How much are you in debt?

roid · Post by **roid** » Wed Nov 10, 2004 5:18 am

i have no debt.
i pay cash for everything.

i own a crap car. i saved for it. i don't make much money, i live a simple life.

it bothers me that people buy nice cars when they can't afford it. to me paying credit means you can't afford it, so why the hell are you buying it.

image?

WarAdvocat · Post by **WarAdvocat** » Wed Nov 10, 2004 7:42 am

160k mortgage
1k misc credit card debt

I pay as I go for the most part. It doesn't make sense to pay interest on posessions that depreciate.

Pun · Post by **Pun** » Wed Nov 10, 2004 10:56 am

XeonJr wrote:You should probably seperate the question into good debt and bad debt categories, Testicules.

Good debt is other peoples money that is used to pay for investments that yeild a positive cashflow. ie Loan for a rental property that has a positive yeild!

Debt isn't always a bad thing. If a bank say's they'll give you 100,000 for an investment that makes you 20,000 a year, that's some damn good debt to have. I've never been afraid to go into debt. Sometimes theres no other way if you want to succeed. Sure, it's stressful sometimes, but risk goes with the territory. Believing in yourself and your ability to succeed helps to manage the stress of being in debt. Credit card debt (living beyond means) is something completely different than a loan for a real estate or business investment.

Dedman · Post by **Dedman** » Wed Nov 10, 2004 12:24 pm

Spot on Pun!

XeonJr · Post by **XeonJr** » Wed Nov 10, 2004 12:36 pm

Exactly my point, Pun

The trick is to always aquire cashflow positive debt. Generated cash - expenses must be Positive.

Dedman · Post by **Dedman** » Wed Nov 10, 2004 12:43 pm

XeonJr wrote:Bad debt is a loan that will lose you money. ie Home loan, Car loan, credit cards.. etc etc

Since when is a home loan bad debt. You are using someone else's money to buy something that is going to appreciate and provide you a return. How is that bad debt.

Fusion pimp · Post by **Fusion pimp** » Wed Nov 10, 2004 1:17 pm

Yeah, Pun has it down. It's one thing to owe 20k @ 8% interest on a car, it's a depreciating asset with interest. That's a joke. It's another thing to owe 200k on an appreciating asset like a house, with the benefit of a total interest tax write-off.

I have 3 debts:

221k for my first house, but it's valued at 320+k
111k for my second house that's valued at 300+k
26k for my boat that's valued at just under 50k

Total debt: 358k
Value of: 670+K

All 3 are write-offs for me, otherwise I would not own them.

Now, how is that a bad thing again?

I have an American Express that's rarely used. If it is, it's paid off at the end of each month. I get to use an unlimited amount of thier money free for 30 days. I own all my cars.

Birdseye · Post by **Birdseye** » Wed Nov 10, 2004 1:34 pm

A suggestion for those with credit card debt: Consolidate your debt with an outside lender. Instead of taking the high interest rate on your CC, shift the loan to a pro company who deals in debt consolidation. You'll get a lower interest rate and if you have multiple payments it will simplify everything.

I know I sound like a radio commercial, but it's true. Just do your research and it will be worth it.

Fusion Pimp has it right: Debt on an asset that appreciates.

You can actually use debt to your advantage, especially in real estate. If you have $100,000 better to buy as many houses as you can than to sink it all in a cash payment for a house.

Some scenarios to think about:
Say you dropped 10 $10,000 payments on some houses valued at $100,000 each (this is obviously hypothetical). Your interest rate for fun let's say is fixed annnual at 4%. Your houses after 1 decade appreciates at an annual rate of 10%

We'll ignore other costs such as appreciation/depreciation by rennovation or other factors, brokers, agents, etc. so if you like you could even cut the profit in this scenario in half.

Compounded annually $90,000 (down payment subtracted) at 4% for 10 years and it ends up costing $133,221.99.

The house now however is selling at $259,374.25 a decade later.

$133,221.99+$10,000 (down payment) = $143,221.99

Profit is $116,152.26 per house, X10 = $1,161,522.60

Now if you had gone the "debt free" route and outright bought the house for $100,000 you'd only have made 1/10th as much. Plus, by diversifying your portfolio (hopefully even more by some geographic diversity) you diffused risk.

