Are You In Debt?

[SeerSGB]

I think the amount and type of info you have to turn over varies from state to state. From my experience in my little neck of east-tennessee it's very common for a landlord to ask for Name, Driver's license, SSN (for those doing credit checks), and a few have even required a security clearance from the county sheriff showing no drug or violence related convictions.

 

[SmoothieX]

I count mortgages (though I currently rent) and car payments (even though you only have them at times) standard debt.

My wife's last car payment is next month, I own my outright but the mileage is high and I will need one in 3 years or so.

I am paying my way through an part-time MBA program as I go, so I save what I can before each semester and then pay a chunk of my pay check weekly as the semester goes to pay it off. I owe $1100 left on a $2400 class this term, which I expect to pay off in 3-4 weeks, leaving the back half of this semester and winter break to save for my spring class. I hope to have more built up before that class so I have to pay less as I go.

I owe about $2200 out of $19,000 in college loans from my B.S. I got in 2002. I want to pay this off by next summer. It would have been paid off years ago, but I paid outright for my engineering masters and now this MBA, so there's less to go toward that. I plan to put the money my wife is paying toward her car toward this to eliminate it ASAP once she's done.

A couple hundred bucks on the credit card from time to time, but never a daunting balance at the end of the month.

We're sort of in pay off so we can save up mode now. With all the education and grad school, we had less money into our late 20s than many, but suddenly make good professional wages now to be able to erase the debt and quickly save for a house I hope. Better to pay off things charging interest first in my opinion.

 

[Holdfast]

I have a couple of mortgages, one on my own home and one on a buy-to-let. I think that's it.

Debt in itself isn't a bad thing, anyway. People worry too much about it because they don't understand it and are ill-disciplined, so they buy things with no value or potential to have value. Using debt to leverage, on the other hand, can have plenty of value if used correctly.

A yes/no poll on the presence of debt tells you almost nothing about anybody's situation and in fact encourages a poor understanding of the mechanics of debt.

 

[Scout101]

pretty much. Seems that most of the 'debt is bad' crowd is just over-reacting because of poor personal decisions in their past. Credit cards aren't evil, stupid decisions are. If you can afford to pay cash, a credit card is a great way to essentially just get another 1-5% off the price with rewards. Mortgages suck, and the sooner you can pay off, the better, but if you pick the right place, it can work out for you just fine. Student loans are debt, but an investment in yourself, and pays off huge over a lifetime, unless you major in 'undecided' or basketweaving...

The whole Dave Ramsey thing is intended more as an emergency repair thing, rather than a full time code of behavior. People that have failed in the past just seem to cling too hard to it, and kinda miss the point. Better than going too far the other way, but still not healthy...

 

[Deckerd]

I have a couple of mortgages, one on my own home and one on a buy-to-let. I think that's it.

Debt in itself isn't a bad thing, anyway. People worry too much about it because they don't understand it and are ill-disciplined, so they buy things with no value or potential to have value. Using debt to leverage, on the other hand, can have plenty of value if used correctly.

A yes/no poll on the presence of debt tells you almost nothing about anybody's situation and in fact encourages a poor understanding of the mechanics of debt.

I still don't see a mortgage as ordinary debt, since it increases in value the longer you pay into it. Any other debt doesn't do this; all it does is eventually reach zero. People seem to see a mortgage as debt and their home as an investment rather than the other way round.

 

[Daneel]

My old apartment complexes had me give them all my info, but this guy didn't, and when I rented houses during college, as long as the landlords got their money, they didn't give a shit who was living there.

Sounds like my situation. I was living in an apartment until recently, and they had a shitload of my personal information. A couple of months ago, I moved into a house that's shared by a number of people. I asked the landlord if he needed any references or personal info; he said first and last months' rent was all he needed. That probably should've set off some alarms in my head. Now I'm living in a cramped, dirty place with a bunch of other people, none of whom I know much about, and a few of whom I don't trust (I've noticed a few things mysteriously disappear over the past couple months).

Oh yeah, and to add to the shadiness, I'm not sure if everything the landlord is doing is legal. There are about eight people living in this house (maybe nine... I'm not really certain how many live downstairs), but he may not be allowed to rent out to that many people. In fact, there was a city inspector in here just last week, and the landlord told him that a couple of the rooms are given to friends and relatives at no charge (in reality, he rents them out to people, just like with my room). Sounds a little sketchy...

To answer the original question, yeah, I have some debt -- credit card debt, to be precise. I'm hoping to pay it off soon, though (that's part of why I moved here, in an effort to cut my expenses almost in half). Once I do, I think I'll try to move someplace a bit nicer.

