Debt free people chime in

[Imp]

A friend of mine received an inheritance back in 2006. He didn't really have any idea what to do with it and we were discussing it over beers. I told him to pay off his house because there's "nothing more powerful than being able to walk away from your job whenever you want". He gave me a "yeah man I hear ya" and then proceeded to invest it in retirement because his schlub "advisor" said he could make more in the market than his 5% mortgage. Spent some on toys.

Did he sell at the bottom or just buy a lot of trash that never recovered?

I don't trust anyone to manage my money, not even pension funds.

 

[TwiceOver]

Did he sell at the bottom or just buy a lot of trash that never recovered?

I don't trust anyone to manage my money, not even pension funds.

He didn't want to get into it too much but from what I gather he had to sell low to keep afloat on his mortgage. That on top of stupid toys that have no real value.

Live/Learn I guess.

 

[Exterous]

A friend of mine received an inheritance back in 2006. He didn't really have any idea what to do with it and we were discussing it over beers. I told him to pay off his house because there's "nothing more powerful than being able to walk away from your job whenever you want". He gave me a "yeah man I hear ya" and then proceeded to invest it in retirement because his schlub "advisor" said he could make more in the market than his 5% mortgage. Spent some on toys.

Well the adviser wasn't wrong. A basic even weighted 3 fund portfolio would have returned 5.82% since 2006. A more aggressive portfolio with would have returned 11.78%

Doesn't mean his money was invested well or that it was a smart allocation of money for his financial situation but the basic premise was sound

 

[HamburgerBoy]

I have no debt, but I also don't have a home and my car is 15 years old. I sometimes think I'm being stupid by not getting in debt for nicer things. I worry that inflation will end up paying for the nice homes and cars that other people have enjoyed while I've lived like a hobo to avoid going in debt. Then my cash will be worthless and I will still not have a nice house or car.

I don't really want a home though because it's just something else to worry about.

I do like the feeling I have when I realize that I don't really have to go to work.

This is sort of my feeling, except that I do want to buy a house, but can't because I'll hopefully finish my degree in a couple of years and could end up moving anywhere. Just hoping the economy holds out long enough. Even a graduate stipend that pays sub-minimum wage adds up quickly when you live in mommy's basement and put nearly every dollar into the bank.

 

[s0me0nesmind1]

Lots of people have no qualms with making their choices other people's problems.

"Other people's problems"? You realize the things I just said right? If tomorrow they decide to start fracking next to your house and you get earthquakes every other day - Is that YOUR fault? According to what you just said it is.

In general, it's simply common sense to protect yourself as much as you can. Otherwise you are destined to get screwed over as insurance companies, banks, etc... always will make you bend over if you let them. There is a reason why it's called a loan. It's a risk. The bank evaluates the risk of lending to you.

 

[Zorba]

I am completely Debt free, no car loans, house paid off, no student loans, at 31. My wife and I could both leave our jobs and live for 3 years on our liquid savings without any life style changes, considering we have no large commitments.

Paying off debts is all about security, yeah I could've probably gotten a better return if I had invested my over payment. But now I invest a far higher percentage of my income than I would've while still carrying a mortgage, so I think at the end of the day I think I net out better.

To payoff the house, I bought a house I could pay off in 2 years (then I sold it and got a bigger one I could pay off in 2 years with that down payment). It was pretty easy to stay focused on overpaying just for two years. Haven't had a car payment since I was ~23, so that helped when paying off the house. Basically I sacrifice stuff that really doesn't matter much to me, for example cable, drinking, new cars, gadgets, etc. I do a monthly budget, which gives me an opportunity to really evaluate what I spend money on. I never sacrificed retirement savings though.

Now that it is all paid off, I have more free cash flow than I know what to do with. This year I am going to Disney World, going on a cruise, going to Maui and doing another cruise, paying cash for everything.

It does help that my wife and I are both engineers and live in a low cost of living area, but I know people who make far more than us that are in debt to their eyeballs because they can't control their spending.

 

[Zorba]

I don't understand people who don't use credit cards. I've been telling my siblings and friends for YEARS how to get free money and they simply don't do it. I don't get it.

You can get thousands and thousands of dollars worth of free money in rewards without ever paying a cent of interest and going into any debt. The past 5 years I have hardly paid for any flights for my wife and myself. And if you don't like traveling, well I'm sure you like Amazon and many of these places you can convert points into Amazon GC's.

I personally don't count monthly revolving CC balance as debt, as long as it is fully paid off within the month. It becomes debt when you have to start paying interest. Paying off a CC every month is basically a 0 net 30 payment terms that most companies work with all the time. That would be like thinking of your monthly utility bills as debt.