So much for debt being bad. Just have to make the numbers work for you. Obviously I drew a hypothetical scenario and the profit will fluctuate with the % you pay on the mortgage and the % returned (by a lot) but you get the idea.

WarAdvocat · Post by **WarAdvocat** » Wed Nov 10, 2004 2:48 pm

If youâ??ve got credit card debt, get a new card which has a nice low interest balance transfer option. Better yet, call your existing company and tell them you got an offer for a balance transfer and youâ??d like them to give you their best balance transfer rate or you will transfer to the new card.

Of course, it helps if you arenâ??t bluffing. I have a mortgage broker friend (crooks, every last one of them) who does this periodically, and is essentially getting loans at a very nice interest-rate as a result.

XeonJr · Post by **XeonJr** » Wed Nov 10, 2004 8:28 pm

O.k Your PPOR is a liability to you! unless it makes you money. Appreciation does not garauntee you a positive cashflow. You have to take into consideration inflation, How much interest you have paid, maintence, tax etc etc.

Lets say a particular house appreciates well above the negative factors. You can only get that money out of the property when you sell it or get a LOC. Untill you do, that property is costing you money every day!(LIABILITY) What is worse, your EARNT income (income you are taxed highest on!) is being used to pay for the loan!

How many houses do you think you could afford to buy this way? 1? 2?

If you want to be rich you must always use OPM(other peoples money) and OPT(other peoples time.) Eg. Borrow 100% of your loans if you can and have someone else pay it off for you! Money is somthing that should not be EARNT (ie. traiding your time for money.)
You should always aim to create it! (ie. trade your money for time!) One method of creating money is the rental property I used in a previous post.

Fusion pimp · Post by **Fusion pimp** » Wed Nov 10, 2004 8:41 pm

Xeon,
You're not taking into account the fact that each payment lowers the amount of money you owe on the property by whatever amount is applied to the principle while it continues to appreciate. The interest is a full write-off. So it really *is* a positive cash flow. It's no less a positive cash flow situation than say an appreciating savings account.
Also, the cost of maintenance/upgrades can be deducted from cap gains taxes when you sell. AND, you can avoid cap gains taxes all together by using it to purchase other property. If you chose to keep the cap gains you're allowed 250k/person on title(up to two people)/a 4 year time period.

XeonJr · Post by **XeonJr** » Wed Nov 10, 2004 8:41 pm

I am wondering how many of you know that money is no longer backed by gold? Money is worth only the paper its printed on these days. It's basically an IOU that never needs to be repayed. Economies now expand on pure debt! As long as someone repays the IOU with more IOU's the system works.

After 9/11 the system started to hurt as consumers became afraid to spend and get into debt. Notice how the US economy took a nose dive once consumers stopped spending? Ever wonder why the credit card was invented? You only need to think about it a little and you have your answer

XeonJr · Post by **XeonJr** » Wed Nov 10, 2004 8:42 pm

AUST tax rules are different to US tax rules, Barry.

BTW I would never use a P&I loan for proeprty purchase. Interest only loans are a smarter way to go.

Fusion pimp · Post by **Fusion pimp** » Wed Nov 10, 2004 8:43 pm

Xeon,
Please, don't get me started on fractional reserve banking/commodity/fudiciary/fiat currency system. I'll bury you.

Well then, consider that the majority of your audience is American playing by American tax laws.

XeonJr · Post by **XeonJr** » Wed Nov 10, 2004 8:44 pm

Bring it on Barry! The more info you can give me the better!

Fusion pimp · Post by **Fusion pimp** » Wed Nov 10, 2004 8:47 pm

what specifically are you asking?

[edit]

Money is worth only the paper its printed on these days

That's accutally incorrect. Money is worth whatever consumer confidence suggests it's worth which has to include the paper it's printed on.

Phoenix Red · Post by **Phoenix Red** » Wed Nov 10, 2004 10:37 pm

Fusion pimp wrote:Yeah, Pun has it down. It's one thing to owe 20k @ 8% interest on a car, it's a depreciating asset with interest. That's a joke. It's another thing to owe 200k on an appreciating asset like a house, with the benefit of a total interest tax write-off.

