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seeler's picture

seeler

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Debt?????

This is another thread that I don't quite know where to post.  

 

And it's a delicate subject - debt.   I don't want to know what your financial situation is, or how deeply in debt you might be, but from the number of spam calls I get that start off with 'Are you tired of bill collectors harassing you?' or 'We have the answer to your credit problems.' it must be a subject that a fair number of people struggle with. 

 

What is your attitude towards debt?   Never a lender or a borrower be - or if you need it now, buy it now, enjoy it, and pay for it over a period of time while enjoying it?    Or somewhere in between?  

 

 

 

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sighsnootles's picture

sighsnootles

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i HATE debt.  the moment we get any, all i can focus on is getting it paid off.

 

my husband has no trouble with it, though, which almost led to our financial ruin many years ago, before i took over financial management of our family.

 

right now, we are doing GREAT, and i will ocassionally go into debt for certain things... but not much.  right now our mortgage is about as big a debt as i want to handle!!

Judd's picture

Judd

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I have a Line of credit I have run up on my paid-for house. I have no children of my own, although I have raised several step and foster kids in the past. I am single.

I am 59 and my insurance etc will cover my debts when I croak. When I retire I will be broke either way, but I know how to be poor from my childhood. I just don't want to give up my house and trailer yet while I'm still out of a wheelchair (it's coming).

trishcuit's picture

trishcuit

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 VERY soon after my husband came out of the  hospital from his 'psychotic break'  he got on the phone wiht the bank, got a $5000 loan and joint visas for us.  We paid back the loan immediately (after I nearly had my own breakdown. geez.)and we are still paying of that damn Visa accouont. This was from 6 years ago.   I wish they warned me about the possibility of these manic occurences when they discharged him. But NOOOOO I had to find out the hard way.  Mind you the fact that he did this clandestine banking while I was asleep doesn't help  either...

 

But that is our only significant debt  praise God.  the account is cancelled and I am making darn sure money goes on it every month  ( MORE than minimal. don't worry,). The visa got sorely abused for a while.

Mendalla's picture

Mendalla

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Our attitude is to take on as much debt as we need and no more and get it paid off as quickly as we can. Other than our mortgage (which we were quite aggressive about paying off), we have financed a car but that was really just to bridge us until we had more cash in hand and it was a no-interest offer, IIRC. We pay our Visa off in full monthly and don't use any other credit if we can possibly avoid it (we have taken on the odd store card in order to get a special deal, but it gets cancelled asap once that is paid off). We are debt-free and loving it, but I know not everyone has the opportunity to run their lives the way that we do.

 

Mendalla

 

lastpointe's picture

lastpointe

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hi trishcuit,

 

I think you shloud go into the bank and talk about a better deal to pay off the credit card debt.

 

The extremely highrate of interest charged makes it hard to tackle.

 

But if you are wittling away at in with good faith i think the bank might be able to help.

 

for instance, ask for a loan to pay it off and then use your money to pay off the loan which would be at a much lower rate .

 

It is worth a visit to the bank manager to at least ask

MistsOfSpring's picture

MistsOfSpring

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We have a fair bit of debt right now.  Currently, we owe nearly $300,000 on the mortgage and it's set up over 40 years, although the plan is definitely to pay it down faster after we get other debts out of the way.  There were some things we wanted and/or had to get done in the house when the gov't was giving the renovation credits and energy rebates, so we spent a lot with the feeling that we couldn't afford NOT to, because if we waited, it would cost a lot more (we're paying 6% interest, but after all the credits and rebates we got nearly 25% back).  At the moment we owe:

 

9000 on one line of credit (that's primarily the new furnace and air conditioner)

6600 on the other line of credit (mainly new appliances and two beds)

4500 for the new windows

1200 to RONA from our kitchen renovation

And we owe another $10,000 or so to my parents who have helped us out.

 

Sooooo...that's a little over $30,000 that we owe.  The lease is up on my car in a year, too, which puts another $8000 on top of that. 

