Saturday, April 11, 2009

Debt, Babies



Lifestyles in this country are out of whack. We have become of nation of people who cannot live within our means, finance everything, own nothing, and our lives revolve around monthly payments. People drive cars they can't afford, buy houses beyond their income bracket, and will make the minimum payments on their credit cards for the rest of their lives.
I recently stumbled across Dave Ramsey and think that he's got it right. Eliminate all of your debt as fast as you can and pay for everything with cash. Cash is king. If you don't have enough money to pay cash for something, then you can't afford it. His website is a little cheesy and looks too much like a stereo typical self-help program, but I listen to him on the radio and he gives really sound advice to callers.


"Myth: Debt is a tool and should be used to help create prosperity.
Truth: Debt is not a tool; it is a method to make banks wealthy, not you.

Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt then you're a slave, in the sense that you do not have the freedom to use your money to help change your family tree. According to a recent USA Today article about debt, 78 percent of baby boomers have mortgage debt, 59 percent have credit card debt, 56 percent have car payments.

It takes a lot of will, discipline, courage and help to slay the debt monster. But it can be done. Imagine how much you could put toward retirement if you just didn't have a stinking car payment? This is how the wealthy build their wealth. Debt is really dumb." -- Ramsey

What he preaches seems like simple common sense, but this is not how the majority of Americans are living today. Most Americans have various debt payments (student loans, car debt, credit card debt, etc...) and yet they live lifestyles that consume every penny of their monthly take-home pay as the interest on their debt continues to dig them deeper into a hole. Think about how much money is wasted in interest over a person's lifetime.

Our society is set up to make us think that you are suppose to finance everything, but you have to break out of this cycle if you ever want to truly get ahead. Too many people in this country are consumed with image and appearance. I know lots of people who have no money, but you would think they were loaded by the car they drive and the house they live in. It's an illusion. They don't own anything and most of their monthly income evaporates because they are trying to keep up with the monthly payments of their lifestyles.

If you want to get ahead in this life, you have to be different. You have to get out of debt in order to really start building wealth.

54 comments:

  1. Debt is how they getcha. Get into debt and your back in the feudal system. Nothin' but a serf paying fealty to your lord. Well, debt and the income tax...and social security...aw who are we kidding? We're all a bunch of serfs. The Bill Of Rights was all a dream. Just tend to your plot o' land and do the best you can to be happy. Just so long as our beneficent lords at the Federal Reserve allow us enough rations to get us through the winter.

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  2. I am personally a big fan of debt, but to each his own...right?

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  3. For the most part I agree with you Jake. Although, I feel there are a few things that will cause someone to go into debt that to me seem necessary. Those are school, house, and car loans. With that said, I do not believe the debt for these should be out of control. Someone just out of college should not go buy a house or car that is ridiculous and completely out of their means.

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  4. I like how you post you favorite and least favorite film and it sparks 46 comments, but you write this very in depth post on how we are slaves to the banks and...nothin!

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  5. I don't really think mortgage debt can be included as part of the argument here. You have to live somewhere and paying the same amount of money for renting a place to live is not a better option than accruing the debt and then slowly gaining equity. You can take advantage of debt and use it as a tool to make money, but in general I agree with everything in the post. I have spent over 10 grand in the last year trying to get out of debt and will probably not be where I want to be till I'm 30. I have never been one to just go crazy with credit cards or anything like that, but when you go through a couple rough patches it's really easy for it to build up on you.

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  6. I don't think going into debt for a car is necessary. Why can you not save up for the car you want and pay cash? People take out a loan to buy a car because it is more than they can and should afford.

    Regarding a house note, your payment should not be more than 25% of your take home pay with a 15 year fixed rate. Most people get mortgages and just make the minimum payments for the rest of their lives. But the goal should be to pay it off and eliminate the debt as soon as possible. Most people's house payments eat up the majority of their monthly income.

    Regarding a school loan, many of the people I know worked through school and payed for it that way. Why do you have to take out a loan? Too many people go to schools they can't afford and get degrees that they don't even use in their jobs.

    I think our society has trained us to think that you can and should have a healthy amount of debt as part of your lifestyle (i.e. car, house, credit, etc..). But that mentality has left us enslaved to credit organizations. And as Brett pointed out, once you get behind, it's really hard to get your head back above water.