I'm totally with you as long as you don't mean the house you're living in. With utility and upkeep, it may be appreciating in value but the expense outweighs the equity, houses to live in are not an "investment" in the make back more than you paid sense.

Rental property? Go for it.

I'm into the basics, I avoid debt that isn't making me more money than it's costing me. Being 17 and at home, that's not hard, willpower when I move out will be key.

Fusion pimp · Post by **Fusion pimp** » Wed Nov 10, 2004 10:51 pm

Being 17...

That says it all. No need for me to reply any further.

kurupt · Post by **kurupt** » Thu Nov 11, 2004 12:11 am

i consider my student loan to be good debt. how is an education a bad investment?

Phoenix Red · Post by **Phoenix Red** » Thu Nov 11, 2004 12:44 am

Fusion pimp wrote:
Being 17...
That says it all. No need for me to reply any further.

Maybe one day you'll live long enough that the innate perceptions it grants you will start to match up with reality?

Simple terms of in and out my friend, a house costs you more than it earns you. This expense is not avoidable but it IS limitable. Similarly, the equity "earned" by your house is controllable. Buying usually your best option, but you must seperate the fallacy banks cram down your throat to convince you to take out a loan with the facts.

A house costs you money all said and done.

Fusion pimp · Post by **Fusion pimp** » Thu Nov 11, 2004 2:37 am

Please explain to me, I mean.. maybe it's my poor math skills, but.. I dunno, Pheonix. Help me out here for I am in need.

I purchased my house 5 years ago for 120k and have paid it down to 111 whilst paying close to 30k in TAX DEDUCTABLE interest. I have made many upgrades to my house costing in the neighborhood of 50k that I can use for a TAX DEDUCTION when I sell to avoid cap gain taxes.
My house is worth a bit over 300k as of 9 months ago and I've heard the market has gone up another 12% since, but I don't have a current appraisal to back that up.. so we'll stick with 300k.

Can you please explain to my feeble mind how I have lost money? I mean, if I sold my house today, even factoring in inflation for the past 5 years I've made good money. Solid, in my hand money.

Exactly how have I lost? Mr Trump has nothing on you!
When's your book coming out?

B-

XeonJr · Post by **XeonJr** » Thu Nov 11, 2004 2:43 am

You seem definite, Pheonix Red. However that is simply not the case.

I will give you a simple example. Lets say you purchase a house with a 100% loan of $100 000 @ 4% p.a
The loan is interest only. 4% of 100K = $4000 you must pay back that year in interest. Lets say you sell that house in exactly 1 year. You manage to sell it for $130 000.
Even after CGT and other hidden costs the house has actually put money in your pocket.

Another example.

Lets say you purchase a similar house worth $120 000 for a mere $100 000. In this instance you aquire a loan for what the house is worth ($120 000) After the purchase you are left with $20 000 in your bank account. The loan is again interest only @ 4% pa.

Lets say in 2 years time the house has appreciated from 120 000 to 150 000. Your loan for the 2 years amounted to $9600. You paid that loan out of the $20 000 left over from the purchase. Again in this situation you sell the house for a profit but with the exception that you used ZERO of your own money to finance the property.

In both examples the properties yeilded positive cashflow. The 2nd example is IMO the smartest way to invest.

Personally I am not a big fan of asset slaughtering. I would prefer to hold and milk an asset for the long term. Also, you do not need to sell in order to get at any gains in a property. Simply refinancing is all that is required. Draw on the equity and use it to purchase more assets.

Hostile · Post by **Hostile** » Thu Nov 11, 2004 4:01 am

Be cautious when switching credit cards. If you do it too often, that is bad on your credit as well.

Birdseye · Post by **Birdseye** » Thu Nov 11, 2004 4:33 am

does anyone know the last time our money was 100% backed by gold?

XeonJr · Post by **XeonJr** » Thu Nov 11, 2004 4:45 am

pre 1974? Not sure about 100% backed tho...

Birdseye · Post by **Birdseye** » Thu Nov 11, 2004 4:49 am

Do some research

XeonJr · Post by **XeonJr** » Thu Nov 11, 2004 4:53 am

edit.. interesting

Sirius · Post by **Sirius** » Thu Nov 11, 2004 7:48 am

I would expect no later than the 19th century. If not earlier...

