Thoughts on "Not borrowing", living in America

[Northwoods]

United Parcel Service is debt free?

I wonder if anyone told them that they're supposed to be debt free?

http://www.cfo.com/article.cfm/10486763?f=related

http://www.shareholder.com/visitors/dynamicdoc/document.cfm?CompanyID=UPS&DocumentID=2475&PIN=&Page=29&Zoom=1x&Section=64660#64660


"Interest expense increased $196 million in 2008, primarily due to a higher average balance of outstanding
debt. In early 2008, we completed the issuance of $4.0 billion in long-term debt, the proceeds of which were used
to reduce our commercial paper balance. Our commercial paper balances had previously increased to fund the
$6.100 billion Central States Pension Fund withdrawal payment in December 2007. The impact of increased debt
balances was partially mitigated, however, by lower average rates incurred on our variable rate debt and interest
rate swap agreements as a result of declines in short-term interest rates in the United States throughout 2008."

Well, it was a UPS employee that told me that.  I never double checked what he said.  My bad.

However as scanr pointed out, debt free companies are doing a whole lot better than their rivals at the moment.  In boom times the "highly leveraged" companies might out perform the debt free companies, but then when time change and the economy slows like it has a lot of those just go belly up, or decline severely. 

Bottom line is that debt magnifies whatever you do.  Good decisions are made to look brilliant, but then bad decisions can become very damaging if not catastrophic.  Operating without debt slows down growth, but that can be a very good thing sometimes.  Keeps you from getting bigger than you can handle.

From a Biblical standpoint, debt is not a sin, but its obvious that GOd thinks it's pretty dumb.  There is no place in the entire Bible (at least that I'm aware of) that speaks of debt being a positive force, and certainly there is nowhere that God uses debt as a blessing.

[Headless Thompson Gunner]

Compound interest is one of the most powerful tools ever devised.  Use it wisely.

[Ron]

Recreational Equipment Incorporated = no debt

Up until recently the only debt I had was my mortgage. My next move is to retire the CC debt I have (at zero interest) and work on getting rid of my mortgage.

I definitely feel anxiety having CC debt.

[Firethorn]

People I know who are successful borrow money when the interest rates are in their favor, i.e. when they can make more in interest with the money they're holding than they'll pay out in interest on the money they're borrowing.

I'd want at least a 2% advantage to do that. 

It's ironic that the motivational speaker is making a killing by charging people to listen to advice on saving money.

If it works, it works.  I grew up with both parents being accountants, I don't need his advice, but not everybody has that advantage.

I also have enough money in investments I could be debt free in 30 days if I wanted other than short term debt.  Why aren't I?  That 2% advantage.  I'm at 4.75% for my house(~3 years left), 5.5% for my truck(also ~3 years left).

I could pay cash, using the vehicles of check and debit when appropriate, but I like using the short term effectively 0% credit card loans.

[Balog]

Bottom line is that debt magnifies whatever you do.  Good decisions are made to look brilliant, but then bad decisions can become very damaging if not catastrophic.  Operating without debt slows down growth, but that can be a very good thing sometimes.  Keeps you from getting bigger than you can handle.

This.

Also, debt (even when used very wisely) is still a risk. Lose a job for an extended period, have a major unexpected expense etc and all that wisely used debt might suddenly seem like not such a great idea.

Some debt is better than others, and some people can indeed come out ahead financially using debt. But for every multi-millionaire real estate mogul there are probably a dozen people like my sister who were doing great until the economy went to crap and now has like 6 mortgage payments from all the rental properties they leveraged. For every lawyer making $500 an hour there are a couple people who've passed the bar but are with a law firm doing glorified data entry with no bennies, crap wages, and a couple hundred grand in student loans.

[bedlamite]

[K Frame]

"Also, debt (even when used very wisely) is still a risk. Lose a job for an extended period, have a major unexpected expense etc and all that wisely used debt might suddenly seem like not such a great idea."

Stepping outside the house in the morning is a risk. Your chance of dying goes up significantly.

Hell, stepping into the showing in the morning significantly spikes your liklihood of dying.

You can have a nice nest egg saved up, have no debt, and STILL lose everything.

There are no guarantees in life, other than that you're going to die.


OH, just so everyone knows where I'm coming from on this...

I have a mortgage on my house.

I have a little over $2,000 in debt outside of the house.

I have a little over $42,000 in liquid funds, cash and easily liquidized assets.

I plug 27% of my pay right into my 401K right off the top.

