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Message
re: What is your opinion on credit?
Posted on 5/18/15 at 11:33 am to BigEdLSU
Posted on 5/18/15 at 11:33 am to BigEdLSU
It is a financial tool, that yes, misused can cause great financial harm.
Just because a table saw can cut your thumb off doesn't mean a table saw is a gore pit.
Example: You have great credit, and can get a car loan at really low rates. You have assets to be able to pay cash for it, but why would you want to? It's earning you ~8% a year, and you are going to sell it to save 3% a year on a depreciating asset?
Just because a table saw can cut your thumb off doesn't mean a table saw is a gore pit.
Example: You have great credit, and can get a car loan at really low rates. You have assets to be able to pay cash for it, but why would you want to? It's earning you ~8% a year, and you are going to sell it to save 3% a year on a depreciating asset?
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Posted on 5/18/15 at 11:33 am to Overbrook
quote:
You can do what you want but the availability of credit has been a big contributor to building the middle class in this country
Or an advanced civilization in general
Posted on 5/18/15 at 11:36 am to upgrayedd
We buy everything on our cards. Meaning we live off our credit cards. We pay them off every month. We also keep anywhere from 6-9 months of cash set aside to cover all our bills in case of an emergency.
Credit is a great tool if you use it correctly. But if you abuse it, it can make life extremely unpleasant....just like anything else in life.
Credit is a great tool if you use it correctly. But if you abuse it, it can make life extremely unpleasant....just like anything else in life.
Posted on 5/18/15 at 11:39 am to TigerBait1127
Apparently I wasn't as articulate as I thought. Let me try again.
Lets say I have two potential options. Option A is purchasing a 200k home with a 30 year mortgage. Over 30 years, I pay 314k. I cash out in 30 years for lets say 400k. That 400k doesn't have the purchasing power in 30 years that you would think, in reality it's worth less than the 200k today is.
Option b is to purchase land and a trailor. Take the money that would have gone to the bank and let's say invest it conservatively, get a 6-8% annual return. Once the current value of your property plus the savings you have built up reaches the point of buying the house you want outright, you sell and purchase. Now you own the same home sooner, and you can still divert what would have been the original monthly payment in option A to the same conservative savings strategy. At the end of 30 years you still cash out on the home plus have savings.
Lets say I have two potential options. Option A is purchasing a 200k home with a 30 year mortgage. Over 30 years, I pay 314k. I cash out in 30 years for lets say 400k. That 400k doesn't have the purchasing power in 30 years that you would think, in reality it's worth less than the 200k today is.
Option b is to purchase land and a trailor. Take the money that would have gone to the bank and let's say invest it conservatively, get a 6-8% annual return. Once the current value of your property plus the savings you have built up reaches the point of buying the house you want outright, you sell and purchase. Now you own the same home sooner, and you can still divert what would have been the original monthly payment in option A to the same conservative savings strategy. At the end of 30 years you still cash out on the home plus have savings.
Posted on 5/18/15 at 11:43 am to LSUBoo
quote:
While I appreciate this school of thought... have also read that you're better off paying the minimum on the loan and putting whatever money you would have used paying it down early into an IRA or other retirement vehicle. Especially since the interest is deductible. This probably assumes a low rate, I'm sure there's a point at which paying down the principal faster makes more sense too.
I'm on the older side of the posters on this board so I would rather own the house at this point in my life. Given the real estate market where I live I'm fairly safe with that portion of my money in the house which is still appreciating at a nice rate.
If I'd purchased this home when I was much younger I might have done things differently. I'll note that we do have other investments that we fund. The house is just part of our future.
Posted on 5/18/15 at 11:45 am to BigEdLSU
quote:
Lets say I have two potential options. Option A is purchasing a 200k home with a 30 year mortgage. Over 30 years, I pay 314k. I cash out in 30 years for lets say 400k. That 400k doesn't have the purchasing power in 30 years that you would think, in reality it's worth less than the 200k today is.
There is also the value of use. In addition to the $400k you get to live in and use the house for 30 years. That has value.
Posted on 5/18/15 at 11:45 am to BigEdLSU
quote:
I'm pretty sure that the guy known as the most fiscally responsible president in the history of our country would actually agree more with me than you.
Maybe we can ask him one day?
Personal finances and national level finances aren't corelated.
And on a tangential note, I used to be all gung ho, we should have a balanced budget, etc.
But then I learned about economics.
When our current financial system there NEEDS to be a government deficit in order for it to work. That doesn't mean they can't go overboard with really bad consequences, but a balanced budget aim only results in recession.