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  7. The credit score is a joke too. Many people say that is why you should make payments on things...so you can 'build up your credit score.' Well the only reason to build up your credit score is so that you can take out more loans and debt. It's a never-ending cycle. If you stop using credit to pay for things then your credit score will go down. But who cares? If you don't need credit then it doesn't matter what your score is.

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  8. I agree with everything but the school loan part.

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  9. One more opinion...I've also heard people say that instead of paying off their car loan, house mortgage, or student debt, they would rather save the cash and invest because they can make more money in the market. That's foolish. Paying off one of the above listed debts makes you a guaranteed 5-10% (depending on your interest rate) because you are no longer making those interest payments. Investing in the market is not guaranteed and most people here lately have been losing money, not making it. Don't get me wrong, I'm not against investing in the market, everyone should as part of a balanced financial portfolio. But investing should only be a part of your strategy, and if you have debt you should be allocating the majority of your money to paying off your debt first.

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  10. I don’t think that it is fair to assume that anyone can work through school and pay for it. I worked 30-40 hours a week as well as going to school full time, with only one summer and semester where I didn’t have a job. This only allowed me to control my student loans not eliminate them. I will admit that I could have made more of an effort to spend less in college; however I don’t think that would have eliminated my debt either. Also working through college is not for everyone. It was very difficult to attend architecture school and work full time due to the time requirements of that degree but it isn’t fair to say that if you can’t handle it than find a different major over applying for student loans. I agree with most of the items on the “pay cash for it” list but student loans shouldn’t fall into that category.

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  11. Jake I do think you are being a little extreme on this one with saying that all debt is bad debt. I don’t know much about what Dave Ramsey thinks but I don’t think I agree with him. Debt seems to be a necessary tool for many Americans to make something for themselves. Since not everybody has the same advantages in life, debt really is a tool that, if used properly and is well-managed, can allow you to follow the American dream. With this said though, I don’t think that all debt is good debt. I think that all credit card debt is bad debt, regardless of your reasons. That is where I agree with you Jake that you can’t make credit card purchases when you don’t have the cash or cash-flow to support your purchase. Squeaking by with minimum payments on your card is not benefiting you one single bit. However, if you have the cash-flow available (i.e. the required payments would be low enough to be covered by your monthly income) and you are willing to pay the finance charges on top of the purchase price, then finance the crap out of the big screen TV!
    And of course debt is set up to make money for the financier. Lending somebody money is a service / investment and a profit / positive return is expected from this. You do make a valid point that our lifestyle has made us more dependent on debt to make all the crazy purchases we do just so we can keep up with the Jones’. But intelligent debt management can allow a person to have opportunities that may not be possible otherwise.
    Small businesses are what first come to mind. You can’t save up enough cash to start the majority of prospective businesses. So you develop a business plan that will accommodate your financing and will eventually pay off your note and begin to turn a profit. That is smart debt management that will hopefully turn into cash-flow. I also think that you can have smart debt management with a house or a car note as long as you do not get in over your head. I do feel a house is a better thing to finance just from the potential appreciation over the original note value, but to my point, you can find out ahead of time what your approximate interest rate will be on a house or car loan before you start looking for said house or car. You also should know your monthly income along with all your other monthly expenses. From this you should also be able to figure out what your maximum monthly payment would be. With this knowledge, for either a car or a house, you now only look at your options that fall within your monthly range. It is not a complex concept but many Americans choose to not follow this and thus get themselves in credit trouble.
    And Brett is right with two things. First, sometimes you don’t know what life is going to throw you and the fact that you can get loans and credit fairly easily in America is a great thing. I have no doubt that the availability of credit and financing programs have made the difference for family’s fighting illnesses, natural disasters, etc. They may have problems getting out of debt afterwards but at least they had an option to make what was required happen. If they don’t have debt to turn to, what are their other options? Either sell everything they can and move to the streets or require an additional tax program to help them, which comes out of your pocket (and we know how much you hate paying for other’s stuff!).
    Brett is also right on the fact that it is a little ridiculous that there have been almost 50 movie comments and only a short few on this topic. But you do have to consider too that Jake posted this on a Saturday and I am rarely bored at work then, ready to check his blog!
    P.S. Sorry this was so long!

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  12. I think you are taking a little bit of a strong stance here Jake. There are plenty of successful business men who will tell you to buy things with other people's money other than your own. Many sports team owners will buy their teams with a loan as opposed to using their own money because they feel they can better use their own money to make up for the interest that will have to be paid on their note.