I personally have no debt, but I also don't really own anything.

roid · Post by **roid** » Thu Nov 11, 2004 9:55 am

hmm, lets just all use oil, drugs and arms as currency, like the big boys do.

yarr, the pirates know what they be doin. hoardin the booty on islands.

Pun · Post by **Pun** » Thu Nov 11, 2004 10:03 am

Fusion pimp wrote: Exactly how have I lost? Mr Trump has nothing on you!
When's your book coming out?
B-

Hehe. Nice.

The bottom line is this. Saying debt is bad is a gross and ignorant generalization. If someone else's money is making you money, that's a good thing. There's no secret. It's all about revenue. I dont need to be an economist to know this. If I found an investment opportunuty tomorrow that would produce revenue, and I believed in it. I wouldnt blink an eye at borrowing whatever it took to get me there. As I mentioned, the only way I'm going to get where I want to be is by taking risks. I believe in myself and my ability to determine what is a good bet. So far, it's worked.

Oh, and Hostile's right. Too many balance transfers is a bad thing.

Fusion pimp · Post by **Fusion pimp** » Thu Nov 11, 2004 10:49 am

In 1933 congress repudiated the redemption of federal reserve notes for gold domestically, but continues to redeem them for gold internationally and silver domestically(silver certs).
In '68 they removed our ability to even redeem our silver certs and then in '74 Nixon repudiates the redemption of gold internationally as well. We've been a total fiat system(domoestically and internationally) since '74. But, we haven't actually had the ability to reddem for gold since '33 and silver since '68.

Fusion pimp · Post by **Fusion pimp** » Thu Nov 11, 2004 10:53 am

double.

roid · Post by **roid** » Thu Nov 11, 2004 11:16 am

good debt seems good for the RECEIVER. but how is it good for the LENDER? he's outof pocket, he could be borrowing some good debt himself

.

the cycle continues.

i'm half joking

XeonJr · Post by **XeonJr** » Thu Nov 11, 2004 12:33 pm

Lender makes money on interest and the fact that its "vertually free" (leveraged 1:9 in banks favour)

Hostile · Post by **Hostile** » Thu Nov 11, 2004 1:59 pm

And Pun just replace the word REVENUE with the word PROFIT in your post. You can have a ton of revenue and still be losing money.

I know, nitpicking, but accurate none-the-less.

Dedman · Post by **Dedman** » Thu Nov 11, 2004 2:36 pm

Hostile wrote:And Pun just replace the word REVENUE with the word PROFIT in your post. You can have a ton of revenue and still be losing money.

I know, nitpicking, but accurate none-the-less.

Actually, it's not nitpicking at all. A lot of people don't realize that revenue and profit are two distinctly different things. Cash flow is king baby.

Darktalyn1 · Post by **Darktalyn1** » Sat May 14, 2005 9:10 am

Sorry for the Thread Necromancy, but I have an update

I said;

Probably about 14k

Although it looks like based on what I will be earning I can pay that off within the first 18 months of work. So I'm not sweating it that much.

snoopy said;
Way to be optimistic! I'd be willing to bet that it will take you at least double that.

===========================

The truth of the matter is when I sat down & totaled what I have to pay it came out to 16k, not 14k. That said, yesteday was a big day because I have paid off 8,000 of that in 4 months of work.

Yesterday was also a good day because I was promoted, I got a raise, and a nice pro-rated bonus for the year that I wasn't counting on.

Peace!

Lobber · Post by **Lobber** » Sat May 14, 2005 10:09 am

NOT having a credit card hurt your credit rating? Perhaps I should get a single card too. It really is true, the perfect number of credit cards a man should have is... two.

LunchBox · Post by **LunchBox** » Sat May 14, 2005 11:11 am

No car payments ( 2 cars), No loans.. No credit card (1 w/o balance) and a new Mortage( My first house) I guess I am doing ok

Box

Skyalmian · Post by **Skyalmian** » Sat May 14, 2005 11:34 am

Yay!
Liberty Dollar

Real money that has intrinsic value, and would be worth something still, if, say, the Federal Reserve went down like a whore tomorrow.

Just don't try to spend it at Best Buy...

Oh, debt, right. I'm like Testiculese in that I loathe loans and credit cards. [D3k]Starkiller is the same way.