Post by: Balog on January 22, 2008, 01:36:54 PM
How much of this is true? Is the median American family deeply in debt?
Post by: K Frame on January 22, 2008, 01:40:36 PM
Am I deeply in debt?
What kind of debt? Bad debt or good debt?
Taken together, yes, I'm monumentally in debt.
Remove my mortgage and home equity loan (both considered good debt), add up my revolving/unsecured credit, and no, I'm not deeply in debt.
Post by: mtnbkr on January 22, 2008, 01:46:25 PM
I don't consider a mortgage part of a family's debt load. You have to live somewhere. As long as your mortgage payment minus the tax benefit isn't greater than what you would pay for an apartment, you're coming out ahead.
I'm also not bothered by a small amount of CC debt as long as the payments aren't onerous and you're able to pay them off in a few months or so. I'll go from $0 to a grand or so on the CC when circumstances arise, but I'd rather use the card and pay it off over a period of a few months rather than dip into savings and risk not putting the money back. I'll also take out a loan to buy a car, but I buy a less expensive car than I can afford and pay it off early (I'll be paying off the 5yr note on my current car in 2yrs (actually, a few months from now).
I tend to use credit to avoid dipping into savings, but pay off those debts rapidly to avoid the interest. With a credit score in the 800s, it must not be hurting me.
Chris
Post by: 280plus on January 22, 2008, 01:46:57 PM
An independent worker must pay 15.4% of their net BEFORE DEDUCTIONS to SS every year. So if you profited $20,000 last year (which ain't much) the ,gov wants you to hand over $3080 of it. My accountant says if more people paid lump sums out of their pocket like I do instead of letting the gov do it automatically each week so you're not really aware of how much those grubbers are getting, taxes would go down in a heartbeat.
Grrrrr.....
Post by: Balog on January 22, 2008, 02:09:47 PM
I don't consider a mortgage part of a family's debt load. You have to live somewhere. As long as your mortgage payment minus the tax benefit isn't greater than what you would pay for an apartment, you're coming out ahead.
Chris
Chris
Absolutely; I couldn't agree more. However, it's worth noting that all those Dust Bowl farmers needed land to work. And the tens of thousands of homes in foreclosure that were bought as "an investment" whose value has plummeted.
I suppose I'm thinking more in terms of debt-to-income ratio than total amount, as well as ratio of payments made toward debt vs those made toward savings. And although I'm pretty sure you can't quantify it, the prudence of that ratio. A family that depends on two large incomes to pay for it's enormous McMansion and two new Mercedes might have the same ratio as a middle class family living in a modest home with a sensible car, but I know who I'd consider to be the wiser.
Post by: onions! on January 22, 2008, 03:33:13 PM
I have no credit cards,vehicle payments,or any other loans.
My mortgage payment is covered by one paycheck.
I've been eyebrow deep in debt before(credit cards & car payments in my early twenties).Never again.
Post by: jefnvk on January 22, 2008, 03:35:36 PM
You would be amazed at what college kids can get for credit cards. I've had to request my credit line be REDUCED before. I've been approved for over $10k before on a single card, this is a full time student with no income. The two cards I have now both are sitting at a $3k limit, from starting out at $500 each and me not requesting the limit be raised. As soon as I return from Europe, they're both going back to under $1k.
One of my friends has over $10k in credit card debt, this is not student loands, this is wanting new car stereos or TV's or video games. I know a few more who arent in such a big hole, but still view credit cards as something you can use and never worry about.
I think the problem lies more with the younger people who have never used much besides credit cards.
Post by: Headless Thompson Gunner on January 22, 2008, 03:50:27 PM
There are stoopid people out there. Always have been, always will be. You'll hear about them whenever they make spectacular financial mistakes and get themselves hosed. You'll hear about them more frequently during election time, particularly when there are populists running.
You won't hear about the rest of us. You won't hear about the hundreds of millions of Americans who managing their finances properly and not drawing attention to themselves by their own gross mismanagement.
The subprime mortgage "crises" is an excellent example. Listen to the media and you might think that most of us are in danger of losing our homes. Turns out that only 5% of mortgages are bad, the other 95% are reasonable loans on sound property being paid on-time-every-time by sensible people.