    Selecting the right house to buy is just as important as the terms of your loan. My grandparents made all of their retirement money by purchasing homes and then selling them after their value increased. I'm not sure what kind of loans they had, but if the value of a house doubles in ten years then it doesn't really matter.

    Also, my brother is about to borrow 50,000 dollars to buy 1/3 of the bar that he has been working at the last few years. It is a very stable business in a tourist town that only has a few competitors. Even if the profits he makes is only enough to pay the note on the loan, he will still be gaining a lot of equity while he continues to bar tend.

    I agree with a lot that you have said but there are good reasons to use credit to your advantage, although most of the debt accrued by most people do not fit into that category. If you have good business sense and good timing you can make a lot of money using other people's money, but in my opinion that is really the only time that it is good. There is no doubt there is more risk involved as well, but the bigger the risk, the bigger the reward.

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  13. Once again it appears that Brett and I agree. I love you man!

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  14. There is one more point I would like to make on this. You can spend your whole life making wise financial decisions. Don't go on that vacation that you buddies went on...don't but that HD TV because you can't afford it. And maybe all of those wise decisions will pay off for you in the end and you will retire at the age of 47. Or maybe when you are 46 you get hit by a bus and you let the best in life pass you by. Life is a gamble regardless of what decisions you make.

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  15. 1. Is it just me or is everyone hoping that Texas leagalizes gay marriage so Brett and Justin can finally get married?
    2. The 50 comment movie posting happend over the course of a full work day, give this one time. I posted this one on Saturday because I thought I was going to be out most of the day today. But as it turns out I am in my office trying hard to work on stuff until I see a comment that pisses me off.
    3. I agree that it is not realistic to have enough cash to start a business or buy a house. But I think the goal should still be to pay off the debt as soon as possible.

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  16. I agree that you have take risks if you want the big rewards in life, but they have to be calculated risks. Just taking a risk hoping it might pay off is foolish. You have to everything possible to leverage the odds in your favor to make sure that it's a smart risk.

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  17. Eric- I hear you, I also worked through college. But most of those people taking out student loans, take out the full amount offered to cover not only room, board, and tutition but also to fund their lifestyles (i.e. going out). So of course they cannot sustain their budgets by working while in school. Additionally, when people get out of school with thousands of dollars in student loans, what is the first thing they do? Start paying off the debt or buy a new car? My point here is simple, our society has become a payment oriented, debt burdened culture. You are taught and raised to take on debt so you can do the things in life you want to do. Everything you want in life can be financed with low monthly payments. But until people realize that they have become trapped in that cycle, they will never break free from it. Put a pen to paper and look at how much you actually paid for your car, your house, and your education once you have made all of your payments. It's insane.

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  18. So Jake is your opinion still all debt is bad debt or are you starting to agree that well-managed debt with payments above your monthly principal when possible and is paid off at or before the note's planned end date assuming that all planned principal payments fall within ones' monthly expense budget is constructive debt that can be a tool for growth?

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  19. Well, you have to have debt as some point in your life. Now I agree with you Jake, people and their debt are out of control. I agree with Sarah and Eric about the three things you really will ever have debt on.

    A mortgage is a must, there simply is no other way unless you live in an apartment for the rest of your life. Like Jake said, your payment should be no more then around 15% of your income. A 30 year is fine when you are young, but as you get older it really should be a 15 year note.

    Second would be school loans. I would say 80% of people have some type of school loan. Like you said, people should pay it off as soon as possible and not go to a college they can't afford. I was very lucky to have no school loans, but that was because my mom and dad paid for a third of it and I paid the rest by working 30 hours a week. I was one of the higher paid in college jobs, out of all my friends and there is no way I would have not had debt without my family.

    Third could be car payments. I don't think its something you really would have to do, but most of the time it makes more sense to spread out the cash. With that said, I do plan on buying our next car without loan.

    Finally,
    I pay everything with a credit card, even a 1.50 coke. Now, I have never ever carried a credit debt. Having debt through a credit card is the worst debt around, it will kill you. I personally do it for my airline miles :-)

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  20. No. I don't look at debt as a tool or think that you can 'well-manage' it. Debt is something owed to somebody else...meaning you don't own whatever you are making payments on, it's not yours. Growth comes through investment and savings, not taking on debt.

    I can accept that there are some things in life you have to take out a loan for, but I believe the best strategy is to pay off the loan as soon as possible, which is not what the majority of people believe. I don't think debt payments should be part of a 'well-managed' budget. It should just be paid off.