 

Last summer we crossed the line from "we can pay this back comfortably" to "this is getting a little tight" so I set a goal to have everything but the mortgage paid off by the time I"m 40 (in September 2013).  We had already done all of the major work necessary in the house, so it's not terribly hard to stop spending now, and I've made a few small changes like taking my lunch to work and eating out less often and changing my cell phone to a pay-as-you-go, which is enabling us to save more money.

 

So, overall I feel pretty comfortable with debt, so long as it's for a good reason, has a relatively low rate of interest and can be paid back comfortably.  I also have the expectation that once our daughter is in school full time, my husband (a stay at home dad) will be going back to work and we'll have more money to put towards our debts.  I'm really looking forward to getting out of debt because then we'll have another $1000/month available, even if my husband isn't working yet.  That will be exciting!

seeler's picture

seeler

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I feel sorry for young people who get themselves deep in debt and don't see any way out.  Student loans can be a killer.  Not everybody gets that high paying job when they leave university.   Some end up going back for still more credits, and rack up even more debt.  

 

But I think anybody of any age can get caught in it.   Mr. Seeler is one who thinks that as soon as a car is paid for its time to trade and having a big car payment each month is normal.   I try to tell him that if he just kept the car for ten years, rather than four, and put the amount of a payment into the bank each month he'd be able to pay cash for the next car, and then save for the next, without paying interest equal to the price of the car.   'But if we keep the car ten years, it won't have any trade in value.  We have to trade while its still worth something.' is his argument.  

 

 

seeler's picture

seeler

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I think one of my sisters may be financing her holiday trips (go RVing) by adding to her mortgage every time she's built up some equity.   I'd be frightened to do that.  Our paid for house is our only real asset.

 

chemgal's picture

chemgal

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 I'm lucky and have never been in debt.  Throughout university, I have had scholarships, had saved up a decent amount during high school, and worked every summer as an undergrad.  I also worked during my first year of university, have tutored for a bit of extra spending money, and my parents have helped me out.  I'm a saver, even when I was little I loved to count my change.

 

Things might change in the next few years.  My fiance has student loans, but we can pay them off before they start charging interest.  We might buy a house in the next few years.  The thought of using a lot of savings for a down payment and getting a mortgage bothers me a little, but it will also be really nice to own a house instead of just renting.

 

Besides a mortgage, I doubt we'll have any other debt.  My fiance is pretty good with money, and he won't even buy a new car, only used.

chansen's picture

chansen

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We've lived poor, when I was struggling in my own business and my wife was still in school.  Having to ask family for help is a humbling experience.  As a result, we are extremely debt-averse.  Eventually, we landed on our feet and did quite well, bought a starter home, and we were paying off that mortgage at a very fast pace.

 

It took my wife and I a while to get our bearings, but we have a new house, and a new mortgage, but nothing we can't handle easily.  Our rules are pretty simple:  no credit card debt, regular mortgage payments that we can make if one of us loses our jobs (while cutting back expenses accordingly), and double those mortgage payments when we can.

 

Great rules, if you can afford to adhere to them.  It doesn't help that I have expensive sports.  Thankfully, my wife is cheap (note to self: find better way of phrasing that).  Truthfully, I'm much better at controlling my spending now as well.

Tabitha's picture

Tabitha

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Let's see

I have mortgage debt-on both sides of the duplex-one I live in/ione side I rent out-but both total under $100.000

I have car debt on used van bought last spring-but it in a 2009

and  a larger balance than I like on my m/c but it is shrinking every month and should be gone by July.

So not too bad for a single mom!

trishcuit's picture

trishcuit

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 Well because we have been good little suckas and made six consecutive  monthly payments in a row, the bank has reduces our 'bad boy / girl' interest rate of 24.9% to 19% for the average sucka. MIght I add this wouldn't have happened if I had left matters in the hands of my husband.   Last summer he was running a bit high octane (manic) and needed his meds increased I took over management of finances. He is more stable now and is having more control over his EI but I am still making damn sure the Visa gets their montly payment.

