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ProDarwin
ProDarwin PowerDork
11/21/16 10:53 a.m.

You, me, and dculberson apparently. Although none of us are as 'extreme' as MMM.

I'm down

STM317
STM317 HalfDork
11/21/16 11:05 a.m.

I would read it.

volvoclearinghouse
volvoclearinghouse SuperDork
11/21/16 11:07 a.m.

Depending on your comfort with risk, it can be advantageous to keep some debt while also having savings. In our case, we have a home equity line of credit that charges a low interest rate- about 3.25%. We also have most of our cash non-retirement savings in a mutual fund. On a bad year, that might return 7%. So, there's a 4% net return, plus the home equity interest is tax-deductible.

Also, if you include the normal home mortgage in "debt", a lot of people would never save anything. Again, when mortgage interest rates are sub-4% and a 401k/ IRA might return more than that, AND the mortgage interest is tax deductible...

Yep, more math.

volvoclearinghouse
volvoclearinghouse SuperDork
11/21/16 11:28 a.m.

To the OP's original question:

As with everything, BE CAREFUL. Make sure you understand all terms and conditions. Look for things like "prepayment penalty" and "balloon payment" and et cetera. Anything you don't understand- question. Don't agree to anything unless you understand it.

One tactic I have used in the past is to use a low interest offer on a card to pay off another. But, you have to be careful. Often there's a transfer fee- sometimes fairly significant. If they're offering a 1.99% APR for a year but the offer comes with a 4% balance transfer fee, then the effective interest rate is basically 6%.

I've never used a Personal Loan, but I would watch for similar things like "documentation fees" or "origination fees", etc. Make sure you're really getting the deal you think you are.

I was going to suggest a GRM solution and sell your expensive car and buy a beater Volvo 240, but I see in your profile you're already rocking the cheap seats.

Shuffling debt around to get lower interest rates can work, or it can fail spectacularly.

dculberson
dculberson PowerDork
11/21/16 12:05 p.m.
volvoclearinghouse wrote: Depending on your comfort with risk, it can be advantageous to keep some debt while also having savings. In our case, we have a home equity line of credit that charges a low interest rate- about 3.25%. We also have most of our cash non-retirement savings in a mutual fund. On a bad year, that might return 7%. So, there's a 4% net return, plus the home equity interest is tax-deductible.

Absolutely! I still carry my primary mortgage because it's 3.375%. Paying it off early would delay retirement. But credit card debt is pants on fire emergency time.

Regarding keeping a cash emergency fund while carrying credit card debt: for simplicity's sake, let's say you have $10k in cash and $10k on a card costing you 15% interest. Keeping that cash is costing you $125/mo, and it is a non-productive $125/mo. If you instead pay off the card immediately and start putting the $125/mo then you've got $10k again in 7 short years. If two years in you have an emergency, you've got $3,000 in cash on hand and get a $7,000 cash advance. That cash advance would be at a higher rate - let's say 20%. That $7,000 is costing you $117/mo in interest. No harm, no foul. If you're currently paying higher than 15% then you'd be even better off to use the emergency funds to pay it.

Again, that heavily depends on your ability to keep balances from building up on your credit cards. In my experience it's not "emergencies" that cause credit card debt but typical lifestyle inflation problems. An "emergency" comes along and your existing debt problem is brought more into focus. You already had that problem but didn't realize - or weren't willing to recognize - that it was a problem.

I use emergency in quotes because there aren't that many true financial emergencies in American life. If you have medical insurance, that is. Car repairs and house repairs need planned for, but they're easily anticipated and budgeted for. And until you have cards paid off and liquid assets built up you can not afford fancy dinners and new/expensive cars.

dculberson
dculberson PowerDork
11/21/16 12:12 p.m.
ProDarwin wrote: You, me, and dculberson apparently. Although none of us are as 'extreme' as MMM. I'm down

Yeah, I don't skip showers and cut back on laundry to save money, that's for sure!