Post by: bedlamite on January 22, 2008, 03:55:44 PM
Post by: jefnvk on January 22, 2008, 04:55:26 PM
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Turns out that only 5% of mortgages are bad
Even if only 5% are bad, thats still a big chunk of change disappearing.
Post by: roo_ster on January 22, 2008, 05:19:19 PM
Currently, only the 30 year fixed mortgage/prop taxes/home ins (less than 30% of take home) and a pittance on a credit card.
I use the CC a couple times per month to avoid hitting savings if I have a large expense, but pay it off, posthaste, from income.
All our autos are paid off (Praise the Lord!).
1995 Nissan Altima, 108K mi
1997 Nissan Ext Cab Pickup, 150K mi
2004 Honda Element, 75K mi (Our "new" car)
Next time we buy a house, we are limiting our expenditure to what we can get on 25% of my income for a 15 year fixed mortgage. We will put down a substantial down payment, too.
We are doing OK, but not keeping up with the Joneses. Our computer equipment is bought used, as was our latest auto (106K miles on odo). We live in a pretty small house relative to colleagues. I buy one gun per year, nowadays (sniff, sniff). I do not buy electronic gadgets one would expect an engineer geek like me to buy.
We spend serious dollars on private education for the kids. I guess that is our major discretionary expense.
The Joneses get all the goodies, but we avoid the debt. That is OK with us.
Post by: drewtam on January 22, 2008, 05:59:22 PM
http://www.federalreserve.gov/releases/g19/current/g19.htm
So a made a quick spreadsheet:
Debt in Billions
$938 Revolving
$1,568 Non-revolving
$2,505 Total
People (billions)
0.3
Debt (dollars)
$3,125 per capita Revolving
$5,226 per capita Non-revolving
$8,351 Total per capita
Then I looked up wiki for the US per capita income:
http://en.wikipedia.org/wiki/Per_capita_income
http://en.wikipedia.org/wiki/Average_per_capita_income_in_the_United_States
United States $33,050 of personal income per individual
That gives a total debt to income ratio:
9.5% per capita (Revolving)
15.8% per capita (Non-revolving)
25.3% Total per capita
That doesn't look too bad to me. Thats actually a better debt ratio than I am in. But I am 25 with a new family and all of my debt is non revolving (no credit card debt
).Post by: BridgeWalker on January 22, 2008, 09:17:41 PM
Post by: BryanP on January 23, 2008, 03:29:07 AM
Post by: brimic on January 23, 2008, 03:35:31 AM
Post by: mfree on January 23, 2008, 03:37:43 AM
I've now got zero credit card debt, a ~$6k bank loan, and my truck and house make the remainder of the entirety of my debt.
Last month I got the whole thing down into five digits and I am *thrilled* :-D
Post by: MillCreek on January 23, 2008, 04:15:37 AM
I am clearly not meeting my per-capita debt requirements, so someone else must be making up for me!
Post by: Chris on January 23, 2008, 07:25:43 AM
Post by: Paddy on January 23, 2008, 07:36:44 AM
Post by: charby on January 23, 2008, 07:41:23 AM
Other than that between my wife and I we are probably less than 10k with most of that a car loan.
We currently rent because it is cheaper to rent the same sq ft as it is to buy. 1600 sq ft w/ 2 car garage = $825 monthly rent payment vs $1100-1200 monthy mortgage payment.
More than likely we will be moving away from the area in less than 5 years.
-C
Post by: Firethorn on January 23, 2008, 09:21:02 AM
Let's see, I still owe about $ 108,000 on the house on a 15 year note that will be paid off in 9 years. I use my credit card for most of my buying, since I earn 1% of all purchases added to my REI dividend.
Same reason I use my CC, but I pay it of monthly, not bi-monthly. Not going to give them their money back until I have to.
Oh, and I owe about $12k on my home and will have it paid off in 3 more years.
My car, bought *new* so I know it's complete history(and that maintenance has been done right and on time), was my only other debt until recently, when I finished paying it off. The car title is now sitting in my safety deposit box and the payment going into investments(earmarked for another new vehicle).
I might not max out my 2007 IRA investment, but by the same token I opened a non-retirement mutual fund that the money went into instead. That and bought stuff like a new water heater*. I needed more flexability. Though I haven't been a happy camper about the market since Jan 1. Oh well, it'll recover. Right now I'm letting the money sit in my checking account, thought I should probably open a money-market account(have several thousand in there at the moment) while waiting for the right time to start investing again.
