I Hate Debt

[MYOM]

Quote from gnome:

Not true. The "time value of money" of either paying the mortgage for the full term or paying extra to retire the mortgage earlier is exactly the same.

If you can earn more on your money than the mortgage rate, you should NOT pay the mortgage off early.... personal feelings of comfort aside.

I agree with you but the problem is that people have difficult time saving money and this forces them to save money. I have heard your argument before but I personally prefer debt free. You cannot leverage yourself to financial independence. The US economy is de-leveraging sub-prime debt as we speak. Lastly, it increases cash flow for savings, investment, and a higher standard of living. No person or business ever went bankrupt with zero debt.

Dan Clemons, author Manage Your Own Money

 

[gnome]

Quote from MYOM:

I agree with you but the problem is that people have difficult time saving money and this forces them to save money. I have heard your argument before but I personally prefer debt free. You cannot leverage yourself to financial independence. The US economy is de-leveraging sub-prime debt as we speak. Lastly, it increases cash flow for savings, investment, and a higher standard of living. No person or business ever went bankrupt with zero debt.

Dan Clemons, author Manage Your Own Money

Now you're making a "comfort" argument... not a financial value one.

If you had the cash to buy a house, and took a mortgage instead... you could always simply write a check and pay it off.

That's the same financial condition as not having a mortgage.

 

[QQQBALL]

Quote from MYOM:

Hi Jim:

I have a Path to Prosperity in my book called The Smart Home Mortgage where 1/3 more on the mortgage paying off the 30-year loan 17 years. Invest that mortgage payment for 13 years and you will have a home free and clear and a life income greater than the amount of mortgage payment.

Dan Clemons, author Manage Your Own Money

i am debt free, frugal & essentially financially independent, although i continue to operate my business on a PT basis when its slow and more FT basis when its busy.

i have never read your book, but i will head to the library today - see, im frugal. i would recomemnd "your money or your life" by joe dominquez or "cashing in on the american dream" by terhortz. the first book is a must read IMO, but both books have a "similar philosophical thread. the second book is harder to find - i paid like $45 years ago for a used copy.

paying down the mortgage is risk free return (assuming you dont default). if you mortgage is say 7% and you pay extra every month, you can perhaps yield 8% or 9% on your money... i calc'ed it when i was was paying my mortgage off.

how? well, as the loan balance decreases the principal portion of each monthly payment increases, which lowers the loan balance, which means that the portion of the next payment going to principal reduction is greater - you get the thing going in your direction. what you do, in effect, is flip the amortization table over - where it kinda works for you.

trust me, life gets very simple w/o debt. when yields on investment real estate get to a level that i make me salivate, i will take on some debt again, but someone else will make the payments. also, having cash at market bottoms, real estate or otherwise, can get you pretty nice prices.

thanks for the thread.

 

[QQQBALL]

Quote from gnome:


If you can earn more on your money than the mortgage rate, you should NOT pay the mortgage off early.... personal feelings of comfort aside.

as i posted above, you can get a great yield on the extra portion paid toward the mortgage due to the amortization of the loan. and the yield is "risk free." this is the same thinking that had people borrow against their home and speculate - essentially, leverage on top of leverage. well what happened? they lost on the spec, their home values went down, the loan balance increased and so is the debt service. no some may lose their homes.

the reason people dont pay off their homes is that its not sexy, its not quick and it requires commitment, discipline and foresight... no one wants to go to a backyard BBQ and hear about all the great spec profits being made by others and when its their turn they say "i paid an extra $1,000 on my home mortgage this month!"

once again - life gets very simple w/o debt. what you are overlooking is the lack of debt lets you really roll-up investment capital and gives you the opportunity to really step outside the box on some stuff.

 

[MYOM]

Quote from gnome:

Now you're making a "comfort" argument... not a financial value one.

If you had the cash to buy a house, and took a mortgage instead... you could always simply write a check and pay it off.

That's the same financial condition as not having a mortgage.

Here is another way of saying that what you said. You can pay rent and invest the equity you would have in a home or you can own your home free and clear. Both are arguably equal. Having spent the last 30 years in the financial services industry, I’m an old retired Certified Financial Planner and Registered Investment Advisor now, I simply prefer home ownership and more free cash flow. Everyone should own the roof over his or her head. There is an exception to that for the elderly who can no longer maintain a home. I guess you could say that I was never a rent and invest the difference kind of guy. However, I do believe in buying term insurance and investing the difference.

Dan Clemons, author Manage Your Own Money

 

[AMT4SWA]

Quote from Kevmeister:

Hello fellow traders

Just wanted to start a thread on what traders think about debt. I have no debt other than my mortgage payment. Each month I have been increasing my mortgage payment by $100 so that I eventually pay this off.

I realize I could use the funds to try to earn a better return than the 5.125% interest rate I'm paying. But I'm doing this for 2 main reasons.

- It is a great feeling to know I will be totally debt free in a few years
- Although I follow risk management and position sizing you just never know what the future will bring and it's nice knowing if I ever blew up my living expenses will be minimal.

It's amazing how little one can survive on if you have no debt.

Any opinions?

Kev

Having DEBT is unbiblical so you should easily see why it HANGS so many.

 

[Kevmeister]

Quote from gnome:

Not true. The "time value of money" of either paying the mortgage for the full term or paying extra to retire the mortgage earlier is exactly the same.

If you can earn more on your money than the mortgage rate, you should NOT pay the mortgage off early.... personal feelings of comfort aside.

Agreed, but what if your cash flow allows both investment and debt reduction at the same time. Should I try to maximize all cash yields, at greater risk. or like some have said, take the risk free yield for some of my disposable income. Why not do both?

Thanks everyone for you responses.

Kev

 

[QQQBALL]

Quote from Kevmeister:

Agreed, but what if your cash flow allows both investment and debt reduction at the same time. Should I try to maximize all cash yields, at greater risk. or like some have said, take the risk free yield for some of my disposable income. Why not do both?

Thanks everyone for you responses.

Kev

well, the author here is likely the expert. i first set aside a very healthy buffer against a black swan event. this kinda relieves the month-to-month living & associated stress.

either way, the thing to remember is that getting good yield is essentially buying time. the better the yield and increased (eventually) passive/investment income, the less you have to work. you are essentially "buying" time in your life.

 

[Sniemiec]

Quote from MYOM:


Here are some of my rules.

If I can't pay cash for my car then I have not earned the right to have it.

I'll never pay cash for a car. $50K out of pocket into a depreciating asset, or $10K down and a monthly payment while investing the remainder?

 

[QQQBALL]

Quote from Sniemiec:

I'll never pay cash for a car. $50K out of pocket into a depreciating asset, or $10K down and a monthly payment while investing the remainder?

you are financing a depreciation asset. thats worse than paying for it outright. why not buy a less expensive car or a good used vehicle and invest the remainder.

the point that was being made is live within your means and buy what you can afford. when you are young, homes have to be financed.