But I enjoy MMM's blog and have tried to use his philosophy in my life. He's one that helped get my wife and I on track for zero debt and building liquid assets. Until 2005 or so we were doing the typical American dream thing of spending all of our pay checks, more and more money as we got raises. It is incredible how good and rich your life can still be without spending it all. People forget how little money you need to actually get by in American life. It's nothing ground-breaking; a lot of our grandparents (or great-grandparents for the younger folk here) did it but it seemed to have been forgotten around the baby boomer's time.

volvoclearinghouse
volvoclearinghouse SuperDork
11/21/16 1:21 p.m.

In reply to dculberson:

I agree. I guess I've never been in the position where I've paid such confiscatory interest rates on anything. Every loan Mrs. VCH and I have currently is at 4% or less. And they all have tax deductible interest.

We too occasionally read the M^3 website. He has some good ideas, many of which we do- no cable TV, no land line, no car payments, bought a small house, eat out maybe 2x-3x per month, etc. We have huge deductibles on car, home, and medical insurance and save the difference between the higher-cost plan and the one we're on in an HSA or the mutual fund.

However, it is true that a lot of folks in bad debt situations did have emergencies. I know more than one person who had health problems that crept into massive debt. That sucks. And they can get pretty defensive when they hear people spouting off about not eating out and buying starbucks and stuff when a broken leg from a car wreck was what set them 10 grand in the hole.

One final point- I like to remind myself that saving a dollar puts a dollar in my pocket, but spending a dollar actually takes about a buck-thirty out of my pocket. Due to taxes, I have to earn essentially $1.30 or so (actually, probably a bit more) in order to buy $1 worth of stuff. Essentially, mark everything you want to buy up by 30%.

TL;DR version: It's a lot easier to save a dollar than it is to earn an extra dollar.

egnorant
egnorant SuperDork
11/22/16 11:33 a.m.

Scary credit card debt is rarely a financial problem...it is a lifestyle problem. Too many people are seeking to maintain a reckless lifestyle by swapping CC debt for the debt consolidation. It is a good plan if and only if you can avoid the trap of thinking that you have more money to spend now that CC debt is now not a problem!

How long did it take to get 10K in debt? 4 years? 10 years? 20 years? I saw a couple that were thrilled that they had consolidated loans and now paid $210.00 a month less and had plans on how to use this extra money. I showed them that the debt had grown because they were already spending $273.00 a month more than they made and they had NO extra money. Without a budget and reduced spending their debt would continue to grow! Imagine the look of horror I received when I suggested that they cut down from 4 Starbucks a day to only 2 or even none and buy a coffee machine. I showed them the amount spent on coffee in 3 days was enough to put them on a positive track with no other cuts or increases in spending!

Getting a little breathing room financially is a good thing unless you keep doing the things that got you in trouble in the first place.

Bruce

SVreX
SVreX MegaDork
6/18/19 10:59 a.m.

canoe

pheller
pheller UltimaDork
6/18/19 11:06 a.m.
egnorant said:

Scary credit card debt is rarely a financial problem...it is a lifestyle problem.

Truth. 

 

tester
tester New Reader
6/18/19 11:10 a.m.

In reply to thedanimal :

Dave would say you failed. Do the class again. Seriously, moving the debt is a bad mind game. Lock down the budget. Hammer on the hours. 

Full disclosure,  we drank the cool aid and shaved our heads. We haven’t carried a credit card in 3-4 years. We carry no debt except a mortgage(7 years to go).  

 

 

z31maniac
z31maniac MegaDork
6/18/19 11:47 a.m.
tester said:

In reply to thedanimal :

Dave would say you failed. Do the class again. Seriously, moving the debt is a bad mind game. Lock down the budget. Hammer on the hours. 

Full disclosure,  we drank the cool aid and shaved our heads. We haven’t carried a credit card in 3-4 years. We carry no debt except a mortgage(7 years to go).  