I wonder, how do would they count my CC debt? ~$1k a month, but paid in full each month. Would I count as $1k in revolving debt for the year, or $12k?
*I got a subtantially upgraded model, so it should pay for itself fairly quickly. Enough hot water without turning it up, and substantially more insulation.
Post by: MechAg94 on January 23, 2008, 09:31:42 AM
I got out of college with relatively little debt. I worked a Coop job about 4 semesters which really helped reduce the potential CC debt I might have had. My problem was when I started working, I had an apartment that was a little too much and a truck that was a little too much and it made it tough put away any meaningful savings. I am in a much better position now, but wish I had saving more 10 years ago.
Most of the professional types I know are in good circumstances regarding debt. I know one engineer who lives with his parents. He wants to move out, but he said he saves like $4000 a month and is reluctant to move out and reduce that.
He is actually not the nerdy type either.
Post by: Werewolf on January 23, 2008, 09:35:12 AM
I have 2 credit cards, one for online purchases, one for gas and the occasional lunch. Both get paid down to ZERO every month.
2 Cars and no car payments.
Since a mortgage goes towards housing cost which you're gonna have whether you rent or own I pretty much don't count it as real debt so I guess that means I am essentially debtless.
Post by: Boomhauer on January 23, 2008, 09:51:23 AM
Quote
You would be amazed at what college kids can get for credit cards. I've had to request my credit line be REDUCED before. I've been approved for over $10k before on a single card, this is a full time student with no income. The two cards I have now both are sitting at a $3k limit, from starting out at $500 each and me not requesting the limit be raised. As soon as I return from Europe, they're both going back to under $1k.
Hell, aparently credit card companies give colleges money if they allow them access to the student database. I don't have a credit card (probably one of 3 people in the country) so I don't have to worry about that. I do have a checking account with a debit card, and I find myself swiping the plastic all too much. Probably a good thing I don't have a CC
But I can't go in debt- I can only go broke...
But I do have a decent job, so I am bring in some money.
Post by: Art Eatman on January 23, 2008, 10:13:35 AM
Somebody's gotta make up for us, and that means somebody out there is in deep doo-doo. And, yeah, probably among the young and the early middle-aged, since in general Old Pharts are more conservative about the "I want, therefore I buy..." sort of thing.
Probably where the major problems come in has to do with ready-cash savings. Not much of that. And pulling money from something like a 401k has a lot of penalties come old age.
Post by: Brad Johnson on January 23, 2008, 10:20:24 AM
I see people freak out over a few thousand in credit card debt but then have no trouble signing a six or seven year note for a $50,000 car. These are the people who pride themselve in having no credit card debt but are in the red when it comes to net worth. That's insane.
By the way, if you don't consider a morgage debt because "you have to live somewhere" I suggest you learn to use a calculator. Just because your mortgage payment and your rent payment are the same does not make them equal. Aside from a rent payment you have no financial obligation. Aside from a mortgage payment you still owe the bank the remainder of your principal balance. It is still a debt. Sure, you can recover all or most of it if you sell the house, but it's still a debt and it's still owed. You still put it in the "minus" column when you figure your net worth.
You don't get a handle on debt by classifying it into submission. You get a handle on debt by systematic reduction and eventual elimination. And you don't do that by ignoring one kind of debt and freaking out over another. The best way to control debt is by not having any. Save up a little and buy cash instead of buying now on the "no payments until 200-whatever plan." By a little less instead of a little more. Figure the long-term costs of potential debt instead of only looking at it in monthly-payment terms. In other words, use your head.
Brad
Post by: Firethorn on January 23, 2008, 11:33:48 AM
"Good" debt and "bad" debt are subjective classifications. Unsecured, secured, revolving, fixed principal, insterest only, it doesn't matter. If you owe money you owe money, no matter what for. Debt is debt. Period.
Actually, I'd tend to classify 'good' debt like a business would - will borrowing this money enable me to earn enough to more than cover the payments? Then borrowing money is the correct decision. Bad debt is just the opposite - it's not going to enable earning enough to cover the payments.
Consider this: You spend $10k or so to purchase a set of tools used to run your shop. The tools are at least as durable as a car, and without them you cannot use your skillset to make money. With them, you can.
