I might be missing something obvious. The more I read other PF Blogs, the more I think about why people choose to be in debt when they don’t have to. Excluding folks that have financial burdens that force them to be in debt to accomplish a goal and purchasing a home, why would you choose the debt route? If you read PF materials or are a PF Blogger, it’s obvious that you have at least a fairly good grasp of finances, so why choose debt? Especially unmanageable debt.
I see folks signing up for loans at rates greater than 10% even though they are fully aware of their financial standings. Is it because they are keeping up with the Jones’? Is it because of financial ignorance during the younger years? Or even older years?
Personally, if I were in the situation, which I wouldn’t at least by choice anyway, I’d be living off Mac & Cheese and water. I’m not being arrogant here…it’s an honest question. I weighed the decision before of being in debt or not, and I choose not to be in debt. Why not choose to buy the cheaper car instead of the fancy one? Why spend all that money on frivolous expenses with your credit card?
So what’s your story about debt, if that’s where you are?
Golbguru
September 22, 2006 at 8:03 am
May be it’s because some people lack strong will..that’s what they call – falling for instant gratification, temptation. Debt easily smells the weakness and then rules
Rich Slick
September 22, 2006 at 9:14 am
What kind of debt are you really talking about here? There is plenty of good debt to have:
1. Mortgage – you get to finance the purchase of a home that you wouldn’t likely be able to buy unless you had 100k+ in cash.
As a plus you get to write off mortage interest on your taxes.
2. Student Loan Debt – you get to finance an education which will hopefully allow you to earn better income. As a plus you get to write off student loan interest on your taxes.
3. 0% credit card debt – I use this to EARN extra money. 25k at 0% debt earning 5% at Emigrant or HSBC pays YOU $1250/year.
As for people who sign up for 10% loans and such I can’t figure that out myself. I think it all comes back to denial and lack of education. You do have to keep in mind both side of the equation. While someone is PAYING 10% interest someone is EARNING 10% interest. Without both what would be the point of interest?
freedumb
September 22, 2006 at 9:22 am
Unmangeable debt…whether it’d be credit cards, personal loans, etc…even student loans! Student loans aren’t all good…
I guess I’m thinking along the lines, of if your net worth is negative and you have tons of debt, why would you do that to yourself?
LAMoneyGuy
September 22, 2006 at 9:33 am
Rich S.,
I agree that mortgages are an acceptable form of debt. Although I will never go so far as saying that any type of debt is “good.” However, even mortgages are only acceptable if borrowers do not get overextended or trapped in exotic mortgages.
Student loans also fall under the category of acceptable, but slightly less so than mortgages. I think labelling student loan debt as “good” enables many students to not try as hard as they otherwise might to find alternatives to funding their education, like community college transfer, part time work, etc.
0% Balance transfer debt? As long as it is managed carefully, I have no problem with it. Heck, I have engaged in a fair amount myself.
But unsecured consumer debt? I think Goldburu is on the money.
Single Ma
September 22, 2006 at 2:47 pm
A savvy PF Blogger with ANY debt (good or bad) at a rate of 10%+?
I’d have to see it to believe it!
Carrying debt is not always a bad thing. If the cost of borrowed money is less than your investment earnings, then it’s all good.
Accumulating additional debt with a negative net worth? Well, that’s a different story. Can’t answer that one buddy.
mapgirl
September 23, 2006 at 5:51 am
WAH. I’m one of those PFBloggers carrying debt. This past month, mine has ballooned. I guess I choose to carry it since I know I am going to pay it down without a lot of pain every month.
I think debt’s a bad idea if you can’t make the payments. But if you can afford your debt, then it’s just simply another choice on where to spend your money, i.e. to pay interest.
Is that just a stupid long justification for the debt I’ve got? Probably!
prlinkbiz
September 29, 2006 at 4:40 am
I have been debt free for years. I recently got a $300 secured cc to build credit with, but I only use it for monthly bills and pay it down early each month. The only good debt to have is debt that someone else pays for you and can make you money. Thats my goal.
freedumb
September 29, 2006 at 8:57 am
SingleMa, I do agree…all bad is not bad. It’s just seems that some people I know personally have made the choice to be IN debt for whatever reason…cars, fancy stuff, etc. Mortgages I would exclude…most of them. College loans…really gray area to me…sometimes good, sometimes bad…I would have to way Return on investment to see if it makes sense.
Mapgirl, uh oh…the only time I take on debt is when I can make more on the cash in hand then if I took a loan…
I gotta disagree with the ‘afford’ debt comment though lol. Just because it fits into your monthly plan…I know you’re joking!
Prlinkbiz, 0% credit cards maybe?
investor loan
October 10, 2006 at 5:31 pm
Interesting. I’ll be check back more often!