Posted on 5/18/15 at 11:47 am to VABuckeye
Yeah... the wife and I are about to close on our first house together. I think we are going to (at least at first) stick to the minimum and make sure we are adequately funding retirement accounts while they have a lot of time to compound. As income improves we might shift more toward paying down the mortgage early, but despite the foreboding thought of "$100K+ in interest" it's still 'good' debt.
Posted on 5/18/15 at 11:49 am to VABuckeye
True, the value of use. That's defined differently between families. I think there is probably an ending difference in balance between option A and B in excess of 1MM. I personally don't value the usage that high.
Posted on 5/18/15 at 11:50 am to BigEdLSU
The problem with your plan is that it ignores the benefits of equity and tax ride offs.
Also you can use a highly leveraged mortgage to add to your net worth significantly.
All to live in a trailer for 20+ years of your life.
Also you can use a highly leveraged mortgage to add to your net worth significantly.
All to live in a trailer for 20+ years of your life.
Posted on 5/18/15 at 11:50 am to BigEdLSU
quote:
Lets say I have two potential options. Option A is purchasing a 200k home with a 30 year mortgage. Over 30 years, I pay 314k. I cash out in 30 years for lets say 400k. That 400k doesn't have the purchasing power in 30 years that you would think, in reality it's worth less than the 200k today is.
Option b is to purchase land and a trailor. Take the money that would have gone to the bank and let's say invest it conservatively, get a 6-8% annual return. Once the current value of your property plus the savings you have built up reaches the point of buying the house you want outright, you sell and purchase. Now you own the same home sooner, and you can still divert what would have been the original monthly payment in option A to the same conservative savings strategy. At the end of 30 years you still cash out on the home plus have savings.
OK... but are you factoring in quality of life? In Option B, you have to live in a trailer.
Posted on 5/18/15 at 11:51 am to Sev09
Yeah I guess that would be a deal breaker to some.
Posted on 5/18/15 at 11:55 am to BigEdLSU
quote:
True, the value of use. That's defined differently between families. I think there is probably an ending difference in balance between option A and B in excess of 1MM. I personally don't value the usage that high.
It is far less than that even in a best case scenario. I don't think you are really putting a pen on paper and doing math with all of the variables.
And anyway, wasn't part of your argument against homes is that the 400k being worth less 200k?
So that million dollar charge suddenly looks a lot less impressive.
Posted on 5/18/15 at 11:56 am to BigEdLSU
PenFed gas card= 5% cash back on gas every month
Discover and chase = 5% rotating catagories
Fidelity 2% rewards, for everything else
Amex serve (fund 1500 with fidelity for truck and house with no charge)
Pay in full each month
Profit
Discover and chase = 5% rotating catagories
Fidelity 2% rewards, for everything else
Amex serve (fund 1500 with fidelity for truck and house with no charge)
Pay in full each month
Profit
Posted on 5/18/15 at 11:59 am to BigEdLSU
quote:
I don't think that's true. If be willing to bet most, if not all banks have more money loaned out than available resources. They just type some numbers into a computer and create cash.
I like you Big Ed, but you're wrong on this one. Banks are allowed to loan a percentage of their deposits and that percentage is regulated by the Federal Reserve. The Fed does loan money banks, who in turn provide loans to businesses and consumers, but that too is strictly regulated.
Posted on 5/18/15 at 12:01 pm to Volvagia
I'm kind of running with this thread in theory, not practice. There are some other things I'm doing with the diverted money. This isn't really reflective of my personal decisions. I'll soon have 4k in monthly income from paid for rental properties in addition to my land.
Posted on 5/18/15 at 12:02 pm to The First Cut
Fair enough. I know I'm wrong at times 
Posted on 5/18/15 at 12:03 pm to BigEdLSU
quote:
but why would I want to pay 500k over 30 years for a 200k home
You also have to take into account time value of money. Sure, with interest you're going to pay more than the value of the home, but a dollar in 30 years won't be worth what a dollar is worth today. That house payment 15 years from now will be cheaper than what rent will be at the same time.
Posted on 5/18/15 at 12:06 pm to BigEdLSU
The two biggest things that close the gap in your scenario is
1) tax benefits of mortgage debt.
2) equity
Where is the 80k+ for the land and mortgage come from? If you rented till you had that cash, that is a HUGE sunk cost you will never see any upside from. If you got a smaller loan, then you have to pay it off before you even begin going for your investment plan.
My house will be a quarter paid off before you even start saving for yours.
1) tax benefits of mortgage debt.
2) equity
Where is the 80k+ for the land and mortgage come from? If you rented till you had that cash, that is a HUGE sunk cost you will never see any upside from. If you got a smaller loan, then you have to pay it off before you even begin going for your investment plan.
My house will be a quarter paid off before you even start saving for yours.
Posted on 5/18/15 at 12:09 pm to BigEdLSU
quote:
I know I'm wrong at times
You are a big man.
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