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  21. 'spread out the cash'?? I don't know what that means, but usually people take out car loans because they can't afford to buy the car. Why not save the interest and pay cash? If you don't have the cash, why not drive an old cheap car and save up to buy the car you want. Taking on debt is about making choices. People choose to spend money they don't have, good or bad, that's a fact. I just think we would be a lot better off if we restrained our consumeristic impulses a little more, saved a little more money, and stopped financing everything.

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  22. On a personal scale, you almost have to go into debt to acchieve any acceptable standard of living. But, in the grand scheme of things, money lending, by it's very nature, exploits those lower than the lender in a giant pyramid scheme. It's certainly possible to use debt as a tool to build personal wealth but there really aren't very many who really win the debt game. The whole system of money lenders, i.e. large, private, multi-national banks, is presently consolidating both smaller lenders and the borrowers driving a further wedge between the top and bottom of said pyramid. All it really does is make a select few even more filthy rich while more and more middle class folks fall into the lower class. If anything, I think debt should be avoided so we can stop feeding the pockets of the filthy rich.

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  23. Help me understand, maybe I'm confused. Why would you take out a car loan and pay $5-7k extra
    for the car over a 5 year period (i.e. a $25k car really costs you $30-31k when financed over 60 months)? Why not just restrain yourself, keep driving the car you have, save up the money, and pay cash for it? Am I missing something? Oh that's right, it's because we're the generation of instant gratification. When we want something, we have to go get it right now because as Brett pointed out, who knows we might not live to see tomorrow so why bother planning. You actually paid $31k for that car you bought for $25k. You actually paid $42k for your $30k in student loans. You actually paid $321k for your $200k house. Banks and Credit organizations have you by the balls. The only way to escape is to stop financing stuff as much as you can and only buy things when you can actually afford them.

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  24. Your stance is so strong and one sided it is impossible to agree with you Jake. I don't consider my car to be a bad investment whatsoever. Cheap old cars are unreliable and less safe, causing all kinds of unexpected expenses. Taking the chance of buying a lemon for cash is way riskier than financing a new car with a warranty. I may have to make payments on my car for six years (I'm half way there), but I bought a reliable car and I drive it responsibly, and I should not have any issues with it for years after the payments are gone. Sure, if I went and traded it in for another car soon after paying it off or even worse before, then I agree that would be stupid, but I bought my car with the intention of driving it till the wheels fall off.

    There is no doubt that as a society we have all kinds of bad spending habits, but to make everything so cut and dry is ridiculous. It's all about personal choice, and what you want as an individual. Taking a year off of work to travel the world is in no way a wise financial decision, but I'm sure to those who do it there is nothing you could offer them to take away that experience. I personally enjoy my nice reliable car, and in no way regret buying it as opposed to the $3000 hunk of junk that I could have afforded at the time.

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  25. I still own a '99 4Runner and it has never had any problems. You can't assume you're going to get a lemon just because you buy used.

    I also bought a new car, leased it, and then purchased it. I wasted a lot of money doing this. But rest assured that I will never make this mistake again. From now on, I will save up and pay cash for any car that I want to buy. Why pay an extra 5 years in interest on a car loan, when I can just be a little more patient, work hard to save my money, and buy it out-right?

    I'm not arguing with what people spend their money on, but rather people spending money they don't have. Travel around the world and pay cash: no problem. Travel around the world on credit cards: stupid. Buy a car with cash: no problem. Finance/Lease a car: stupid.

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  26. I think the morale here is Jake is highly against people buying something they can't really afford. I also don't think he would count someone if their car broke and got a new or used from a dealership with a small loan and paid it off quickly. To me it sounds like he is talking about the people how should only buy a 15k car and go get a 25k car. Same thing with a house. Does that sound correct Jake?

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  27. Look, agree with me or not...it does not matter to me. But here is the way I see it for the record:
    - People who become truly wealthy in life get out of the debt cycle. They invest in their future by eliminating debt from their lives.
    - People who finance everything own nothing. Just because you make payments on something does not mean you own it. If you have to finance it, you cannot afford it.
    - Debt is a choice. You can either go into debt to buy something or you can restrain yourself, save up, and buy it when you can actually afford it.
    - If you have any kind of debt, which most people do, then you should do everything in your power to get out from under it. Make additional payments, convert your lease to a sale, sell it, etc...