I plug a minimum of another $500 into my savings every month.

My credit rating is just shy of 800.

And I still believe that debt, properly used, is a useful tool.

Life would be absolutely wonderful if one could, in all situations, simply plunk down a pile of cash or write a check to pay for any and every expense.

$25,000 for a new car? Hey, no problem, let me get my wallet out.

$35,750 for Junior's tuition for his Freshman year? Pocket change.

New house now that Junior has finally gotten his carcass out of the old one? $750,000? Not a problem, let me back up the dump truck full of quarters!

Yeah, wonderful, but oh so silly and unrealistic for the vast majority of people.

It's about as reasonable as John Cumutta bull crap where he has people on the radio saying "I can pay off my $190,000 house loan in less than 3 years, and just on the money I already make! (robbing banks?)"

[Balog]

You're so feisty Irwin. I never said debt couldn't be useful; I said it was dangerous.

[Lee]

Funny Cartoon...but who wants to be the bum? Assets and earning potential are the difference.
Credit can certainly be abused...but money is like any other commodity - best bought or sold as pricing dictates.
Current times are a little rough, but with having the choice of paying my 6.5% home loan off vs. pouring money into a very undervalued stock market....I'm betting on the market.  I have to live somewhere until I die anyway....and after that who cares?

[Headless Thompson Gunner]

You're so feisty Irwin. I never said debt couldn't be useful; I said it was dangerous.

Dangerous?  Eh.  Powerful, certainly, but it's only dangerous if you misuse it.

Debt is a lot like a gun, a very powerful tool that can do amazing things, both amazingly good and amazingly bad.

[Balog]

Dangerous?  Eh.  Powerful, certainly, but it's only dangerous if you misuse it.

Debt is a lot like a gun, a very powerful tool that can do amazing things, both amazingly good and amazingly bad.

I'd liken it more to recreational drugs. Possible to use well, but not generally done. Or day trading for that matter. You can make a tremendous fortune quickly, but most people don't.

But, to each their own. I think we can all agree using CC to wrack up debt is a bad idea.

[mellestad]

I think it is definitely playing it safe.  On a personal level, I think it is very viable, although some parts of the "American Dream" might never be within reach unless you have a very good job.

Running a business without debt is almost impossible unless you keep it very small.  Many vendors won't even sell to you unless you have "good" debt.  I don't think debt is a bad thing, in moderation.  Like most things.

[K Frame]

You're so feisty Irwin. I never said debt couldn't be useful; I said it was dangerous.

I know exactly what you said. The implication, however, is that it's too dangerous to be useful to any but the most unwise or the luckiest. The rest of us poor schlubs will be ruined if we charge a pack of bubble gum.

As I said before, life is nothing more than a series of cost (danger)-benefit analyses.

[zahc]

Current times are a little rough, but with having the choice of paying my 6.5% home loan off vs. pouring money into a very undervalued stock market....I'm betting on the market.

I don't even have any loans...but I also don't have any money to pour in the market.

[Firethorn]

Funny Cartoon...but who wants to be the bum? Assets and earning potential are the difference.

I think that's a very good point.  You could be upside down asset wise(worth less than nothing), but still be valuable and live a good life because your earning potential is high.

On the other hand, you could have a good amount of assets and quickly piss them away because you don't have any earning potential, and you're not smart enough to make the assets work for you.

One problem this country has is that it constantly mixes up Wealth(assets) and Income(earnings).  Somebody with a high income doesn't have to be wealthy, but having a high income helps to become wealthy.  But you don't need a high income to be wealthy if you can sufficiently reduce your expenses.

Current times are a little rough, but with having the choice of paying my 6.5% home loan off vs. pouring money into a very undervalued stock market....I'm betting on the market.  I have to live somewhere until I die anyway....and after that who cares?

The way I look at it - and none of my interest rates are above 5.55%.  I just went rightside up again on my investments(I've made 1% - woot!).

[Balog]

I was not implying that. Well, I'll say that's true of credit card debt, but the figures on CC debt show that for the vast majority of people it is nothing but a horrid burden. It would also be difficult to argue that buying a car, furniture etc on credit is generally a wise financial choice. Real estate is often good debt, which even the radical Dave Ramsey admits. Business loans can be a good idea, but again in hard times it's a burden on them.

No one is attacking you Mike, no need to get so defensive.

[K Frame]

You haven't seen me when I'm defensive. Man Bear Pig has nothing on me.

