Do you like to pay off debts?
02-17-2011, 10:48 AM
#41
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You may think so, but I find it educational. You offered some good insights. Thank you. If this is ridiculous, stay out of it.
And coming from a Senior Moderator - my next thread is asking if members would like a Root Canal?
Do you think I would waste people's time like that?
And coming from a Senior Moderator - my next thread is asking if members would like a Root Canal?
Do you think I would waste people's time like that?
02-17-2011, 10:51 AM
#42
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It's all about priorities. The time value of money has a huge (I can not stress that enough) impact on what I do with my money.
My goals right now are retirement and saving for kid's education (3 of them). Investing now and letting that money grow is far more important than paying off a $500 a month car loan.
02-17-2011, 11:06 AM
#43
I love living beyond my means! Debt FTMFW! I'll just claim bankruptcy and/or walk away from my home when I can't manage the payments.
In all seriousness, I'm a fan of reducing the number of "monthly payments" I have. I value this more than anything else. If I can pay something off ahead of schedule...minus the interest free deals here and there...I do. The less going out means the more I can save...and the more I can save means the more I can use some of this to buy things outright and possibly invest for the future (though other than retirement, I'm a newb and scared to try!). And, in the case of an employment disaster, the less that goes out means the farther my savings will stretch.
The only things I have hanging over my head are a mortgage and student loans, which I'm working on.
Like I've said before, I vote pay off the car loan as quickly as you can...without completely exhausting your finances.
In all seriousness, I'm a fan of reducing the number of "monthly payments" I have. I value this more than anything else. If I can pay something off ahead of schedule...minus the interest free deals here and there...I do. The less going out means the more I can save...and the more I can save means the more I can use some of this to buy things outright and possibly invest for the future (though other than retirement, I'm a newb and scared to try!). And, in the case of an employment disaster, the less that goes out means the farther my savings will stretch.
The only things I have hanging over my head are a mortgage and student loans, which I'm working on.
Like I've said before, I vote pay off the car loan as quickly as you can...without completely exhausting your finances.
02-17-2011, 12:46 PM
#44
Suzuka Master
And truthfully I have very little debt. I have my mortgage which I will assume I will have for a long time but other than that I have one car payment which will be paid off in July. I have no credit card debt and haven't for at least 15 years (I paid the price of paying minimum payments back in the early 90s and will never do it again).
It's all about priorities. The time value of money has a huge (I can not stress that enough) impact on what I do with my money.
My goals right now are retirement and saving for kid's education (3 of them). Investing now and letting that money grow is far more important than paying off a $500 a month car loan.
It's all about priorities. The time value of money has a huge (I can not stress that enough) impact on what I do with my money.
My goals right now are retirement and saving for kid's education (3 of them). Investing now and letting that money grow is far more important than paying off a $500 a month car loan.
I have a 7 figure "loan" on my home at 4.625% fixed for 30 years. That's pretty damn impressive. In our lifetime we may never see interest rates for large jumbo loans at lower rates.
I looked into a 15 year loan but quite honestly it would tie up a lot of money that could be invested in other areas. Over the past 4 years alone, I have invested in 2 vehicles that took advantage of ridiculous state and federal income tax credit based on technology and clean energy credits that allowed me to be state income tax free for 8 years and take a $46K federal income tax deduction from Obama's energy credit for 2011.
Also, I would be having to do Botox 24/7 and probably no longer be in my 30s by the time I had saved enough "cash" to pay off my home.
I maximize my IRA/pension every single year since I started practicing.
My portfolio has been doing well of late, bolstered by some moves into the small and mid-cap sector. How long this ride will last is anyone's gues but rain-or-shine I always subscribe to dollar cost averaging.
I look at the money I invest in the market every month as "fixed" overhead.
I would love to be in a position to have paid off my home outright but I live by the ocean on a tiny island and real estate is a luxury to put it bluntly.
Last edited by Dr. Colorado; 02-17-2011 at 12:48 PM.
02-17-2011, 01:34 PM
#45
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But I really want a C6 vert now 
but I'm sure I'll be practical and wait until I feel like I have my kid's school funding in order before I pull the trigger.
I just don't want to wake up when my oldest is 18 and say OMFG I don't have the money to put you through school.
but I'm sure I'll be practical and wait until I feel like I have my kid's school funding in order before I pull the trigger. I just don't want to wake up when my oldest is 18 and say OMFG I don't have the money to put you through school.