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  28. I agree with all that stated above Jake. Plus while you are waiting to buy the new car you are earning interest on your cash instead of paying interest to a bank.

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  29. Kevin - Yes, pretty close to what I was saying. But in the scenario where your car breaks, you shouldn't need to go take a loan. You should always have a cash emergency fund for when something like that happens. On top of that you should also have 3-6 months of living expenses in cash in case you lose your job.

    To me, there are two types of people as this blog as clearly shown:
    1. People who think debt is bad
    2. People who think debt is a necessary part of life

    I fall into the first category. My goal is to not have any debt, including my house and to be able to truly live debt-free. I don't think debt is necessary, I think it's a choice.

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  30. That is true, you should have a big chunk of change for emergency reasons. I would fall in the top categorize, except of the house. Home debt when you are younger can't help with your taxes as it is a write off...but with that said, if I had the choice, I would still choose to have a paid off home instead of going an getting another home with another loan.

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  31. It's just not feasible to stay out of debt your entire life. Debt is pretty much unavoidable unless you have the majority of your material needs provided by somebody else. Jake, I am afraid that you are looking at how your situation was in college and the first part of post-graduation and wondering why the rest of the world can't follow suit. We were both very fortunate to have our tuition paid for by our parents. We were both very fortunate to have our cars paid for by our parents. We were both very fortunate to have our living expenses paid for by our parents. Now you took it a step further and were smarter than me by having a job virtually the whole time you were in school. You took advantage of your no-payment situation and were able to save a decent amount of money to get your life started. You used some of that money as a down payment on a house (which you financed) and maybe you bought Cindy's car with some as well (I don't know, just taking a stab). Regardless, the reason you were able to stay relatively debt-free is because your income greatly out-weighed your expenses.

    And also, think about a family of 3 living off of a $50,000 annual salary. If you take into account all their monthly expenses (mortgage/rent, home/renter's insurance, utility bills, etc) plus you assume this person is putting away money into a long-term savings account as well as a college fund for the child, then this person is hard-pressed to save more than $500 a month towards that car he wants/needs. Even if you wanted to buy a $3000 junker it's going to take you 6-months to get there. Then, as Brett points out, this car might fall apart on you 6 more months down the line. Since you have a car, I doubt you are putting that extra $500/month towards a new car fund so now you have to start from scratch. Or this person could finance a respectable and reliable used car at $10,000, have $200/month payments and not worry about anything. Not to mention he doesn't have to wait 6 months to have a car (which, unless you live in a major metropolitan area with a good mass transit system, is a necessity in today's world).

    I am usually extremely opinionated along with you Jake but I also think that I take into careful consideration what others say and their background experiences. This just seems to be a topic where you won't budge from your stance so it almost seems pointless to keep debating. I think we all agree that lots of debt is bad and that any unnecessary debt (i.e. credit cards) should be paid off as soon as possible. Where we all differ from you is that we feel debt is unavoidable and that you can benefit from managing it properly.

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  32. it's not even a full work day and already we're at 46 - er, check that, 47 comments. Nicely done guys :)

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  33. nevermind.. I read the comment thing wrong. So step up the pace!

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  34. Justin, thank you for that last comment I was in the process of writing the same thing, and you probably said it much better. I agree. You have to take in account what people have to start with and also what their income is now. If you don't have much to survive on in the first place it takes that much longer to save. It also helps when you have two incomes to help in the savings, etc.

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  35. OK Jake....first of all, your supposed 5-7 K that you waste by financing is complete bunk. If I add every penny I am spending on my car it equals about 22,500. Sticker price was about 20,500. That's 2K. There's plenty of offers out there for extremely low financing.

    Second, you can't use your one example of one used car to argue my point of buying a lemon. I know plenty of people who have gotten screwed buying used cars. I have driven two cars since I was 17 years old, both bought new, and I have never spent one penny on any issues with my cars other than the usual replacement parts. My brother had to drop $1,500 on his used car less than a month after he bought it. That just comes with the territory of buying cars "that you can afford".

    If you want to save up and buy your cars in cash I applaud you for that Jake. I don't think there is any doubt that that is what's best. If you are in a place in your life where you can afford to do that, then that's great. I also don't see you making any sacrifices that you are asking other people to make by doing the same thing.

