No Debt (Ramsey) or Debt as a Tool

[Sapper PE LS]

I generally like Dave Ramsey's debt advice, ie no debt period, but at the same time, I think that there is a balance that can be healthy for intelligent, disciplined people who use debt as a tool while critically analyzing the risks and ensuring they pay it off every month (or in the case of a mortgage don't get in over their head).

I'd like to hear the thoughts of other engineers. What say ye, no debt ever, or manage your debt for leverage in a responsible way?

 

[kevo_55]

I prefer to use debt as a tool but my wife is a strong Ramsey supporter.

Unfortunately, we don't use debt as a tool in my house. My wife won that battle......

 

[Ble_PE]

I completely agree with using debt as a tool, but you've got to be able to keep it under control. It's very easy to charge $100, but putting a $100 bill on the counter is much harder. You should also be smart with your two largest expenses as well (house and car). We bought a new car last year and I got a 0.9% interest rate on it for 5 years. I'd be crazy not to take that because it's basically a free loan (note that there were no incentives available for not taking the low interest rate). Also, we recently refinanced to a 20 year mortgage and will save ourselves over $80000 in interest over the life of the loan.

Unfortunately, we don't use debt as a tool in my house. My wife won that battle......

You really didn't have to tell us that, us husbands already knew that answer...

 

[Krakosky]

Having no debt is really appealing to me but not feasible for me right now. I'm working to pay things off to the point where I feel comfortable with the amount of debt I have but realize it'll probably never be zero. I was lucky enough to pay my car loan off a few years early and haven't had a car payment since 09. My car is running great, but want to be prepared when the time to replace it arrives.

 

[snickerd3]

mr snick came from a family that followed the no debt method, but they never spent $ anyways as they always think they need the money for the future. My parents have lived in the same house since I was about a yr old and they still have a mortgage because they had to borrow against it to pay for major repairs on the house and some credit card debt and they live for today,

We are a combination. Loans are tools that if managed correctly can allow you to enjoy today and think about tomorrow. THe only reason we use credit cards is to get the cash back, the bill is paid off in full each month. THe method has worked for us since we are debt free as of earlier this year.

 

[Flyer_PE]

I generally agree with Dave Ramsey's approach with the only exceptions being the mortgage and the occasional car loan. Credit cards get paid off every month.

Just financed a new truck at 1.6% through the credit union and managed to get all of the end-of-model-year rebates that go away if you go for the manufacturer 0% financing. The interest gives me at least a small incentive to pay the thing off early.

 

[engineergurl]

I say, managed debt to a point...

for instance- I took out loans for college, I pay said student loans, I wait until they are paid off before I invest anymore money in my education (I can't justify shelling out $2000 for school in cash when I owe someone $2000 for classes I took before....)

we qualified for a VA mortgage but forced ourselves to save up what other people our age should have been required to put down as a down payment on a house before we used our VA loan (our first home we didn't use it) 5 years later, that account as accrued interest, has acted like a buffer when we had issues with the mortgage company, and when and if we find a better deal on a loan, we can use it to cover any costs associated with refinancing

Debt is okay if it's education, a home mortgage or a car payment.

Of course, we have credit card debt aka. bad debt because sometimes life forces you to make decisions that sometimes you would rather not choose the way you have to, but since it is manageable and our assets are greater than the debt, it doesn't make me panic.

 

[csb]

Debt as a tool- we're paying off the mortgage and the car loans. Well, my husbands has a truck loan. My car was a 0% 60 month loan that I took my sweet time paying off, because it was Ford's money and paying it off early didn't get me anything. I instead paid of student loans.

I will admit that we have a second mortgage because we bought in 2004 during the height of housing madness and we had nothing to put down. We've been double paying that down and just got the notice last week that the second mortgage closes off next year (meaning we've been in the house for ten years) and we'll enter repayment. I didn't even realize that it was an interest only payment...we've always been paying towards the principle. I imagine those notices are nasty wake up calls for some people, because it essentially doubles the payment. I don't think we ever paid it at interest only. In fact, we're overpaying what they'll require of us in repayment.