02-17-2011, 01:39 PM
#46
Suzuka Master
02-17-2011, 01:46 PM
#48
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Will I be miserable not having a toy? Meh, it's not a big deal to me.
Who know, when I hit 50, maybe the F-car will be a reality.
02-17-2011, 01:49 PM
#49
Suzuka Master
Don't tempt me
Yeah, always save for a rainy day for sure.
Yeah I'm always worried about our future. The money is there but if things change (and in this market you have no clue) I want to be prepared.
Will I be miserable not having a toy? Meh, it's not a big deal to me.
Who know, when I hit 50, maybe the F-car will be a reality.
Will I be miserable not having a toy? Meh, it's not a big deal to me.
Who know, when I hit 50, maybe the F-car will be a reality.
Yeah, always save for a rainy day for sure.
02-17-2011, 03:54 PM
#52
Drifting
Paying cash for a car is attainable for the majority of people. Say you drive a TL now, and you have a 5 year loan at X%. You will pay it off at some point in the future. When you do, keep making those payments to yourself in a savings account for another 5 years. Then, BAM, you can buy your next TL with cash and even have money left over.
02-17-2011, 07:08 PM
#53
Suzuka Master
Some food for thought for our esteemed forum members regarding low interest mortgages in an inflationary environment.
Did you know that your mortgage may not be as expensive as you think it is? It’s true. If you have a mortgage with a fixed interest rate, which holds your payment constant, your mortgage is cheaper than you think it is.
Why?
Inflation.
For example…
Say you take out a 30-year $200,000 mortgage at a fixed rate of 6.5%. Your monthly payment would be $1,264.14. Your total payments over the life of this mortgage would be $455,089 of which $255,089 would go to pay interest. However, that’s not entirely accurate because we aren’t factoring in inflation.
Normally when we talk about inflation, we talk about the gradual decrease in the purchasing power of a dollar. Although inflation works to our disadvantage when it comes to purchasing power, the opposite is true when it comes to paying off a mortgage (or pretty much any type of loan).
If inflation averages 3% per year, in 10 years, the $1,264.14 payment would have about $941 in purchasing power. In other words, had the mortgage payment increased with the inflation rate, the payment would be nearly $1,700 per month. However, the mortgage payment is still just $1,264.14.
I put together a spreadsheet to calculate the inflation-adjusted cost of the mortgage used in this example. To make the calculation I simply discounted each payment by the periodic inflation rate, which was .2466%. Then I summed all the discounted payments to arrive at the inflation-adjusted cost of the mortgage. The formula for discounting a payment (also called a cashflow) looks like this:
Payment ÷ (1 + i)n
where:
Payment = $1,264.14
i = inflation rate of 3% or .03 raised to 1/12 since there are 12 payments per year
n = number of the payment
So, the first discounted cashflow looks like this:
$1,264.14 ÷ (1 + .002466)1
$1,264.14 ÷ 1.002466
$1,261.03
This calculation is really easy to perform with the aid of a spreadsheet. Anyway, I came up with an inflation-adjusted total cost of $301,398 for this mortgage compared to $455,089 before the inflation adjustment.
The bottom line: mortgages aren’t as expensive as we think they are after we figure in the effects of inflation. This is especially important to think about when trying to decide between renting or buying. What are the chances of not facing a rent increase over 30 years?
4.625% 30 year fixed 7 figure jumbo loan sounds pretty good in an inflationary environment
Did you know that your mortgage may not be as expensive as you think it is? It’s true. If you have a mortgage with a fixed interest rate, which holds your payment constant, your mortgage is cheaper than you think it is.
Why?
Inflation.
For example…
Say you take out a 30-year $200,000 mortgage at a fixed rate of 6.5%. Your monthly payment would be $1,264.14. Your total payments over the life of this mortgage would be $455,089 of which $255,089 would go to pay interest. However, that’s not entirely accurate because we aren’t factoring in inflation.
Normally when we talk about inflation, we talk about the gradual decrease in the purchasing power of a dollar. Although inflation works to our disadvantage when it comes to purchasing power, the opposite is true when it comes to paying off a mortgage (or pretty much any type of loan).