    What's funny is that I agree with the general point you are trying to make with all this, but once again you are taking such a narrow minded, 1 sided stance. How can buying my car be a stupid decision when I am more than halfway done with the payments and I am still happy with the decision that I made. You are basically telling me that I am stupid, because I just can't understand this incredible knowledge that you are dropping on all of us.

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  36. Justin - No reason to make this personal, I did not use specific examples so there is no need for you to. And give me a break, all of us have had much more ridiculous arguments where we refused to budge on our point of view, case in point: time travel.

    To be honest, I think that saying debt is an unavoidable part of life is a loser's mentality. Throwing your hands up and saying that someone has to go into debt just to live is ridiculous. In the example you gave, all of those expenses listed are choices. You choose to have cable, you choose to eat out instead of PB&J, you choose what type of place you live in, and you choose your job. I read every post on here very closely, but I won't back down on this basic premise which we appear to keep coming back to: Your life is what you make of it and you are responsible for your decisions.

    I am in debt, I have a mortgage payment. There is no point debating on whether I was stupid for getting into debt in the first place because I am where I am, but my strategy now is to get out of debt. I am choosing not to take on any additional debt of any kind. It's irrelevant how much someone makes or how much debt they have, there is only one smart direction to go and that is to reduce your debt.

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  37. Brett - If you agree with my point I don't see the problem. I have admitted that I had a car payment, I have a house mortgage, etc... I just think that financially, it's smarter to buy things with cash rather than finance them. I understand that there are always extenuating circumstances and that doing it this way will make you wait longer to buy things, but I don't see a problem with that. This isn't about how much money someone makes, but rather how you handle the money you do make. Do you disagree? The same principle applies whether you are lower income and are saving to buy a Ford Echo vs. a rich person wanting to buy a Ferrari.

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  38. and one more thing...

    I agree with everyone that life is messy and not everything fits into a neat little box. But principles are black and white. Values are right or wrong. What I have been arguing has to do with values and principles. My life does not fit neatly into a debt-free box, but what is wrong with advocating that principle and striving to become that?

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  39. But you would go into debt again Jake to get your house you have now, correct...you would not change that choice like you would about the car as stated before. You are right, debt can be avoided, by living in an apartment and doing the other things you stated like saving for a car and not living outside your means. Living in an apartment for the rest of your life is not owning it though, just as you taking out a loan for a home...but you aren't in debt. So, truly debt then is only UNAVOIDABLE if you want to live in a house.

    I personally only thing credit card debt is stupid, I don't feel people are stupid for getting home loan, school loan, or really even a car loan as everyone is not good a setting aside their cash. Same concept as not everyone is good at doing their taxes, so they pay someone to do it for them...I look at a car that way. Why, I could personally set a side 250 a month for my next car right now, a lot of people would rather pay someone an extra 30 a month for them to do that for them.

    Oh, also...sorry Casey as I am not proof reading anything, its my downfall I know.

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  40. Jake, you are making the assumption that everyone out there has the potential of making something great out of their lives the way you do. But the stone cold truth is that they don't. The majority of people in this country are not as smart as you, did not get the education you received, and don't have parents as well off or as generous as you do. It's really easy to say that we should all be living debt free but that is not a possibility for most people, unless they want to rent an apartment and lease cars until the day they die, which I hope you are reasonable to admit is worse than having mortgage debt or financing a car.

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  41. Brett, I have to disagree with you only on the potential of making something great comment. That is the point of America, you have the potential to do anything if you put your mind to it hard enough.

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  42. Sorry Jake, I’m not trying to make it personal either I was just trying to give examples that might hit home because I don’t think anything being said by anybody is getting through to you. I now have some issues with the breakdown of your views.

    “People who become truly wealthy in life get out of the debt cycle. They invest in their future by eliminating debt from their lives.”
    Yes, I somewhat agree but those people almost always enter the debt cycle at first in order to have the capital to invest in themselves, whether it is a house or a small business. The goal of your business is to turn your initial debt into a profit. And big companies still use debt to further business. They borrow money all the time from either bank lenders or investors. Those lenders and investors expect a return on their investment and the business makes a plan to ensure that all the debt is paid off before reporting true profits. And really that last sentence doesn’t make any sense. You’re not investing in anything by eliminating your debt. You’re simply decreasing your assets in the process. As long as your assets are greater than your debt you are good to go.