 

[Guartho]

The whole Dave Ramsey thing is intended more as an emergency repair thing, rather than a full time code of behavior. People that have failed in the past just seem to cling too hard to it, and kinda miss the point. Better than going too far the other way, but still not healthy...

That is not the intent of the Dave Ramsey Total Money Makeover. That's just the 1st 3 steps. The other 4 are about taking your cleaned up financial habits and turning them into permanent lifestyle changes by way of wise investing and other planning for the future. It is most certainly intended as a permanent behavior change. While you clearly disagree with the point, both as you perceive it and as it actually is, you seem to be the one who's missed it.

 

[Robert Maxwell]

I have a couple of mortgages, one on my own home and one on a buy-to-let. I think that's it.

Debt in itself isn't a bad thing, anyway. People worry too much about it because they don't understand it and are ill-disciplined, so they buy things with no value or potential to have value. Using debt to leverage, on the other hand, can have plenty of value if used correctly.

A yes/no poll on the presence of debt tells you almost nothing about anybody's situation and in fact encourages a poor understanding of the mechanics of debt.

I still don't see a mortgage as ordinary debt, since it increases in value the longer you pay into it. Any other debt doesn't do this; all it does is eventually reach zero. People seem to see a mortgage as debt and their home as an investment rather than the other way round.

A mortgage is like any other debt in the sense that you end up paying more by spreading out the length of time you have to make good on the purchase. It's pretty typical for you to wind up paying twice the actual value of a house by the end of your mortgage once you figure in interest. That $100,000 house cost you $200,000 when all is said and done.

What makes mortgages special isn't how they work but rather the type of asset they back. Few assets appreciate in value over time.

I think what you're referring to in a roundabout way is equity. That's not the value of the mortgage (or the house) increasing, it's just how much of the house you own outright at that point. The same thing could hypothetically happen with a car or any other secured, indebted asset if it depreciates in value more slowly than you're paying off the principal of the loan.

 

[cultcross]

I would always mentally separate the debt of a mortgage from the asset of a house. The two aren't that intimately interconnected, a mortgage is just a big loan to buy a house with. It's a sensible loan, because property is a good investment, but it's a loan nonetheless. You can still have the mortgage without the house if you're not careful. Equally, buying a house as a cash buyer doesn't change the value of the investment, it just removes the need for debt.

 

[Mr. B]

No. I'm a recent college graduate but I lived with my parents and went to night school while working during a day job to pay for it... so I'm good as long as I don't buy a house or something.

 

[Deckerd]

I would always mentally separate the debt of a mortgage from the asset of a house. The two aren't that intimately interconnected, a mortgage is just a big loan to buy a house with. It's a sensible loan, because property is a good investment, but it's a loan nonetheless. You can still have the mortgage without the house if you're not careful. Equally, buying a house as a cash buyer doesn't change the value of the investment, it just removes the need for debt.

Yes but a mortgage isn't an ordinary loan because it's very low interest compared with a standard bank loan. The model suggested that you end up paying twice the value of the mortgage may or may not be true but the point is it's over a very long period, so if you were paying back a bank loan for the same amount over the same period, you would be paying 3 or 4 times the principal sum.

Part of our mortgage is an endowment which we brought with us from our previous house. When endowments started performing like shit we started increasing the payment part of our mortgage to cover the forecast shortfall (although our endowment company has put aside a contingency fund to cover the shortfall in long-term endowments because an endowment that doesn't come back with at least its projected value after 25 years is clearly pisspoor investment management rather than the vagaries of the money markets). Either way, by the time our mortgage loan is finished, we end up with a lump sum and a house which is worth at least twice what the value of the mortgage was. All this for the same as renting a house would have cost us. It's a no-brainer.

 

[cultcross]

I don't think anyone would argue that a mortgage isn't a sensible debt to get into (assuming of course one can afford it). If your mortgage payments would not be dissimilar to your rent payments, you lose nothing in the here and now and gain a lot in the long term.
I'm just saying that it is, imho, unwise to tie up the idea of 'mortgage' and 'house' as if they were one thing. It perpetuates the idea that the banks enjoy that until you pay your mortgage you don't "own" the house. Which is nonsense. The loan, albeit secured on the house, is not a payment plan for the house. It's a loan. I think it's the presentation of property and mortgages as if they were one and the same that leads to the 'equity release' bollocks you see on TV - people thinking their home is not merely bricks and mortar, but some kind of bank for the money they paid into their mortgage. And they miss the fact that they're just signing up for a secured loan.

 

[kimc]

I still don't see a mortgage as ordinary debt, since it increases in value the longer you pay into it. Any other debt doesn't do this; all it does is eventually reach zero. People seem to see a mortgage as debt and their home as an investment rather than the other way round.

