- 0 to 18yrs old: Debt free because I was too young to have debt
- 18 to 24: Legally allowed to have debt, so why not rack up $28,000 in student loans
- 24 to 27: Live debt free after realizing I hated Sallie Mae with a passion
- 27 to Present: $283,000 mortgage debt.
My personal stance on debt is pretty fluid. When I first got in to this whole personal finance thing I swore off everything but a mortgage. As I’ve become a little more seasoned in my PF knowledge, I’m realizing debt is not necessarily as evil as we make it out to be.
Yes, it is often a terrible, terrible thing. But sometimes, it’s not really bad at all.
I’ve decided to outline the Ninja household’s current philosophy on debt…
As you all know, I use my airline credit card for just about every purchase I make. I have no plans to change this habit as Girl Ninja and I really enjoy the perks our CC offers. That said, I made a personal commitment to myself when I graduated college, that if I ever miss a payment (yes, even by one day) I will immediately pay my balance off, cancel my card, and switch to a debit only system. So far, so good. Haven’t missed a payment yet. Credit cards can be a great resource if used responsibly.
As for a car, although we have no plans to buy a new car anytime soon (never say never), I would be open to the idea of taking out a loan if I did. The loan’s APR would have to be really close to 0% and I would have to have, at least, that amount of cash in savings or a taxable investment account.
I think about it this way. If I either had to pay $20,000 up front for the car, or could pay $20,000 back over the course of five years, I’m taking the 0% loan every time. Remember, liquidity is king. The best kind of debt to have is debt that doesn’t cost you any money.
Girl Ninja and I went from having no debt, to $283,000 of debt in about one hour (how long it took to go through the closing documents when we bought our house). Having a mortgage payment sucks. That’s for sure.
But I have no plans to pay my principle down quicker than the 30 year loan term. Inflation is man’s best friend when it comes to mortgage debt and I plan to let it run its course.
Lastly, I’ll never pay private mortgage insurance. It is such a big fat waste of money. If we had only put 5% down on our current place, instead of 20%, we would have had to add another $200 or so to our monthly payment just to cover the PMI. That’s a sunk cost that you will never see a return on. Maybe you feel differently about PMI?
And that pretty much sums up what debt I find acceptable. I’m not a fan of second mortgages. I would never take out a loan to start a business. I would never finance a luxury item like a boat, motorcycle, or vacation. I have no plans to raid my retirement account early. I will never take out another student loan again. And I will never co-sign a loan, or lend a substantial amount of money, to a friend (or family member) as long as I live.
Never. Ever. EVER.
How does debt fit in to your life (what types of debt do you have)? What types of debts do you plan to continually utilize (auto loans, responsible CC use, mortgage)? What types of debts have you sworn off for good?