Generally speaking, that would be a 'good debt', much like a vehicle used to go to work or a house to live in. Without someplace to live, you can't maintain yourself (easily) in a condition to keep most jobs.
On the other hand, racking up $10k in CC debt that you're not paying off anytime soon for a vacation is bad debt. It's not only a higher interest rate, it's not something that can be used to gain more wealth.
This is a seperate issue from conserving money - IE buying the used car instead of new or selecting an smaller, older house.
Quote
I see people freak out over a few thousand in credit card debt but then have no trouble signing a six or seven year note for a $50,000 car. These are the people who pride themselve in having no credit card debt but are in the red when it comes to net worth. That's insane.
Agreed. Still, as long as things go well they'll eventually have positive equity in the vehicle. Meanwhile, especially if they're not a car person, at least they have a warranty on the vehicle.
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By the way, if you don't consider a morgage debt because "you have to live somewhere" I suggest you learn to use a calculator. Just because your mortgage payment and your rent payment are the same does not make them equal. Aside from a rent payment you have no financial obligation. Aside from a mortgage payment you still owe the bank the remainder of your principal balance. It is still a debt. Sure, you can recover all or most of it if you sell the house, but it's still a debt and it's still owed. You still put it in the "minus" column when you figure your net worth.
By the same token, you're allowed to put the house on the asset side of the scale. Assuming sane loan terms, you'll have at least some equity there in a few years.
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You don't get a handle on debt by classifying it into submission. You get a handle on debt by systematic reduction and eventual elimination. And you don't do that by ignoring one kind of debt and freaking out over another. The best way to control debt is by not having any.
I'm aiming to be debt free eventually, but consider this: The interest rate on my home loan is 4.75%. If I can get a government bond for, say, 6%, which makes more sense: buying the bond or paying down my mortgage?
Heck, what if I have investments that make a risk adjusted 8%?
On a similar token, my discover card has a 1% cashback(discounting other special offers). I pay no interest if I pay the balance off in full each month. Therefore my strategy is to charge everything to the CC, then write a check* in full each month. Effectively, I have a -1% interest rate on my rought average of $1k revolving debt. Meanwhile I have the money in my accounts, I could pay by cash or check if I wanted to. Heck, debit card.
Should I cut my CC up to be 'debt free'? Not get that 1% back?
Quote
Save up a little and buy cash instead of buying now on the "no payments until 200-whatever plan." By a little less instead of a little more. Figure the long-term costs of potential debt instead of only looking at it in monthly-payment terms. In other words, use your head.
Well, I'd go to a different store that doesn't offer that, because when I did so I discovered the 'no payments' furnature place had prices that started 3X as high as the place that didn't offer credit.
Oh yes, you want to figure total costs - but I wouldn't forget 'cost of capital' either - If your investments are making 10% and the car loan would be 4%**, then the smart idea is to let the investments sit while you take out the loan for the vehicle.
*Well, to be honest it's an electronic transfer, but you should get the general idea.
**And you can't argue down the price of a 'cash deal' to compensate
Post by: Brad Johnson on January 23, 2008, 11:39:59 AM
Debt is still debt. It is still a negative number in the net worth calculation no matter how "good" it is.
Brad
Post by: Firethorn on January 23, 2008, 12:00:51 PM
Every cent of your debt could be "good" debt and you would still be in the crapper if you were unable to meet the debt obligations. Every penny of your debt could be "bad" debt but you would be fine if you are able to meet and manage your obligations.
Looks at personal definition -
It'd be fairly tough to do with my definitions, if you only get 'good' debt - which by definition is to enable you to make more money than the payments(over the life of the loan, which should be measurably shorter than the expected life of the product, heck, the loan should be ending about the time the warranty's ending at the latest).
Doesn't prevent bad luck from knocking you out - but that can happen even if you're debt free. Until that hospital visit, for example.
Quote
Debt is still debt. It is still a negative number in the net worth calculation no matter how "good" it is.
Agreed. Assets go on this side. Debts go on that side. It's just the way it is.
Post by: Brad Johnson on January 23, 2008, 12:21:15 PM
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Assets go on this side. Debts go on that side.
Wrong! Wrong! Wrong!
Assets on that side. Debts on this side. Get it straight, man!