If inflation averages 3% per year, in 10 years, the $1,264.14 payment would have about $941 in purchasing power. In other words, had the mortgage payment increased with the inflation rate, the payment would be nearly $1,700 per month. However, the mortgage payment is still just $1,264.14.
I put together a spreadsheet to calculate the inflation-adjusted cost of the mortgage used in this example. To make the calculation I simply discounted each payment by the periodic inflation rate, which was .2466%. Then I summed all the discounted payments to arrive at the inflation-adjusted cost of the mortgage. The formula for discounting a payment (also called a cashflow) looks like this:
Payment ÷ (1 + i)n
where:
Payment = $1,264.14
i = inflation rate of 3% or .03 raised to 1/12 since there are 12 payments per year
n = number of the payment
So, the first discounted cashflow looks like this:
$1,264.14 ÷ (1 + .002466)1
$1,264.14 ÷ 1.002466
$1,261.03
This calculation is really easy to perform with the aid of a spreadsheet. Anyway, I came up with an inflation-adjusted total cost of $301,398 for this mortgage compared to $455,089 before the inflation adjustment.
The bottom line: mortgages aren’t as expensive as we think they are after we figure in the effects of inflation. This is especially important to think about when trying to decide between renting or buying. What are the chances of not facing a rent increase over 30 years?
4.625% 30 year fixed 7 figure jumbo loan sounds pretty good in an inflationary environment
02-17-2011, 08:10 PM
#54
Drifting
02-17-2011, 08:18 PM
#55
Suzuka Master
So did you get the Hublot yet?
02-17-2011, 10:03 PM
#56
Drifting
Absolutely. But, combine the fixed loan with a 40% tax deduction for moi on my mortgage interest and it's not a bad fiscal strategy. Plus, it allowed me to make investments that required substantial minimum principal cash. Most importantly, it allows me to live close to the beach LOL.
So did you get the Hublot yet?
So did you get the Hublot yet?
02-18-2011, 08:43 AM
#58
Drifting
Yes inflation rewards debtors over savers who don't allocate their savings properly.
But be careful if you're looking forward to inflation, because incomes don't always match inflation rates. Unemployment also goes up so people have a much higher chance of defaulting on their low-cost mortgages. Home prices will lag inflation because fewer people can afford the increased payments do to nominal price increases, interest rates in double-digits, and higher than normal unemployment. So inflation does have some drawbacks too.
I think inflation mostly rewards huge debtors like the U.S. government- at this point the government is keeping rates real low so the payments can be made- eventually it's going to need to inflate its way out of this mess it's in.
But be careful if you're looking forward to inflation, because incomes don't always match inflation rates. Unemployment also goes up so people have a much higher chance of defaulting on their low-cost mortgages. Home prices will lag inflation because fewer people can afford the increased payments do to nominal price increases, interest rates in double-digits, and higher than normal unemployment. So inflation does have some drawbacks too.
I think inflation mostly rewards huge debtors like the U.S. government- at this point the government is keeping rates real low so the payments can be made- eventually it's going to need to inflate its way out of this mess it's in.
02-18-2011, 12:35 PM
#59
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Some postulate this is the reason for high individual debt: that to maintain your current lifestyle (all else equal), you cannot fund it by wages. Therefore, you fund it by debt.
02-18-2011, 12:45 PM
#60
Suzuka Master
Yes inflation rewards debtors over savers who don't allocate their savings properly.
But be careful if you're looking forward to inflation, because incomes don't always match inflation rates. Unemployment also goes up so people have a much higher chance of defaulting on their low-cost mortgages. Home prices will lag inflation because fewer people can afford the increased payments do to nominal price increases, interest rates in double-digits, and higher than normal unemployment. So inflation does have some drawbacks too.
I think inflation mostly rewards huge debtors like the U.S. government- at this point the government is keeping rates real low so the payments can be made- eventually it's going to need to inflate its way out of this mess it's in.
But be careful if you're looking forward to inflation, because incomes don't always match inflation rates. Unemployment also goes up so people have a much higher chance of defaulting on their low-cost mortgages. Home prices will lag inflation because fewer people can afford the increased payments do to nominal price increases, interest rates in double-digits, and higher than normal unemployment. So inflation does have some drawbacks too.
I think inflation mostly rewards huge debtors like the U.S. government- at this point the government is keeping rates real low so the payments can be made- eventually it's going to need to inflate its way out of this mess it's in.
True.