 

Weird, so when I took on some credit card debt to buy my house (appliances and the like) it was a bad idea to then move the debt to a 0% card. Divide the amount by the number of months the offer lasted and kept cash in bank and paid no interest. I guess that was stupid of me, who would have guessed?

Ramsey annoys the crap out of me because he ignores a lot of other factors. 

For example, why would I pay off my student loan debt early (1.49% rate) instead of putting that money into my 401k like I'm currently doing, which is far surpassing the rate of inflation? If you use it properly, not all debt is bad debt.

mtn
mtn MegaDork
6/18/19 12:01 p.m.
z31maniac said:
tester said:

In reply to thedanimal :

Dave would say you failed. Do the class again. Seriously, moving the debt is a bad mind game. Lock down the budget. Hammer on the hours. 

Full disclosure,  we drank the cool aid and shaved our heads. We haven’t carried a credit card in 3-4 years. We carry no debt except a mortgage(7 years to go).  

 

Weird, so when I took on some credit card debt to buy my house (appliances and the like) it was a bad idea to then move the debt to a 0% card. Divide the amount by the number of months the offer lasted and kept cash in bank and paid no interest. I guess that was stupid of me, who would have guessed?

Ramsey annoys the crap out of me because he ignores a lot of other factors. 

For example, why would I pay off my student loan debt early (1.49% rate) instead of putting that money into my 401k like I'm currently doing, which is far surpassing the rate of inflation? If you use it properly, not all debt is bad debt.

Agreed. Debt is a powerful tool. Like most any tool, it can also cause significant damage, but it can also help to build something grand. 

 

Ramsey annoys me to an extent, but even he will admit that what he is harping is "bad math"--his point is that if you were good at math, you wouldn't be in the situation. I personally have carried astronomical levels of debt on credit cards, but I'd be shocked if I've had even $20 in interest fees against those cards in my lifetime. 

ProDarwin
ProDarwin UltimaDork
6/19/19 7:12 a.m.
mtn said:
even he will admit that what he is harping is "bad math"--his point is that if you were good at math, you wouldn't be in the situation. 

His approach is a psychological one, not a mathematical one and that is difficult for my brain to reconcile. But, I haven't thought about his views that way.  This makes him more tolerable IMO.

chada75
chada75 Reader
6/21/19 4:45 p.m.

Take it for what it's worth. Dave Ramsey's plan is good. However, The E-fund he recommends as the first step is outdated. It should be one month's income in Cash minimum. His $1,000 plan is better than nothing but way too broad.

 

As for Credit Cards, I only have one and that's enough. Pay it off and never carry a balance over a month. 

 

 

Dr. Hess
Dr. Hess MegaDork
6/21/19 6:00 p.m.
ProDarwin said:
mtn said:
even he will admit that what he is harping is "bad math"--his point is that if you were good at math, you wouldn't be in the situation. 

His approach is a psychological one, not a mathematical one and that is difficult for my brain to reconcile. But, I haven't thought about his views that way.  This makes him more tolerable IMO.

The problem is a psychological one, not a mathematical one.  I don't agree with everything he says, but his ideas are sound and if someone in debt follows them, they will be much better off.

 

So for the zombie thread canoe bait closure, what ever happened, danimal?  Did you get it all worked out?  Not in debt anymore?  Have control of your on resources once again?  Still on the road to it?

 

Knurled.
Knurled. MegaDork
6/22/19 2:11 p.m.
Dusterbd13 said:Then we took out an unsecured personal loan due to me not owning jack E36 M3. The unsecured personal loan was 12%.

 

Realizing now how much I love my credit union.  When I bought teh R, it was with an unsecured personal loan at 3%.  A car loan would have been 1% but the difference in interest was so minor that I went with the unsecured loan strictly because it made title hassles go away.

 

Disclaimer:  I racked up $4k in debt earlier this year/last year on credit at exorbitant rate (26% IIRC).  I'm just making sure that my gozintas are larger than my gozoutas and it's going away.  I considered a lower interest loan but that won't make the other bills go away, so it's just easier this way.

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