 

[Tweak155]

"Other people's problems"? You realize the things I just said right? If tomorrow they decide to start fracking next to your house and you get earthquakes every other day - Is that YOUR fault? According to what you just said it is.

In general, it's simply common sense to protect yourself as much as you can. Otherwise you are destined to get screwed over as insurance companies, banks, etc... always will make you bend over if you let them. There is a reason why it's called a loan. It's a risk. The bank evaluates the risk of lending to you.

Surprised there would even be an argument about this? Google's first definition of loan:

"a thing that is borrowed, especially a sum of money that is expected to be paid back with interest."

The expectation is that it is paid back, and the bank gives a loan based on whether or not it feels you have the financial ability to do that, not what decision you might make that leaves them holding the property. How on earth can a bank assess what will cause you to leave the property?

Either way, as I accurately stated before, you're still passing YOUR problem of fracking onto the bank. Problems "choose" people all the time, did you choose to get cancer? No, but it's still YOUR problem! All sorts of issues can arise with home ownership, from tiny to large. You chose the house, not the bank. You needed the money from the bank to buy the house, not the other way around. You can view the interest paid as insurance to just leave your house whenever you feel like it, but you're still making your problem someone else's at the end of the day.

 

[skyking]

We paid off the mortgage in 2003, and every car for cash.
Our loan was really too small to write off the interest, so we went after it.
What's it like? No change really, except when things are going well the savings add up. I work seasonally and have good years and bad years, more bad than good since 2008. I am happy with our decision.

 

[repoman0]

I have a few small-ish unpaid loans for a car (fun car, primary is paid off), student loans, and piano. The interest is so low on all of them (0 for the piano) that I could care less about paying them off and would much rather throw the extra in savings and investments instead. Actually I've paid off 75% of my student loans over the past four years (since I started working) and would much rather have that in savings and investments too.

I rent in the Boston area and have lately been seriously considering buying here. The accelerating upward trend for both housing prices and rent, and the fact that the area fared relatively well in 2008-2009 has me thinking that even though the prices are crazy, it's not a particularly risky market. I will probably live here for between 3-6 more years and would then rent the house out. Pricing for anything worth spending money on in the areas I'm looking at is about 5-6x my yearly salary. My girlfriend makes as much as me so between the two of us, after tax and insurance and before any write-offs, we're looking at payments just over what our current separate rents are. We've talked about it; the house would be in my name since I'm the one that wants to do it, she'd pay half as "rent" with the high probability that we stay together and both own it in the future.

So re: thread -- no, I am potentially about to become about the opposite of debt free

 

[WelshBloke]

...

Username plus pro debt.

Sounds legit!

 

[repoman0]

Username plus pro debt.

Sounds legit!

Ha! I didn't even notice!

To be fair, I wanted to just rent here until moving away, but I moved into my first apartment without roommates on the 1st of September. I was all excited ... small but nice place, classy old house, done with dealing with roommates ... then I smashed a rat in my kitchen with a shoe on like day 3 after moving in, and hear them in the walls and ceiling all the time and the landlord is hopeless at dealing with it. I've been going to open houses and looking at zillow since then.

 

[Fenixgoon]

Just wondering how you got to be debt free and what it's actually like. I don't count people with apartments as debt free so homeowners only please. I'm about to head down the boring road of just paying off debts instead of accumulating more. I don't have a need of having more income monthly I just would like to see what it's like to be debt free. Something to strive for. What kind of sacrifices were made? Is it like a weight lifted off your chest?

i don't own a house yet, but outside of that i am debt free. basically it's all a series of fortunate events and some hard work. i got a 75% tuition scholarship to college. my college had a co-op program, my last year i got a scholarship that paid for my tuition, gave me a stipend during the year, AND guaranteed me a job out of school. i lived at home for the 1st year, then moved into a house with 3 other people which helped me save $$$. between those two, i was able to pay off the remainder of my student loans, a motorcycle, and my car.

basically - live with other people, even if it sucks sometimes. and as i'm finding out, living alone isn't all it's cooked up to be, either.

 

[HeXen]

I noticed there are a lot of millennials these days that are 100% debt free. They might have the lifestyle they did when they were 13 yrs and in the same bedroom but hey, they are debt free. It wouldn't be hard, just lay around and sponge your parents dry.

 

[skyking]

Ha! I didn't even notice!