02-18-2011, 03:41 PM
#61
Senior Moderator
To answer the original question: Hell yes. I'm 
...I hate debt.
...I hate debt.
02-19-2011, 04:01 PM
#62
Debt. A necessary evil for most people, but if properly managed it is easily workable. I see a tremendous amount of people all the time living well beyond their means. I've noticed that people have a sense of entitlement nowadays, and feel they are deserving of luxury items, expensive homes, month long vacations, and expensive outings. There is nothing wrong with those things, as long as they can be afforded. But going to dinner, paying with it with a credit card, and then paying off the card with a credit line secured against the home is just foolish. Unfortunately, things such as this happen on a regular basis.
I think most people understandably have some sort of debt for a home, car, or education, but this isn't a bad thing if it's respected as debt and must be serviced. That it's money owed to someone or an institution, and it needs to paid.
Personally, I hated debt. My reasons are twofold. First, I was raised in an environment to despise debt. Debt should only be used for the necessities and nothing else. Secondly, I have been poor once before, and my debts piled up. Many years ago when I was starting out I would have to go to my landlord for regular extensions. He understood, and I always paid him back. I swore, however, I would never be in that position ever again. When I started my business many years ago I took two extra jobs just to pay off the mortgage sooner. Eighteen hour days for many years. Today that company, worth into the seven figures, carries no debt. Neither does my home or other assets. Now that the market is softening in Canada we'll probably pick up additional revenue properties, and we'll most likely leverage to do so, but at 2.5% and tax deductible it wouldn't be prudent not to. This is an instance where borrowed money is cheaper than using your own if your own funds are structured for maximum returns. Not having debt has allowed me to live as I want and has given me security. It's a situation I do not take lightly.
In short, I think debt is a tool. Nothing more. Use it wisely and it can be advantageous. Use it unwisely and it becomes a lingering beast that's hard to get rid of. If you have debt, work to reduce it. Again, having debt doesn't necessarily mean you're doing nothing wrong. Not accepting responsibility for it is however.
Terry
I think most people understandably have some sort of debt for a home, car, or education, but this isn't a bad thing if it's respected as debt and must be serviced. That it's money owed to someone or an institution, and it needs to paid.
Personally, I hated debt. My reasons are twofold. First, I was raised in an environment to despise debt. Debt should only be used for the necessities and nothing else. Secondly, I have been poor once before, and my debts piled up. Many years ago when I was starting out I would have to go to my landlord for regular extensions. He understood, and I always paid him back. I swore, however, I would never be in that position ever again. When I started my business many years ago I took two extra jobs just to pay off the mortgage sooner. Eighteen hour days for many years. Today that company, worth into the seven figures, carries no debt. Neither does my home or other assets. Now that the market is softening in Canada we'll probably pick up additional revenue properties, and we'll most likely leverage to do so, but at 2.5% and tax deductible it wouldn't be prudent not to. This is an instance where borrowed money is cheaper than using your own if your own funds are structured for maximum returns. Not having debt has allowed me to live as I want and has given me security. It's a situation I do not take lightly.
In short, I think debt is a tool. Nothing more. Use it wisely and it can be advantageous. Use it unwisely and it becomes a lingering beast that's hard to get rid of. If you have debt, work to reduce it. Again, having debt doesn't necessarily mean you're doing nothing wrong. Not accepting responsibility for it is however.
Terry
Last edited by teranfon; 02-19-2011 at 09:10 PM.
02-19-2011, 09:33 PM
#63
Hmm. After reading some responses here, I'm starting to have a change in how I'm thinking about this. Not in paying off debts, but debt priority.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit
.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit
.
02-19-2011, 09:59 PM
#64
Drifting
Hmm. After reading some responses here, I'm starting to have a change in how I'm thinking about this. Not in paying off debts, but debt priority.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit
.You might want to reference the 'Gold' thread and read about my reasons for this because there is a camp of people that think this is a bubble and you might want to read what they say.
So far I have been making a handsome profit with this technique and anyone who has taken this advice the last year would have too. All types of funds are going into Silver for me: kids college funds, car funds, and even 401K funds. The SLV i-share was up over 8% this week alone and 83% since last May- try to find another investment making that type of return.
There are certain market and economic fundamentals that make this a no-brainer to me.