Brad
(yes, I'm bored...)
Post by: Lennyjoe on January 23, 2008, 12:36:17 PM
Post by: wooderson on January 23, 2008, 01:28:59 PM
Would be better if I was debt free, sure. But I don't find myself financially crippled, because I just adjust my lifestyle according to whatever debt I have.
Post by: thebaldguy on January 23, 2008, 02:39:29 PM
"You want to get to the point where someone is paying you for your money and you don't have to pay anyone for their money!"
How true these words are, and how they are not followed. I have seen some interesting statistics recently; the average american household spends 101% of their income; the average household has $9000+ in credit card debt. Many of us, including our government, are living outside our means and we will pay for it.
Around 10 years ago, we had a few grand in credit card debt, a mortgage, student loan payments, and two car payments. We decided to get rid of our debt. I quit daily coffee at the overpriced coffee shop and ground my own beans. We took lunch to work. We ended the expensive ski/snowboard vacations. We quit going out to bars and restaurants. We paid everything off except for the house 7 years ago. Our $250000.00 duplex will be paid off in less than two years. We are now savers. I amazed by how many people are up to their ears in debt. Things like leasing cars, buying too much house, private schools, etc. are killing us financially. I know people who make 4x what we do live paycheck to paycheck are are saddled with dangerous amounts of debt. It's unreal.
Read the book "The Millionaire Next Door". Be frugal. Get out of debt now and start saving. Quit thinking that our government will help because they are broke as well. Social Security will not give you the money you will want for retirement. I've heard people tell me, "The government can't let us all starve". I will not be broke enough to find out.
Post by: JohnBT on January 23, 2008, 04:27:38 PM
I'm bad and feel vaguely unamerican from time to time because my home has been paid off for years and I have no debt other than a couple of utility bills that came in the mail today. I'm 57 and live on about half of my takehome. Heck, and that's half of what's left after the $500 (gross) payroll deduction that goes into some assorted tax-sheltered investments that I've been feeding for 30 years.
Bad John
Post by: mfree on January 26, 2008, 07:36:42 AM
I bought my house at $85K a couple years ago. Appraisal is ~110K and during the "boom" similar places were in the 140's around here. My mortgage I consider "good" debt since it's well within my means, I'm actually paying ahead, and the asset it covers has appreciated, and will remain in an elevated state unless the market goes completely and utterly TU because I bought at such a low number. If I bought this place at the height of the market I'd be upside down already and that's a hell of a place to be... worse if the market dumps. Right now the market would have to devalue home prices more than 50% for me to be in trouble as far as asset valuation.
Credit debt is such a beast because it's unsecured... call it in, and there's nothing to back it whatsoever.
New vehicle loans are a beast too because there's an immediate hit to the value of the asset and then you're upside down for a while. Gap insurance is a must...
Post by: K Frame on January 26, 2008, 08:04:15 AM
Well duh!
The concept of "good" debt means that you're paying towards building an equity share in something that generally appreciates in value over time.
Will a home always appreciate in value? Don't be stupid. The ONLY always in life is death.
But in the grand scheme of things, look at everything else around you and chances are that the money you paid/debt you incurred to get that item will never be returned.
IF you can weather life in general, and that means keeping a job, staying off crack or meth, and being able to remember to pay your mortgage, your home will, probably 99 times out of 100, but a winning proposition for you.
Post by: Myself on January 26, 2008, 11:06:00 AM
No job.
The two go well together.
Post by: grislyatoms on January 26, 2008, 11:50:40 AM
No debt.
No job.
The two go well together.
No job.
The two go well together.
Showoff.
Post by: Regolith on January 26, 2008, 03:58:17 PM
The company that's handleing my student loans, however, is probably salivating at the thought of me graduating in a couple of years. I think I'll be in the red to a tune of something like $30,000 after graduation.
Hopefully, it won't take me too long to pay off. I plan on devoting a large portion of my income each year to doing so.
Post by: wooderson on January 26, 2008, 04:06:37 PM
Got approved for what I consider an obscenely high credit limit at 9% fixed. Currently weighing the options of running it up on guitars, cameras and guns (and then faking my own death), or taking a two-month vacation to Europe (and then faking my own death).
Post by: doc2rn on January 26, 2008, 06:02:46 PM
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9.2 trillion USD