Pinga's picture

Pinga

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 seeler, i am crappy at money.  honestly.   I believe money is a tool and that I am lucky enough to be well paid so i tend to just use it for stuff or to balance the playng field.  It's not fair that peoplethat  i know that do amazing work to benefit society get paid crappy wages..    

 

on the other hand, i do have a good job, and we don't have expensive hobbies.  Most expensive one is that we tend to order in too often. There was a time, when the kids were younger, especially when in day care, or  when the appliances &  the car seemed to all break at the same time that  money was hard to come by.

 

I wish i had figured out that it is easier to save first, and then pay, then to buy then pay back  -- earlier in my life.

 

but....we are also debt averse.... what we thought we could afford was way less than what the bank thought we could afford...and I am glad we went with what we thought.  It has helped us be in a good position and a quiet life.

 

we are having to deal with a situation created due to someone else's total chaos re debt, their involvement of others, and a tough choice that we made to bail them out.  We have a bit of dark cloud hanging over that at any time we may need to take over  a mortgage, and that is also a tough thing to be facing; however...it is what it is.  We can do it and will do it if called upon.  Just sucks some times.  It can come between people even though you try not to -- so the "never the lender"...but...not lending would have been even worse. tough one...and money is just a resource...there are things much much much more important.

 

 

chemgal's picture

chemgal

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Beshpin wrote:

My opinion of debt is that it exists as a tool like any other aspect of social institutions. Taking on debt is a fantastic idea if you are certain or reasonably certain that it will benefit you financially. I use credit cards to reduce my transactions (this can save 150+ per year) and to pay for online purchases, though I always pay my usage off weekly.

 

I guess I do carry that kind of debt, a credit card balance that I pay off completely each time my bill comes.  I don't really think of that as debt though.

seeler's picture

seeler

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Pinga - I know about lending to family members.  Mr. Seeler and I have been in that situation more often than we like.   Naturally we always hope for the best.  Over the years we've arranged two of his brothers' funerals.  We hoped each of the remaining brothers would cough up a sixth (or a fifth) of the expense.  One did immediately, one reluctantly, and the others - forget it.  

 

Sometimes we get a pleasant surprise - someone recently reminded me that she owes me $xxx and that she should be able to pay it back next week.  I had long since 'written it off' in my mind.    Usually the help we give family members is in providing free room and board until they get back on their feet.  

 

Cash 'loans' we make are small - usually under four figures.  We don't have any more to give.  

 

 

seeler's picture

seeler

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Thank you all for being so open in sharing your stories.   It's more than I expected.  I had hoped to hear how people look at debt and their philosophy, but I've also got concrete examples and I find that helpful in trying to understand my own and Mr. Seeler's attitudes towards debt.

 

lastpointe's picture

lastpointe

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Trishcuit, the interest rate you are mentioning is the credit card rate.

 

I was suggesting that you go in and borrow the amount you owe.  That personal loan could then be used to pay off the complete balance on your credit card.  Then you have interest payments on the loan to pay back but they would be much less, more like 6 %???

 

A meeting with the bank to discuss it?  Another bank?

 

 

chansen's picture

chansen

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lastpointe wrote:

Trishcuit, the interest rate you are mentioning is the credit card rate.

 

I was suggesting that you go in and borrow the amount you owe.  That personal loan could then be used to pay off the complete balance on your credit card.  Then you have interest payments on the loan to pay back but they would be much less, more like 6 %???

 

A meeting with the bank to discuss it?  Another bank?

 

Bingo.  Consolidate high interest rate debt like credit cards into lower rate loans.

 

But mostly, consult a financial professional.  A simple meeting with your bank can help you see where the money is going, and how to reduce your interest.  So many ads today talk about reducing your payments, but what you want to do is reduce your amount owed, with payments you can afford.  After you get the best rates possible, it's a simple case of the more you can pay, the less you will owe.

Pinga's picture

Pinga

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 Yes, and regarding using debt for a tool.   It can be good to borrow money to buy rrsp, to get tax return which you turn around and place on the debt.