02-19-2011, 10:24 PM
#65
Hmm. After reading some responses here, I'm starting to have a change in how I'm thinking about this. Not in paying off debts, but debt priority.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit.
Here's my situation. Of course, this could completely change in the future..but I'm looking at it in the "here and now."
I have a mortgage and a couple of student loans. They are prioritized by interest rate...so student loan 1, then mortgage, then student loan 2.
In order to pay off student loan 1 within a reasonable amount of time (10-15 years instead of the 25-30 the payment schedule is set up as), I have to devote a good amount of my available income towards it (double the monthly payment more or less).
However, this means that I won't be able to avoid an auto loan in the future (as much as I'd like to think my TSX will last forever...I'm going to need a new car some day).
Should I be divoting all of my resources towards paying down a student loan only to have to take out an auto loan 5-10 years down the road? Or should I reduce what I'm putting towards the student loan in order to save for that next car?
Student loan is better than auto loan since there is a tax benefit
.Personally, I would focus on the student loan with the highest interest rate. The basic rule of thumb is to pay off first whatever is charging you the highest interest rate. Unless the money you hold back to save for a new car is earning you more than the rate on the student loan, there is no reason not to pay off the loans first.
I think you are absolutely correct to think of debt priority in your current situation. You may also find that as you pay off more of your student loans, your TSX may last longer than you think. Focus on current debt now, worry about acquiring future debt only when it is absolutely necessary.
Terry
02-20-2011, 10:09 AM
#66
If it helps any: student loan 1 is 6.625%, mortgage is 5.875%, and student loan 2 is 4.75%
I may have to start looking into investing. I've always been afraid of locking money up with no guarantee that I'll get it back...but as the saying goes "no pain, no gain."
Personally, I would focus on the student loan with the highest interest rate. The basic rule of thumb is to pay off first whatever is charging you the highest interest rate. Unless the money you hold back to save for a new car is earning you more than the rate on the student loan, there is no reason not to pay off the loans first.
I think you are absolutely correct to think of debt priority in your current situation. You may also find that as you pay off more of your student loans, your TSX may last longer than you think. Focus on current debt now, worry about acquiring future debt only when it is absolutely necessary.
I think you are absolutely correct to think of debt priority in your current situation. You may also find that as you pay off more of your student loans, your TSX may last longer than you think. Focus on current debt now, worry about acquiring future debt only when it is absolutely necessary.
Definitely things to think about...
Sorry for the hijack!
02-20-2011, 11:22 AM
#67
What is the current inflation rate in America? Around 2%? In that case, the money in your checking account is making you basically nothing. The interest being paid on your loans, however, is still there. I would reduce debt first. Anyway, just my old guy
.Terry
02-20-2011, 07:31 PM
#68
Yup. You should save/invest instead of paying off debt quicker only if the return on the savings/investments is greater than the negative return from the debt. Only exception is saving for a short term necessity, or an emergency fund.
02-25-2011, 11:04 PM
#69
Paying cash for a car is attainable for the majority of people. Say you drive a TL now, and you have a 5 year loan at X%. You will pay it off at some point in the future. When you do, keep making those payments to yourself in a savings account for another 5 years. Then, BAM, you can buy your next TL with cash and even have money left over.
02-26-2011, 12:10 AM
#70
I've just never liked the idea of tying that much cash up into a depreciating asset. I guess my point is, luxury automobiles are a hard expense to justify for most people, especially when you start talking about plunking down $40-50k cash. I guess if you had major bucks in the bank, like $500,000+, it would be of little consequence to pay cash for a car like that, but being that I don't have anywhere near that much, I'd rather have that cash the bank and make payments at 0.9% like I am.
If $40-50k is too much cash for you, then don't buy a $40k-50k car. It's not like if you finance it the price will become lower. That type of thinking is one of the reasons our country has so many people with financial problems - they finance a lifestyle they cannot afford. After all, $600 a month sure sounds a lot cheaper than $35,000.
If you buy a car once every ten years, and choose a $20,000 car over, say a $45,000 car, and invest the difference every time, after 30 years, assuming an average growth at 8% you will end up with an extra $420,000. Then you can buy all your $50k+ cars in cash for the rest of your life without even touching your other assets.
By the way, 0.9% loans and such are a bit of an exception. As I mentioned in an earlier post, if you can instead invest the money at a higher guaranteed interest rate elsewhere, by all means finance away.
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