Big Bird NRA Life Member

    9,706
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    Aug 7, 2003
    Louisville KY
    The danger in debt is two fold...

    First--it requires regular payments. Most debt is monthly. Some is more frequent but some is less frequent. Regardless it requires service. Servicing debt requires cash flow--income--source of funds. The risk comes when the unforseen happens and your cash flow is interrupted. Then your ability to service your debt is diminished. Now the lender has power--the power to collect, the power to take, the power to destroy.

    Second, debt is easy to incur--difficult to pay off. Take a look someday at your personal balance sheet. Add up all the stuff your own, add up your total debt. What's your net worth? Is it positive or negative?

    Compare how much you make each year to how much you pay in interest each year. Who are you working for? Yourself or your lenders?

    Unfortunately people don't look at it like this. They think because they can afford the payments they can afford the item. With the exception of a home very few things appreciate in value over time. That means your struggle to increase your net worth not only is battling the interest you pay to your lenders but also the depreciation on the stuff you bought.

    A business will incur debt as a source of capital--to put the money to use to make more money. This is has many of the same risks that it does at a personal level but the difference is when its done on a personal level its not generally geared towards making money but buying stuff that has nothing to do with making money. BIG difference. The business is making a cost of capital decision... At a personal level you are involved in buying crap.
     
    Last edited: Feb 16, 2009
  18. RWBlue

    RWBlue Mr. CISSP, CISA CLM

    23,523
    833
    Jan 24, 2004
    Jim in MI, you are right. I am assuming personal debts, morgages....

    As far as your question about morgage insurance, and failing banks, I think I understand what hapened, but it would take a long time to explain.


    As I understand it Trump as multiple corps setup. He was never close to going belly up. He was protecting himself from his x-wife.
     
  19. RWBlue

    RWBlue Mr. CISSP, CISA CLM

    23,523
    833
    Jan 24, 2004
    Corp debt is different than personal debt. This is just for personal finance.

    IMHO,
    Good debt: Good debt is any debt that pays for it’s self. You bought that new stereo on the credit card because you had to have it “NOW”. You are going to pay it off over the next year. This is bad debt. That stereo is going to cost you three times as much because you had to have it now.

    Good debt: Good debt is when your debt is working for you. Let’s say you own rental property, which is renting for a little more than the mortgage payment. This is good debt as long as the properties remain rented and you have good renters. The properties continue to appreciate and someone else is earning you money.

    Then there is everything in the middle.
    Credit cards are not a problem as long as you pay them off every month, EVERY MONTH WITH THE MONEY YOU ALREADY HAVE IN THE BANK.

    Renting a house vs. buying a house.
    I am going to argue against ar15_dude “only if it can be paid back in 5 years or less”. I don’t know anyone who can afford to pay a decent house off in 5 years. Yes, you can buy something in a crime ridden neighborhood, that is falling down, but that is not a good investment. Neither is staying in an apartment for an extra 10-15 years until you can afford to buy that nicer house, because you are paying off someone else’s good debt and that nice house has now appreciated to a point that you cannot afford it.

    Now I am not suggesting that you go out and buy the largest mansion you can get a loan for either. You think I am kidding here, but some realtors actually suggest this saying that your house is an asset and will appreciate. You still have to pay for it. You cannot recover the money from your asset without taking out another loan or selling your house. This is bad debt.

    What I am suggesting is buy the minimal house that you will need and only after you have a slush fund. I have heard people say have payments set at 30% of you salary. This sounds like a good idea. I have heard people say get a 30 year loan and make double payments. I am against that. I would suggest getting a 30 year loan and if you want to make double payments, make them to yourself. When you have enough money to pay off your house, you have the option of paying it off. What you don’t want to do is be close to paying it off and run out of money. The bank will follow their proceedure whether you own $10 or $100K on your house.
     
  20. silentpoet

    silentpoet

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    This Old Caddy
    This is not so much a debt idea, but it does relate to spending money. When you are going to make a purchase you have to ask yourself if it will be a quality item? Will it last and be usuable for a significant time? Also is it a good price, can I get it cheaper? Does this item fill a need or is it a want? Also look at ongoing costs. For example car insurance or fuel mileage. Or for a gun ammo price. Basically when you pour the money out you must make wise decisions. This impacts debt because wise spending reduces the times you incur debt. Wise purchasing is an important part of debt reduction.