GordW's picture

GordW

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Talking to a finance person is good advice.  Talking to a finance person who will not be able to make money off the solution is better.  This means talk to someone besides your bank (a non-profit credit counselling service for example). In the end, no moatter how good the bank person, they are limited by the business plan of the bank---which isn't always the best solution for the customer.  Going in with more information about your options is always better.

BethanyK's picture

BethanyK

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Well I must say I have a large amount of student debt at the moment. When I finish school I will be in $42 000 worth of debt which could be worse. OSAP allows students who get $10 000 or more a year to only have to pay $7000 of it back, otherwise I would be in $60 000 when I'm done. Other than that debt I do have a credit card but I pay it back as soon as I can and never plan to put more on it than I can pay back.

 

Chemgal I must say I am jealous that you managed to end up without debt out of school. I have had a job since grade nine, work full time in the summer and usually have a job during the school year but without any help from my parents, well you can see what'd happened.

Pinga's picture

Pinga

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 BethanyK -- co-op students tend not to have debt when they come out of school.  Many of them will end up with money saved, if they handle their money reasonably well,and aren't international students.

chemgal's picture

chemgal

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 I lived at home throughout undergrad, that helped a lot.  My parents didn't charge me for food or rent, so I didn't have very many expenses.  I also had more scholarship money than tuition in my first two years.

Now in grad studies my parents helped me out a lot more.  I have use of a car, and they have also helped with rent since they did so when my sister was an undergrad.  Again though, my expenses didn't really exceed my scholarships.  When I TAed that was bonus, as where a few one-time scholarships.  I'm not on scholarship anymore, but I was able to save up the bonus money, and I also saved almost all the money I made the summer before starting grad studies.

 

I understand why some people end up with large student loans, but there are a lot of students where I just don't understand their spending patterns.

qwerty's picture

qwerty

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 Well I don't know about Debt but I know I like her twin (who accompanies Debt everywhere),  namely, the lovely and talented Credit.  Credit like all beautiful women, makes us all better persons.  

 

Let me give you one example.  Were it not for credit we would, as people used to do, save for many years while living in a too small flat and then finally begin to build a house 2X4 by 2X4 (as we could afford to buy them) over half a lifetime; this year the front steps; next year the back steps; first the main bedroom; later some walls for the nursery;  bit by bit; using spare time hammering and sawing into the night and over the weekends; enduring makeshift conditions for years on end.  Credit gave us choice.  Credit allowed us to build the house and  live in it first and assemble the money later.  It allowed us to rent the money instead of renting a small and insufficient (for family life) flat for years on end.  Credit allowed us to improve our lives.  She gave us more time to do the things we do best and leave the house building to those who really know how to do it.  Importantly, Credit allowed us to hire such people and it allowed them to be paid for their labour more or less contemporaneously with its delivery.

 

Debt is not a moral issue.

 

A person who does not use credit (and thus does not have debt) may simply be failing to live their life in an order that maximizes their enjoyment of life and produces the things they need when they need them.  As Keynes said, in the long run we're all dead and as we all know "You can't take it with you".  So with debt and credit it is often 6 of one and half dozen of the other.  Choose not to own and rent  instead or own the house and rent the money required to buy it.  From a cash flow point of view, what really is the difference? 

 

Used responsibly, credit and debt improve the quality of your life by allowing purchases to be timed to correspond with the onset of a need.  Before credit, needs went unsatisfied because purchases were rendered impossible until funds could be accumulated. Credit and debt allow us to de-link accumulation and need and to put them in the order that most benefits us.  Accumulate first and spend later or spend first and accumulate later.  Credit and debt therefore regularizes both consumption and debt and eliminates feast or famine cycles in both individual lives and the lives of communities.  Economic activity is multiplied and accelerated and everyone benefits.  

Pilgrims Progress's picture

Pilgrims Progress

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qwerty wrote:

  A person who does not use credit (and thus does not have debt) may simply be failing to live their life in an order that maximizes their enjoyment of life and produces the things they need when they need them.  

