Debt

mshu7 said:
Playing devil's advocate...



As I mentioned earlier, my wife & I are taking a financial class put on by Dave Ramsey. Looking at your situation, I would say no to the new car. Obviously, you're doing a lot better than most people with your situation. However, as Dave Ramsey would say, "You have to live like no one else to live like no one else." What he means is that if you sacrifice "stuff" now, you can have that stuff, and much more later. He doesn't recommend ever buying a new car unless you are so financially stable that you can afford to lose thousands of dollars of depreciation on something like that. My personal suggestion would be to keep driving your 3 after it's paid off (I have an '05 3 as well). After it's paid off, take whatever your car payment amount was and throw it into savings for a couple years. Then, you can buy a nice used car and be able to pay for it in cash or pay it off quickly. This will save you money in the long run. While it's not as fun as buying a new car, later down the road when you are financially set, you can "have your cake and eat it too."



Just food for thought.
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I've noticed your avatar on the 3 forums. I see you have an SP23 as well.



When does that situation because overkill? I've had a 401k plan since I was 18 and I contribute heavily, 16-22% of my salary total a year, depending on company profit sharing, to my 401k and build my savings relatively rapidly. My roommates rent and OT goes straight to my savings, although I have been a little bad with some of the OT and bought toys, including way too much in car detailing stuff to find the perfect shine for trade in/sale time of the 3. I may be getting a second roommate soon for a little. If I get the car, my savings will be slowed, but my 401k and 6 month net pay padding will still be there.



At what point is it worth it to enjoy it and at what point is it worth it to be smart?
 
Yep, that's me!



Sounds like you have a good thing going with your 401k and your savings. I'm no where near a financial expert. My advice above was just based on what I had learned from our financial class. Dave's philosophy is to never have debt, not even a mortgage. Obviously, it takes a lot of hard work to have no debt and even more work to have a house that is paid off. However, it is possible (15-yr. mortgage instead of 30-yr.)



Dave Ramsey has a daily radio show (noon - 3pm) that you could call into and ask about your situation. I'm sure you could email the show as well. I think he would tell you to pay off your car, pay off your student loan, and then save save save. One of his motto's for debt is that the borrower is slave to the lender, which is the truth. His website is: DaveRamsey.com.
 
ALL I HAVE TO SAY IS ANY ONE THAT LISTENS TO Dave Ramsey KNOWS ABOUT MONEY AND IF YOU DONT YOU BETTER GET TO KNOW HIM VERY WELL WHAT HE IS SAYING ABOUT MONEY IS WHAT LIFE IS GOING TO SO EVERY BODY BETTER GET ON HIS PLAN RIGHT AWAY BEEN ON HIS PLAN FOR 24 WEEKS AND WISH I HAVE BEEN ON IT FOR YEARS I AM ONLY 25 GOOD LUCK AND LISTEN TO HIS RADIO SHOW AT DAVE RAMSEY .COM IT IS ON EVERY DAY



LIVE LIKE NO OTHER SO ONE DAY YOU CAN LIVE LIKE NO OTHER

DAVE RAMSEY
 
I remember seeing him on 60 Minutes. Sounds like solid advice, just painful to implement. I don't doubt it's the right approach, though.
 
I don't think that debt is bad. I think consumer debt is bad. Sure, pay off stuff early if it makes sense but I don't think enslaving yourself to debt payments is the right way either (unless its cc debt then I say go for it).
 
I Am Going To Live Dept Free That Is The Only Way To Live





Live Like No Other So One Day You Can Live Like No Other

Dave Ramsey
 
It's virtually impossible to live debt free. It would be very difficult for most people to buy a car, attend university, or get a home without some form of debt.
 
Other than a mortgage, I think living debt free is definitely do-able. It's just a matter of priorities. I grew up with a banker as a dad so believe me, it's possible. Our generation (I'll be 28 on Sunday) seems to start out with a lot of debt and it's hard to get out from under that. However, as my wife & I are finding out, if you prioritize your expenses you can overcome it. It's all about the choices that are made (ie - buying a bigger/newer house than you can afford, buying cars new vs. used, going out to eat a lot, buying stuff to "keep up with the jones', etc.). All that adds up quick. People tend to live outside of a real budget and that's why I think most people go into debt. Obviously, certain circumstances are hard to avoid. However, if one budgets their money BEFORE earning said money, living debt free shouldn't be a problem.
 
42YRS OLD no debt never owned a credit card of any kind. Smallest first always add 10 to 20 more on each payment you will see a differance after a year.
 
Been there... done that. When I graduated ('91), job market was TERRIBLE, so ended up taking the 1 year grace period on student loan payback. To make matters worse, I consolidated all my student loans through Sallie Mae (at a higher interest rate). Plus, I had several smaller loans that were directly through the university & had to be repaid immediately. And to add insult to injury, I incurred about $7k worth of credit card debt during the first year after graduation. It was tough, since I was only making $25k per year. I lived paycheck to paycheck for a long time trying to pay down my debt.



