A week or two ago, I wrote an article titled “You’re not debt free if you have debt.” It was a relatively successful post, receiving just shy of 70 comments. I’ve been meaning to address one of the comments left in the article….
Stu, you sir are a Dumb-Dumb head. I can’t really argue with your logic since I see no flaws, but I can call you all sorts of hurtful things, like booger face, so I feel better about myself.
Even though I pay my credit card off in full each month, it’s still a debt. We’ve talked about “good” debt, and “bad” debt, but we haven’t talked about how YOU specifically use (or avoid) debt in your life. So today, I thought we could do just that. I’ll go first 🙂
I, Ninja, will continue to use my credit card as long as I pay the balance in full each month. I’ve made a personal commitment 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. Credit cards, if used responsibly, are a great tool.
As for a car, although I don’t plan on buying a brand-new car anytime soon (never say never right?), I would be open to the idea of taking out a loan if I did. The loan’s APR would have to be less than the interest I earn on my personal savings (basically looking for a 0% offer). 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, especially when it doesn’t cost you anything.
Although I am no home owner yet (praise the Lord), I do plan to be one within the next few years. Girl Ninja and I are plugging and chugging away at our goal to save $100,000 before we buy a house. We don’t know if we’ll end up putting $10k down, or $80k, but we sure as heck like the flexibility a big cash pile affords us. Ultimately our down payment amount will depend on our income, purchase price of the house, and interest on the loan (none of which we can predict at this point). I can tell you this though, unlike some PF gurus, I am totally comfortable taking out a 30 year mortgage. I’m also open to the idea of paying it down much, much sooner than that. I don’t have a firm “Our mortgage will be no more than 30% of our net income” policy like you might. All I know is I do NOT want to be one of those home owners that ends up hating home-ownership because it becomes a financial burden.
And that pretty much sums up what debt I personally find tolerable. I’m not a fan of second mortgages. I would never borrow money to invest it elsewhere. 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 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 as long as I live. Never. Ever. EVER.
How does debt fit in to your life currently (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? Anyone sworn everything off?