As with everything there are both good and bad consequences of credit.

It can enable a better lifestyle - but ultimately one has to be in a position to pay the piper.

If one's income prospects are - or will be - good, then one can afford to take on credit and subsequently enjoy a better lifestyle.

All around us the media and advertising brainwashes us into thinking that what's lacking in our lives can be replaced by having "x". To afford "x", we often need credit.

This is okay for those that can afford to pay off their card monthly in full - but otherwise it can be the start of a huge problem.

 

Being poor as a kid sure helped me.

Apart from big ticket items like a house and a car - my rule is don't buy anything I can't pay off my credit card without incurring interest.

I go without and save  up and then buy it.

It's called delayed gratification and I strongly endorse it as a way of life.

Travel is my big ticket item - I start saving for the next holiday the moment I walk in the door from the last one. Sure I would prefer at my age to travel first class in the plane - but I know I can't afford to.

Despite what the media tells us - we'll sleep better in our beds at night if we can't afford something we just don't buy it.

Besides, it really isn't "lots of stuff" that ensures our happiness.

Pilgrims Progress's picture

Pilgrims Progress

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trishcuit wrote:

 MIght I add this wouldn't have happened if I had left matters in the hands of my husband.   Last summer he was running a bit high octane (manic) and needed his meds increased I took over management of finances. He is more stable now and is having more control over his EI but I am still making damn sure the Visa gets their montly payment.

Trish,

I hope you are the one in your family who controls the finances.

Beware of just taking over the reins when things get in a muddle - and then handing it back to hubby when the situation improves.

Manic spending causes HUGE problems - my wish is that you remain the banker in your family.

trishcuit's picture

trishcuit

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 Credit is indeed a tool and a very good thing to have if your washing machine or fridge goes belly up.  It can also get you in to a more  safe, reliable vehicle either through repairs or replacement.  ( and winter tires)

Our bank won`t give a loan for anything less than $5000.  And it seem places that specialize in `small` loans do NOT charge small fees and interest. We don`t need anywhere near  $5000.   Still it is too much for us to pay off all at once.  I will keep my eye out for credit card offers with great interest rates for a certain period of time and free balance transfers. Even if it is a low rate for only 9 months before going up to normal 19% we can still take a good chunk out of it I think.

seeler's picture

seeler

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Qwerty - thank you for your post.  It gives a balanced picture.  

 

In my story of the two brothers, near my opening post, it was not my intention to hold up one brother as the soul of virtue and the other as a slothful, evil person.  They were two extremes - two people who really didn't prioritze or, imho, handle money wisely.  One when without while, no doubt, his family suffered the consequences.  the other spent recklessly with no thought of tomorrow.   I can imagine the first brothers children, sitting in their overcrowded apartment and longing to go over to their cousin's house for a backyard barbeque and an opportunity to run around the yard.  And later the second brother's children wishing they had money for college, while their cousins profited from their father's aavings and careful investments.  

 

It seems to me that it would be wise to have some sort of guidelines in mind for using credit wisely and managing debt.   How about - credit for long term purchases, especially those that will maintain or increase in value.  

 

So, yes - you buy your home and live in it,  paying off the mortage while it increases in value.  How big a home - I've heard that three times you anticipated annual income would be reasonable.  If you are reasonably certain that the main wage earner's salary will be $50,000, you could afford $150,000 for a house.   The only thing is -  where in Canada can you find a decent $150,000 house?  My modest bungalow in a nice, but settled neighbourhood near the edge of town would list for more than that right now.  

 

With this guideline in mind - a student loan also makes sense.  In my mind an if you acquire and education, it  is something that you will always have with you.  And you hope that it will increase (or at least not decrease) your earning power.   The problem here is that the good paying position doesn't always happen (and real estate prices don't always go up).

 

Most other things that we spend money on start depreciating in value the moment we walk out the door, or drive off the car lot.  

 

 

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