    “People who finance everything own nothing. Just because you make payments on something does not mean you own it. If you have to finance it, you cannot afford it.”
    This is ludicrous too. What do you think happens at the end of your 5-year or 30-year note? You own whatever you financed. In fact, you can immediately claim it as a personal asset. And if you can finance something that is paid by your normal means of income, then that absolutely means you can afford it. All I am doing by financing instead of saving and paying cash is accepting that I am paying a service fee of whatever the interest totals at the end of the note. If I am okay with paying however much extra is required to finance and the monthly payment falls into my allotted budget, then I see absolutely no issue in doing so.

    “Debt is a choice. You can either go into debt to buy something or you can restrain yourself, save up, and buy it when you can actually afford it.”
    Most times, yes but there are circumstances where you have no choice but to go into some debt to make ends meet. But again, this goes back to me disagreeing with the statement “If you have to finance it, you cannot afford it.”

    “If you have any kind of debt, which most people do, then you should do everything in your power to get out from under it. Make additional payments, convert your lease to a sale, sell it, etc...”
    It depends on what kind of debt. Credit card and other frivolous expenses should definitely be eliminated as soon as possible because your APR is usually ridiculous. You won’t be financing a house or car or small business loan at 18%. Any other debt from assets is not bad debt. Again, if you can afford the monthly payments and are okay with paying the finance charges then finance whatever you want.

    If you want to save your money and pay cash for everything, then more power to you and congrats for being financially sound. But for anybody else who needs one of life’s many necessities, just be smart about your purchasing decisions. Don’t buy a $25k car when you can only afford $15k. I totally agree with people getting into mass amounts of debt just because they want to keep up with the latest trends or look cool. If you don’t make the money, you just have to suck it up and live within your means. Otherwise you will join the rest of the masses who are in a world of trouble.

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  43. Jake, when it comes to the values and principles you state above,I agree. I believe a lot comes back to personal responsibility....even if that can be done through different avenues or paths.

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  44. Yes Jake, I do disagree. I do not believe I could have made a wiser choice at the time. My car was about to start wearing down and had 140,000 miles. I did not have the money to buy a decent car in cash, and I did not want to buy a cheap 3000 dollar car that was going to be unreliable and have a very short life. I bought a well valued vehicle that should last well beyond the 6 years I had to make payments on it. Do I wish that I had somehow saved up 15 grand by the time I was 23...sure....but it wasn't in the cards. And if I had to take away all the good times in high school and in college for that to be possible, there is no way I would do it.

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  45. Sarah - I knew I'd get you with that one, your hot button is personal responsiblity (that's what she said).

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  46. I knew if I said enough controversial things we could get this blog comment count up there

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  47. Hahahaha, did you just do that for Kelly....ahhh, family love.

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  48. Well after all this talk I have posted an ad for my car on craigslist. Hopefully I will get rid of it soon and I will be riding my already paid for mountain bike everywhere. It will be a rough ride home from the bar, but sacrifices have to be made. Jake - I am glad you found my hot button (not like that).

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  49. Let me amend my points after reading some of the latest comments.
    - I agree JB, people need to try and live within their means. Don't buy $25k when you can only afford $15k.
    - JB, by the own nothing point, I was simply illustrating that you do not actually own whatever you financed until you've paid it off. If they called the note for some reason and you couldn't pay the balance then they would take it. I know that doesn't ever happen, but I was making the point that it's not actually yours until you've paid for it.
    - Brett, Yes I agree that financing and mortgages are better than leasing and renting.
    - Sarah, I'm proud of you for doing what needs to be done to get out of debt. Look at the bright side, it will be good training for adventure racing.
    - Kevin, if I had it to do over again...I would still have bought my house but I would not have bought my car. I would have save up more money and when the Camaro finally crapped out I would have bought something that I could pay cash for. That's the truth.

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  50. Good post everyone, when are we hitting the bar...I got my new credit card with 18% interest today...drinks all around on Chase Bank.

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  51. sorry kevin, I won't be attending on principle

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  52. 51 comments, I'm so proud!

    I don't remember who said this, but it was something along the lines of not everyone will make something great out of their lives. I want to say that just because the big bucks aren't rolling in, doesn't mean you're not doing something great or worthy with your life or that you're education is lacking.


    FYI, I don't know how that came out via blog, but in case it wasn't well, this didn't offend me but I did feel like it was necessary to put out there.

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  53. I just got a BMW X5. It is SWEET!!!!!

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  54. ... and just because the big bucks ARE rolling in, doesn't mean you're doing something great.


    :)

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