[Old Pa]

Quote:

Originally Posted by Jahn /img/forum/go_quote.gif Debt is fun.

Hold that thought.

My image was that besides providing me with a place to live, out old mortgage provided me with motivations for investment through "monthly payment plus". Paying off our ARM faster also forced annual recalculations of the monthly payment which provided positive feedback and further motivation to pay the sucker off. Considering the current FMV of the old shack even after the softening of the housing market is two and a half times our purchase price, I feel (at least in this one case) like an investment genius.

Now, in a technical sense, as long as you use credit cards and have accounts which are settled on a monthly/periodic basis, you have debt as long as these accounts have balances. For the purposes of this discussion, I personally defined my situation as "no debt" because I always pay off these balances when they are due. If I can't pay them off on time, then I do not have money for anything else.

 

[Jahn]

that's a good point. credit card interest is the worst, then mortgage interest, then student loan interest. so zero out the CC first, then whatever is left pump into the mortgage. in the long run killing off bad debt is better than using that cash for a savings plan that doesn't generate the kind of interest that the debt is sucking from you.

 

[Old Pa]

And the interest on qualifying mortgages is deductible for federal and most state income taxes, unlike almost all other interest payments. Which is how the fed feels about your debt.

 

[incognitoedleon]

No debt, but I'm dipping into my savings a lot more than I would like lately.

 

[Jahn]

yeah i'm trying to hold it all together for one more year until the Tax Man gives up some mortgage interest payin' lovin. Which will ALL go into paying principal. In the meantime I'm going to suck it up and try to still enjoy life and pay what I have to in order not to ruffle any financial feathers.

 

[1911]

interesting thread..but i pose the contrarian view..i dont have enough debt and am currently in the process of obtaining more...

 

[Old Pa]

Quote:

Originally Posted by 1911 /img/forum/go_quote.gif interesting thread..but i pose the contrarian view..i dont have enough debt and am currently in the process of obtaining more...

What benefits do you anticipate gaining from "obtaining more [debt]"?

 

[Jahn]

i've heard it improves your credit rating to carry debt that you pay off consistently - "good debt?"

 

[nickknutson]

Quote:

Originally Posted by Jahn /img/forum/go_quote.gif "good debt?"

oxy-moron?

 

[jjhatfield]

Quote:

Originally Posted by Jahn /img/forum/go_quote.gif i've heard it improves your credit rating to carry debt that you pay off consistently - "good debt?"

This is true. It is also not a bad idea to carry a small balance from month, or at least use your credit and pay it off.

In addition, the more credit you have available to you, but the less you use, the better your score will be. So if I have a total of $10,000 in available credit via credit lines or credit cards, but only carry a balance of say $500, this bodes much better for my credit score then consistently teetering on the edge of my credit line. This shows the credit bureaus I know how to handle credit responsibly, and thus am a more attractive customer to banks.

On the other hand, having no credit available to you, i.e. cancelling all of your credit cards/lines instead of just paying them down and letting them sit with a zero balance, hurts your credit score. Some folks who can't handle credit have no choice but to cancel their cards, though another option is to put your card in a bowl of water and put it in the freezer.

But having said that, having multiple hard hits on your credit report within a short period of time also hurts your credit score! So lets say I apply for a bunch of credit cards for the express purpose of increasing my available credit, and thereby increasing my credit score. In the short term, all of these customer-requested credit inquiries (hard hits is another term) will lower my credit score. But in the long term, having that credit available to me will help my score.

Regarding an earlier topic, I'm think it is important to get into the habit of saving even when you have debt. Financially it might not make perfect sense to be putting cash away in an MM earning 5.00% APY when you have outstanding days with higher interest rates, but studies have shown (studies which I can't reference because its just something I heard on Clark Howard, but Clark is the man, so I trust him) that individuals are more successful at taking care of their debt when they save at the same time. Maybe its a pure confidence thing, watching your savings grow while your debt shrinks, I don't know. An employee sponsored plan like a 401k is a great way to start saving. If your employer offers a match, its insane not to contribute at least up until that. Its probably the only true instance of free money you can find in our society.

 

[Old Pa]

Quote:

Originally Posted by Jahn /img/forum/go_quote.gif i've heard it improves your credit rating to carry debt that you pay off consistently - "good debt?"

To the extent that it is difficult to project a credit score for an individual who has no repayment history. I guess I was thinking about debt of the "ten pounds of wet mud on each of your boots all the time" variety of debt.

 

[zowie]

Quote:

Originally Posted by Jahn /img/forum/go_quote.gif that's a good point. credit card interest is the worst, then mortgage interest, then student loan interest. so zero out the CC first, then whatever is left pump into the mortgage. in the long run killing off bad debt is better than using that cash for a savings plan that doesn't generate the kind of interest that the debt is sucking from you.

My mortgage is at 4.375% and the interest is tax deductible. I can get 5.25% interest from a FDIC guaranteed CD and even higher returns from investments with moderate risk. It would not be better for me to use cash to pay off the mortgage rather than save it. Rather, I wish I'd borrowed even more.

There is also the issue of liquidity. Even if you have a mortgage that's several points higher than you could get on your savings, you need to keep sufficient money available in case you become unemployed, have surprise medical bills etc., because it's having access to cash, not having a somewhat lower debt balance, that will keep you out of bankruptcy if a significant negative event happens.

 

[no1likesme]

$30,000 in student loans so far

should be about $70,000-75,000 by the time I have my degree tho

My parents make to much for me to get grants but not enough to help pay for tuition... This seems to be very common among my friends and classmates

 

[Oski]

Quote:

Originally Posted by nickknutson /img/forum/go_quote.gif oxy-moron?

I don't think "good debt" is necessarily an oxymoron. Consumer debt is definitely bad because it just shows that people are buying things without actually having the money.

But for investment purposes, leverage is your friend (assuming you've accounted for the risk/reward). Positive leverage (gaining a higher return rate than your leverage rate) is a fundamental aspect of investing. If you can use leverage to invest in other transactions, not only does it boost your returns, but allows you more diversification as well.

 

[eypc]

lol, i love this poll choice:
"I am owned by my creditors"