Sallie Mae was the worst... if your payments were one day late, you started getting all these nasty letters from them. After 7 years, I'd finally had enough. I sold my car, bought a beater, & called Sallie Mae. After 7 years of payments, the payoff on a $15k principal was still over TEN THOUSAND DOLLARS! Told them the check was in the mail & don't EVER call me again. I also paid off my credit card debt around the same time & swore never again.



Since that time, I've never carried credit card debt... usually just a car payment & mortgage. I could pay off my current driver, but decided to put that money to work elsewhere. Paid cash for the Cobra, so no debt there.



I emerged from my excessive debt about 10 years ago, & did it with my credit score in tact... which now stands at 802. It comes in handy when you go to buy your first home (no help from mommy & daddy here). It's tough, but hang in there. It'll get better eventually.
 
For some strange reason, student debt seems to have the most ruthless collection practices around. I've heard some very nasty stories....
 
Holden_C04 said:
For some strange reason, student debt seems to have the most ruthless collection practices around. I've heard some very nasty stories....
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You're right; however, I got extremely lucky with my student loan program when I went to Grad School - my rate is 2.1% fixed, even with a total balance of $40,000 for my MBA and MIS. I took out a 30 year loan at that fixed rate with a graduated amortization with flex payment. For the first 2 years after grad school, my minimum payment was $100 a month, and I paid $200 a month. Now that the minimum has increased to $200 a month, I now setup an auto payment of $400 monthly. Given my current schedule, I'll cut that 30 year loan out in about 19 years...still at that 2.1% rate, with interest payments still tax exempt for another year. I love it. This is a debt that I have to be patient with, but is manageable.



My GF isn't so lucky...she's currently in law school, and her rate is 7.1% on a $50K principal, plus undergraduate debt around $70K at a 6% rate!!! :sadpace:



I just learned about Dave Ramsey from this thread, and I think I will go with his plan. I already have the 1K emergency, already have the savings, but I need to cut out some credit cards ($3,000 in debt). Thanks for the Dave Ramsey mention...
 
aabablusaan said:
You're right; however, I got extremely lucky with my student loan program when I went to Grad School - my rate is 2.1% fixed, even with a total balance of $40,000 for my MBA and MIS. I took out a 30 year loan at that fixed rate with a graduated amortization with flex payment. For the first 2 years after grad school, my minimum payment was $100 a month, and I paid $200 a month. Now that the minimum has increased to $200 a month, I now setup an auto payment of $400 monthly. Given my current schedule, I'll cut that 30 year loan out in about 19 years...still at that 2.1% rate, with interest payments still tax exempt for another year. I love it. This is a debt that I have to be patient with, but is manageable.



My GF isn't so lucky...she's currently in law school, and her rate is 7.1% on a $50K principal, plus undergraduate debt around $70K at a 6% rate!!! :sadpace:



I just learned about Dave Ramsey from this thread, and I think I will go with his plan. I already have the 1K emergency, already have the savings, but I need to cut out some credit cards ($3,000 in debt). Thanks for the Dave Ramsey mention...
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Wow, that's a great interest rate you've got. Here in Ontario, the government likes to profit off its student population @ around 8%. Student loans can be some awful nasty things. Its the worst kind of debt you can have, besides maybe credit cards (which don't have the same nasty collection practices - just high interest).
 
We currently have no credit card debt and both of our cars are almost paid off. My wife graduated from medical school in 2005 with just over $100K in school loan debt. Luckily, we consolidated right before the big jump in student loan interet rates. They are all at 2.67%. Currently, we are holding back on other expenses so that we can pay as much on that as possible. As it stands now, we will likely have it paid off in another 4 years. I just couldn't fathom the idea of paying on a student loan for 30 years. Once that is paid off, all we should have at that point is the mortgage. We will only be 31 in 4 years, so I think being debt-free is do-able with the exception of a mortgage. Also, I have always found the comfort I get from paying off debts far outweighs whatever small joys I might get from buying little things with the money instead.
 
My grandmother had a good point a few months ago when we were talking about debt. She said young people now want too much right away. She talked about getting married and having very little. I mean you think about how it was 50 years ago, there was even very little "stuff" you could have outside of a radio or TV. Now everyone has to have the latest big screen TV, the latest phone, an Ipod, a big house right away, the list goes on.



To Pennypacker. I say sell the car if you can use your moms. Pay off all the loans. Then that money you no longer have to pay for the car payment will quickly pay off the remaining school loan. Then you should be able to save up enough to buy a nice used car in a couple years and go from there.



I love being debt free (other than our home). When we got married we didn't make a lot so we had two car payments and rent. Then after a couple years we started making more money and were able to pay off our cars early. I also had the fortune of my loving parents forgiving the remainder of my school debt to them so I just had like $12K in loans to the government. Later with no car loans we got the school loans paid off. It's amazing how free I feel with no debt. I'm a tightwad Hollander anyway, but I think being debt free actually helps me make better decisions with money. I know that I can afford things we need or really want, but at the same time I don't want to go back to having more payments than our mortgage so it keeps me in check.
 
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