(05-01-2016 08:55 AM)jbo Wrote: I can't believe how many people advocate investing versus paying off the debt.
Do not invest money you cannot afford to loose.
If you are in debt, you cannot afford to loose that money. Pay the debt off, don't be greedy.
I've been completely debt free for over 4 years now. It's the ultimate freedom.
Yes. Taking on further debt when you already have quite a bit of it is a poor financial strategy. If you take on more debt, and your investments do poorly, your cash flow will be pinched even more so, as the debt payments only skyrocket. This is especially true if you have debt at a variable interest rate, as is the case with most credit cards.
If you don't have the debt paid off before the 0% interest period expires, then you soon may be paying close to 30% interest trying to service that debt. Try finding a reliable market rate of return close to 30%! It just isn't worth it.
(05-01-2016 10:32 AM)Ski pro Wrote: It gives you freedom, pay down those debts. Debt is a ball and chain holding you back.
(there is a counter argument that you should use other people's money to buy things, I don't personally subscribe to that)
It is a great feeling to live within your means. If you are making enough cash to do so, and not take on debt, that's fantastic. Using debt (other people's money) for leveraging investments can work, but one most really know how the underlying investment operates, and what the risks are.
This isn't a tactic for beginners. It should also be undertaken only after a significant emergency fund has been build up, and cash flow can be arranged to service any debt, in case the investment under-performs.
For anyone interested in using debt as an investment strategy, I highly recommend they read the book
The Value of Debt by Thomas Anderson. In that book, he highlights that investors, especially those with high net-worth should have an "ideal debt ratio" for using the power of debt as leverage in the marketplace. Once again, don't play with fire.
If you aren't an experience investor, or aren't willing to take the time to study up on advanced strategies, then don't try this at home kiddies!
(05-01-2016 11:21 AM)General Stalin Wrote: Sounds like a sound and logical plan. I appreciate you taking the time to assess my situation and offering great advice. I'm not sure about refinancing my autoloan as I've put a lot of miles on since I bought it, but if certainly look into it. Repped.
No problem. If you follow through on all the advice, you'll pay down your debt much faster. Please ask me if you need follow-up advice to any of what I suggested above. As for the car note, even though you've put on quite a few miles on it, it only take an afternoon of calling around to see if you qualify for a re-fi.
The credit unions I suggested in the previous post have fantastic used and new car loan rates. Just make the calls and let them be the one to tell you "no", to a re-fi. Maybe you get lucky, and can knock the interest rate down only a little bit. Even a little bit helps when it comes to paying debt over a long enough time horizon. Thanks for the rep.
Quote:You make a decent point, here jbo; however, really there does not seem to be any one solution.
One thing is a problem if you are going in debt for consumption; however, people become very rich (or at least well off or better off than they otherwise would have been) if they can use credit wisely in order to leverage a higher rate of return.
Let's take for example a credit card that has a zero percentage rate over 2 years (and a transfer cost of 3%). Effectively, you are paying an annual rate of 1.5%, and there are a lot of ways that you can use that money to get a higher return.
On the other hand if you use the money to buy a new car, that is not so financially prudent, because new cars tend to lose between 20% and 60% of their value in the first couple of years.
Otherwise, I agree with you that it can be very liberating to not have debts.. and to live within your means... .. another solid way to advocating getting rich is living within your means... and you don't necessarily need to use revolving credit for such strategy to be very effective.
If one is a high net worth individual with a big enough bank role, one might not need to take on any debt to enjoy a decent lifestyle. For many others though, it is impossible for them to purchase a car or home without some debt. The same goes for college loans.
Now, it goes without saying, that there are right and wrong ways to take on debt. Only making $30k? Why on earth are you buying a $50k sports car? Just because you can barely afford 0.9% APR monthly payments doesn't mean you can truly "afford" the car.
How about the much maligned gender studies major that takes on $100k in student debt? Also, very short-sighted. You should only take on student loans if you're in a field with an extreme demand for your skill set. If you have to take on $20k or more in student loan debt to graduate, ask yourself: Could I start a business with $20k?
College is no guarantee of future income, and if you have a business concept and great energy to see it through, you may be better off as an entrepreneur. Any business worth starting should ideally be minimally capital intensive. If you fail, you can easily get back on your feet and start over again.
A smart use of debt is to get a business credit card with 0% for 12 months, and already have the cash on hand to completely pay off the card before 13 months hit. Doing so gives you leverage with your cash flow, plus you can earn points, miles or cash back. I've spent $100k's over the course of being an entrepreneur on credit cards. I don't pay interest, because I never charge anything to the cards that I don't have the cash reserves to pay off. Credit isn't magic, but it can be a very useful tool if you are disciplined.
(05-01-2016 02:55 PM)General Stalin Wrote: All's I can say is my friends who are the most well off are the tightest with their money.
One of my friends pays most of his bills with credit cards and then uses his paycheck to just pay his balance every month. His only real extracurricular/investment expense is firearms, munitions, and other defense and law enforcement surplus. He has a gold mine of pre-ban and no longer importable items that he can sell for a huge ROI.
My other friend just works a basic 9-5 doing engineering but is just very tight with his spending and takes care to live well within his means. I haven't asked him him but I'm willing to bet he easily has $30k+ saved up for whatever.
Being tight is great, to an extent. You can certainly cut down your monthly costs of living being tight, but you can't truly generate wealth if you don't have enough income. I'm a very frugal person. That being said, I'm also always looking for more ways to make money. You can't save yourself to wealth.
Having tangible objects aren't a bad investment risk hedge. Guns and ammo being one, as you mentioned. I've purchased ammo before well in excess of my desire to shoot anytime soon. I haven't been to the range in almost 2 years. But the value of my ammo when I purchased it maybe six or seven years ago has gone up tremendously. Even if the US had massive inflation, my ammo would have intrinsic barter value. I recommend investing in a small stash as a hedge, but only after you've paid off all your debt.
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