 

[mudpuppy]

No one method is right for everyone. If what you're doing isn't working then it's time to find something that does. For me, I'm quite disciplined about saving and I don't like being in debt. But sometimes debt is the best way to go--for instance, I had a car loan at 0% for six years. I kept wanting to pay it off early but that would have cost me money in the long run. Same thing on the house, I owe $25k at 5% but since I'm only 4 years from paying it off I'm only paying about $100/mo in interest. I'd like to get rid of the mortgage, but I also need to save more cash for down payment on my next house so I think it's better to keep the debt.

I've even used credit card debt in the past when it made sense--a special 4% offer, I used to pay for roofing my house. It made more sense than saving up the money over the winter and hoping I didn't develop any major leaks.

 

[Ship Wreck PE]

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged. Doesn't Dave also think a married couple should keep all of their money together??

 

[DVINNY]

Everyone's situation is different.

It really depends on where you are in life, and calculated risks too.

Example:

A young mid-20's married couple is buying a 200K home, both are professionals and its reasonable to assume will have income growth over the next 10 years, I can see them borrowing 30%+ of their income on a mortgage. Knowing their incomes SHOULD grow & make that ratio more comfortable in years to come.

A couple retiring next year, buying a 200k home at 35%+ of their income, maybe NOT such a good idea, if their income will be fixed for the future and not have any room for growth. This is setting them up at a higher percentage for failure (in my opinion) than the younger couple.

I know there are a thousand variables in people's situations, but making SMART calculated risks are key, IMO. Not just going on wishful thinking.

I am grateful to be a good position now, but I remember my early 20's, I bought my first house at 23 years old, without 20% down, used a second mortgage on that portion, had to put a washer/dryer on a credit card, etc. etc.

I was one of those walking the tight rope for a few years, but I had that potential for income growth and rolled the dice. Things turned out in my favor (I'd like to think not by accident, but by hard work and sacrifice). Eveyone has to walk their own walk, but if I would have fell flat, I wouldn't have been looking for a BAILOUT. I can guarantee you that. I would lick my wounds and learn from it.

 

[Master slacker]

I don't believe that any debt is good debt. If you owe someone money, that's less you have. We have debt, lots of debt, and look to pay off my chunk of student loans next year when I cash out a lot of stock. With that extra money, we'll be putting aside some in 529 plans and the rest into extra mortgage principal. My goal is to have the house paid for before I turn 40. May not happen, but that's my goal.

 

[Sapper PE LS]

Yeah I'm basically in the debt as a tool to use sparingly camp. I have some but not much credit card debt and will have that paid off soon.

I don't like unsecured debt at all. But I'm okay with car loans, student loans, and mortgage. I'd rather not have a car payment, but that is something I can live with as long as it isn't astronomical, like the payment I had in the worst financial decision I ever made, glad I got out of that one.

Student loans to me are almost required for most people. I simply would not have my income without them. So the return on investment is pretty high. I will be paying them for quite a while still, but for me it was worth it.

The way I see it, credit card debt is the bad stuff and I avoid that at all costs.

 

[roadwreck]

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged.

I totally disagree with the car loan portion of your statement. Cars can be cheap, if you are willing to buy something that isn't new or flashy.

Dave Ramsey doesn't say you can't have a home loan either, he just advises that it be a smaller portion of your income that what most people would elect. He also advises people to get a 15 year home loan.

I don't prescribe to Dave Ramsey's methods myself. I never felt I needed to. To me his advice is good for people who have difficulty managing their finances and take on more debt than they can handle. To me his plan is to get out of overwhelming debt once you are there and to keep you from going back to that place once you finally dig yourself out. I've never been in that place. I've lived within my means and thus I've never needed to abide by Dave's principles. I still don't carry much debt. I have a mortgage, but no other debt. I use credit cards, just because I find them more convenient than cash, but pay them off every month. I know Dave says that you spend differently when it's cash vs. credit cards, and that's probably true, but I feel like I do a pretty good job of managing my spending. I've read Dave's books and listened to his radio show partially because I find it entertaining and partially because I thought it could be a good tool for some family members that don't do a good job of managing debt. I figured I should know what Dave was all about before recommending his program to them.

For myself, I prescribe to Clark Howard's teachings more than Dave Ramsey's.

 

[Dexman PE PMP]

Too many things for me to write now, I will have to revisit this later...