Ideally that's the case. However, thanks to the current market and my bad timing in acquiring a mortgage I'm one of those who has a mortgage that is "underwater". As long as I continue to make my payments and wait until the market in my area goes back up before selling I should be fine. The situation does leave me with less options though if I want to move for professional or personal reasons.

 

[SmoothieX]

Student loans are debt, but an investment in yourself, and pays off huge over a lifetime, unless you major in 'undecided' or basketweaving...

Agreed. But at the same time, it kinda sucks to pay them off given that you don't have anything tangible to show for it. At least with a car loan you've got a new ride...

Then again the engineering degrees put me in a better position to afford a car, but still it feels like you are paying off loans for nothing!

 

[Holdfast]

I have a couple of mortgages, one on my own home and one on a buy-to-let. I think that's it.

Debt in itself isn't a bad thing, anyway. People worry too much about it because they don't understand it and are ill-disciplined, so they buy things with no value or potential to have value. Using debt to leverage, on the other hand, can have plenty of value if used correctly.

A yes/no poll on the presence of debt tells you almost nothing about anybody's situation and in fact encourages a poor understanding of the mechanics of debt.

I still don't see a mortgage as ordinary debt, since it increases in value the longer you pay into it. Any other debt doesn't do this; all it does is eventually reach zero. People seem to see a mortgage as debt and their home as an investment rather than the other way round.

We're arguing from the same position, but with a different nuance.

A mortgage is absolutely a debt, just like any other liability.

It is a secured loan - you borrow money against an item of collateral (in this case, property) and pay it off with interest gradually. You could get a secured loan on any significantly valuable asset. The reason a mortgage rate is lower than a bank loan is that bank loans are often unsecured (hence riskier, hence a higher rate), and even if secured, tend to be on lower amounts and with faster repayment schedules (thus paradoxically requiring a higher rate to ensure a decent absolute profit to the bank across the short loan period).

I certainly agree with your tenet that for most people it has a different effect on their quality of life than most other loans they take out, but this has no bearing on it being a secured loan and therefore a debt.

The fact that mortgages operate just like regular debts, and are secured against an asset whose value operates independently of the value of the debt, is precisely why the credit crunch happened.

 

[Kirby]

Student loans are debt, but an investment in yourself, and pays off huge over a lifetime, unless you major in 'undecided' or basketweaving...

... Or if you drop out of school. I've worked in the Higher Ed Financial Aid industry for nearly 17 years, and the biggest proportion of people who default are those that attend a for profit school and take out enormous loans for tuition and living expenses "because they can" and then end up dropping out.

I graduated from college 20 years ago (damn I'm old) but my student loan debt was very small because I worked almost 40 hours per week while in school to pay for everything. I had almost no help from my family.

 

[enlisted person]

No, I can't and don't live that way. I pay my way as I go. I built my own house and buy my own used cars and keep them in repair. Fuck the banks in the ass. I got one an only loan in 1984 on a motorcycle at 24% interest rate. I swore I would have to be hungry before I ever borrowed another dime from a bank.

 

[STR]

A little bit of debt is good, as it multiplies your buying power and frees you from having to live from paycheck to paycheck. It allows you to buy things that might otherwise be beyond your means.

Too much debt...well the results are quite obvious. But unless you abuse it, debt is a good thing.

Personally, I've got

$12,000 in direct government student loans.
$3,500 in Private student loans (Thanks Obama for cutting Sallie Mae out of my future loans )
And about $12,000 left on a car loan.

I have enough liquid assets to pay off any two of those loans immediately, but keep that money in the market earning 15%+ a year. Meaning, I'm better off paying the minimum on the loans and incurring their 6% interest, while staying 9% ahead by rolling over my market account.

 

[Amaris]

No, I can't and don't live that way. I pay my way as I go. I built my own house and buy my own used cars and keep them in repair. Fuck the banks in the ass. I got one an only loan in 1984 on a motorcycle at 24% interest rate. I swore I would have to be hungry before I ever borrowed another dime from a bank.

If possible, it's the best way to live. However, as I'm sure you know, debt is the way of our society. If you want something, you have to go into debt to get it, or you may never get it, and that includes houses. Sometimes you can't wait 20 years to save up enough to move into a house.

 

[Joshua Howard]

Well, I've got $5K in credit cards, and I wish I would have never gotten myself into that debt. In any case, I've discovered that paying off that 5K is quite hard to do, so there is no way in the world that I will ever go into even more debt for a house or an education. I would rather not have a higher education, and never buy a house, than to dive into a sea of debt and assume that fate will favor me.