To be fair, I wanted to just rent here until moving away, but I moved into my first apartment without roommates on the 1st of September. I was all excited ... small but nice place, classy old house, done with dealing with roommates ... then I smashed a rat in my kitchen with a shoe on like day 3 after moving in, and hear them in the walls and ceiling all the time and the landlord is hopeless at dealing with it. I've been going to open houses and looking at zillow since then.

makes perfect sense for you to take on debt at your age. Me, not so much. The idea of retiring with a house payment really bugs me, and yet people do it all the time.

 

[Bird222]

Being "Debt Free" in a sense should be your last concern.

You should be WAY more concerned with retirement funds a million times over. The market generally accrues 6% interest - on top of that, they are tax advantage accounts. Whereas, paying off your debt is taxed in full, and the most you save is your interest APR. Currently my APR can't get any lower at 2.75%.... So.... 2.75% vs. ~6%. Which do you think is better? Don't get me wrong though, I put a little extra towards principle every month, but my first priority is maxing out my 401k and Roth IRAs

I have funds stored away (mostly in retirement, some in savings) for a rainy day if shit were to occur. I can handle any major crisis. I have the leverage to walk away from the loan as well. Imagine if all of a sudden your home was near worthless due to rising sea levels or if oil companies decided to do fracking next door and cause earthquakes every day? Your house would be worth less than what you owe.

What is this leverage you are talking about?

 

[Spacehead]

I'm debt free at the moment. House & current car got paid off at the same time about a year & a half ago. I assume i'll almost always have a car payment as i don't work on cars so i like to have something i can rely on.

I live pretty simply & don't need the latest & greatest "things/toys". Paying off what i did owe was not a hardship or sacrifice as i don't buy more than i can afford.

 

[Chocu1a]

Debt free here. My wife & I paid off our house 4 years ago(10 years). We have no car payments(2 cars). We pay our credit cards off in full every month. The only time we take out a loan, say, for furniture, we only do 0% interest for x amount of time, & pay it off before interest is accrued. We create a budget & do not spend more that we can. We also have no children, so that really helps with fluid cash flow.
It is a very liberating feeling to not have to worry about crushing debt. My brother is very bad with money. He & his wife are constantly stressed out over money & bills, & they make more than us.

 

[Bardock]

I'm debt-free. Never borrowed money I couldn't pay back. I pay my bills in full on time. Have only had credit for three years so far. Mostly I deal in cash. No wife no kids no loans. I'm frugal and use a budget and even though I don't get paid much, my bills are paid each month and my car has gas in it. I don't think I will ever go into debt if I can avoid it. It took a long time to get my credit acceptable after an erroneous medical debt and the experience left me with a very sour taste for bill collectors and debt in general. Also I never went to college so no debt from that. Maybe some day I'll buy a new car off a dealer, and go into debt that way, but so far I'm driving my 13 year old car and enjoying debt free living. I see the posts talking about the crushing weight of debt and it's not something I want in my life. I can live without rather than borrow from someone I know I can't pay back.

 

[monkeydelmagico]

Warms my heart to see so many debt free folks. It's a tough decision considering the ultra low interest rates. Classic ant and grasshopper; saver vs spender. Despite the money changers best efforts to punish savers it looks like the national savings rate is again climbing.

 

[Fritzo]

I'm up to my eyeballs in debt due to medical bills, but there's light at the end of the tunnel. I've been doing the whole Dave Ramsey thing and expect to have everything paid off in the next 3 years.

 

[Imp]

Warms my heart to see so many debt free folks. It's a tough decision considering the ultra low interest rates. Classic ant and grasshopper; saver vs spender. Despite the money changers best efforts to punish savers it looks like the national savings rate is again climbing.

That's probably because so many Americans saw other people get fucked so hard in 2008. Looks like they learned something.

Canada and Australia, on the other hand... Among the highest debt-income ratios in the world.

 

[kaerflog]

I owed $20K++ after college and had to move home afterward. That was the lowest point in my life.
Once I got a job, I attacked that debt and became debt free within 2 years.
Through the years, I was single and made ~$40K/yr. I lived like I was making $20K.
I got married 5 yrs ago and I was making double of what I was but WE still lived like I was making $40K.
My lifestyle and now our lifestyle never changed despite how much money I make.
Main house is paid for. Rental has a small mortgage left but I left it so I can use the interest to offset rental income. 4 cars paid for. I did splurge for the first time this past year buy a Lexus for my wife as a 5 yr anniversary present.

What does it feel like being debt free ???
I feel like I can retire any time(Im 45). I helping my wife get through school now. She has 2 yrs left. Once thats done and she gets a decent job, I'm FREE.
We take 4-5 vacations per year just because we can.
The best part about being debt free is being stress free.
My best advice to becoming debt free is once you start making more money, don't upgrade your lifestyle.