 

[knight1fox3]

I generally agree with Dave Ramsey's approach with the only exceptions being the mortgage and the occasional car loan. Credit cards get paid off every month.

+10. About the same. We followed DR's philosophy pretty well. When we got out of school and got jobs, most of our friends were buying cars and houses while LadyFox and I continued to rent and stretched out the life of our used cars. And most of our revenue went towards both our student loans. We only used debit cards, no credit cards. For approx. 3 months or so we were debt free but then decided we wanted to finally purchase a home. But once the student loans were paid off, we saved as a much as we could for a down payment on a house. We also decided to get something we'd be in for quite awhile instead of a starter home like a few of our friends did. We were able to put 10% down on the house and secure a rate of 5.05%. We also took advantage of the $8000 first-time home-buyer tax credit which was nice. We recently re-financed to 3.6% since we were only 2 years into our 30-yr. We plan to have the mortgage paid off in half that time. We also save for our vehicles and don't buy new. Our only payment is the mortgage each month.

We both do have credit cards now but use them primarily while traveling for work. Then get the expense check and pay off the balance each month. I also use mine to finance computer builds and repairs for my side business. Again once I get paid for the work, the balance is paid off each month.

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged.

I totally disagree with the car loan portion of your statement. Cars can be cheap, if you are willing to buy something that isn't new or flashy.

Dave Ramsey doesn't say you can't have a home loan either, he just advises that it be a smaller portion of your income that what most people would elect. He also advises people to get a 15 year home loan.

lusone:

 

[Exception Collection]

Cheap, extremely temporary debt is fine as well. Take CareCredit or 0% financing offers; they are horrendous if you can't pay them off in 6 months, but on the flip side if you have the money to pay them off sooner, you can save a bit of money in the meantime. Right now I have almost $5k in 0% offers - dental, appliances, furniture, veterinary. I have the money to pay it off in full in two months, but why bother when I can pay it off over 5 months and get .5-3% interest (gain, not paid out) on the money?

 

[Capt Worley PE]

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged.

I totally disagree with the car loan portion of your statement. Cars can be cheap, if you are willing to buy something that isn't new or flashy.

Used American sedans are a bargain. Check out prices on 2012 Impalas. You can get a loaded out LTZ for under 15K, and its got all the bells and whistles, plus 300hp (as well as, a trivia fact, a suspension system that was completely reworked by GM Performance because of the high percentage they expected to go to police fleets)

Of course, not everyone has gotten to the 'cars are tools to go from a to b' place yet.

 

[engineergurl]

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged.

I totally disagree with the car loan portion of your statement. Cars can be cheap, if you are willing to buy something that isn't new or flashy.

Used American sedans are a bargain. Check out prices on 2012 Impalas. You can get a loaded out LTZ for under 15K, and its got all the bells and whistles, plus 300hp (as well as, a trivia fact, a suspension system that was completely reworked by GM Performance because of the high percentage they expected to go to police fleets)

Of course, not everyone has gotten to the 'cars are tools to go from a to b' place yet.

But most car loans now days come with so many incentives... I'm not going to pay mine off early, it's not gaining interest, and the payment isn't that much... granted though, I paid for half my car in cash and bought it in a situation where I had just totaled my truck earlier that day, or I probably would have been able to get the value I financed from the trade in... so had I not crashed into the ditch, I wouldn't have the car loan... but I also wouldn't have bought that car... my case in point earlier... sometimes we end up with debt because life throws you curve balls... divorce, car accidents, medical bills... etc etc.

 

[Capt Worley PE]

I think Dave is pretty good at what he does, but having a car loan and a house mortgage is pretty much a way of life if you were not born privileged.

I totally disagree with the car loan portion of your statement. Cars can be cheap, if you are willing to buy something that isn't new or flashy.

Used American sedans are a bargain. Check out prices on 2012 Impalas. You can get a loaded out LTZ for under 15K, and its got all the bells and whistles, plus 300hp (as well as, a trivia fact, a suspension system that was completely reworked by GM Performance because of the high percentage they expected to go to police fleets)

Of course, not everyone has gotten to the 'cars are tools to go from a to b' place yet.

But most car loans now days come with so many incentives...

Which is better from the standpoint of money paid? Paying $15K cash for a two year old Impala, or paying $30K for a new one at 0% interest?