I just find it to be highly misleading what a lot of these people are selling - in this guy's case that credit of any kind is evil, debt of any kind is even more evil, and his is the only way for someone to prosper no matter what the economic conditions.


"On the other hand, you could have a good amount of assets and quickly piss them away because you don't have any earning potential, and you're not smart enough to make the assets work for you."

Bingo.

I'm peripheral friends with a guy who is facing that exact position. He's in his mid 40s and Mom and Dad left him a house and a decent trust fund. What they didn't leave him is any common sense. He's not worked in a couple of years and is pissing his money away at a rapid pace. A couple more years and he's very likely going to be in a very bad situation from which there is probably no real escape.

Contrast that to a woman I worked with at the credit union. Her parents were dead and her Grandmother was LOADED. Grandma died and Patty got everything. She has continued to work, lives off her salary at the credit union + a matching salary that she pays herself from her trust funds, and actually saves money out of that "salary" and puts it in another account.

Her only real vice is she likes sports cars.

[Balog]

Your characterization of the program in question is inaccurate and insulting, and your example has nothing to do with the discussion.

[zahc]

Being averse to debt can be bad. My dad (a soybean farmer) may be in a position to buy several hundred acres of farmland. Using pessimistic crop forecasts, the land would pay for itself from its own crops in no more than 15 years. Considering that land prices are low now, it's very doubtful that one could lose money if he had to sell the land in the future to pay off the loan. So taking a loan at any reasonable interest seems very low-risk, but since my dad cannot pay a large chunk of it as a cash down payment, is is probably going to pass. Perhaps it's because I'm young and more disposed to taking risk, but it strikes me as a complete no-brainer.

[K Frame]

Your characterization of the program in question is inaccurate and insulting, and your example has nothing to do with the discussion.

Now who's all whiny and defensive?

What, you're insulted because I don't drink this guy's "No personal debt is the absolute panacea and solution to all life's problems" koolaide? You have a franchise or something?

I don't buy that crap from anyone, because everyone's situation is DIFFERENT. If there truly was a 'one size fits all" solution for everyone, someone would have discovered it long before this guy started shilling it.

If you bothered to read the entire message string, you'd see that my discussion ties directly in with Firethorn's comments.

[Northwoods]

Running a business without debt is almost impossible unless you keep it very small. 

Ummm, no.  Go back and read post 25 (I think) by scanr. Quite a few VERY LARGE companies listed there that are totally debt free, some since inception.  Dave Ramsey has also built his business with no debt.  He now has IIRC around 300 employees and is continuing to grow.

Many vendors won't even sell to you unless you have "good" debt.

That's only a factor if you're trying to buy on vendor credit.  If you're paying cash, or in any manner not involving vendor credit what the hell would they care how much of what kind of debt your company has?
 

[Balog]

/sigh

Your hyperbole and personal attacks are not terribly productive. I think he has a good program, even if I don't totally agree with him. Are you even familiar with his ideas, or just railing against your misinformed perceptions?

[K Frame]

Please show me exactly where I "attacked you personally." Crying about personal attacks when someone doesn't like the responses he's getting is the last refuge of someone who can't stick with the discussion in any meaningful way.

And gee, no, I've never even heard of David Ramsey, I don't know what debt is, and I don't know what cash is. 

Here's how you get out of debt and stay out of debt...

https://www.daveramsey.com/store/index.ep

By getting other poor suckers to go into debt to buy your obvious answers.

Yeah, I know who Ramsey is. He's not unlike John Cumutta, well, I will admit, he's materially a lot more honest than Cumutta, who's damned close to a thief in my opinion...

But as I have consistently maintained in this thread, I find ANYONE who advocates a universal, 100% blanket solution for all people as being the solution to everything to be highly suspect.

I'm no so sure why that's such a difficult thing to grasp.

[Balog]

Accusing me of trying to materially benefit from defending someone who's one step above a con man (in your opinion) seems awful insulting to me.

That being said, do you hate Weight Watchers this much? After all, paying for obvious dietary advice is a scam. No one needs help with this, obesity isn't a problem in America, and only suckers would waste money on it, right?

[Headless Thompson Gunner]

Accusing me of trying to materially benefit from defending someone who's one step above a con man (in your opinion) seems awful insulting to me.

That being said, do you hate Weight Watchers this much? After all, paying for obvious dietary advice is a scam. No one needs help with this, obesity isn't a problem in America, and only suckers would waste money on it, right?

You need a sense of humor.

Perhaps you should whip out a credit card and buy one.