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How I think about debt

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Re: How I think about debt

#21

Post by CalRobert »

tombert wrote: post #19
vlunkr wrote: post #10

Earlier quoted context omitted.

I tend to agree with Dave Ramsey on this point. A home loan is just about the only “good” type of debt for an individual to have. Because it tends to retain or gain value with little risk. He also recommends a 15 year loan instead of 30, which has been amazing for me.

I thought Dave Ramsey was pretty much completely wrong about student loan debt, at least if I remember his position on it being "you shouldn't have student loans". But I agree that most debt is probably bad to have.

It might be extreme but 15 years ago he was telling people not to be so flippant about taking on enormous amounts of debt for degrees with a questionable payback and I think he was right.

I always thought the snowball method was dumb but as time goes on I can see how it makes sense psychologically, even if not mathematically.

Re: How I think about debt

#23

Post by AndrewKemendo »

This guy's entire life (He's a VC) is about pushing debt in the form of promissory notes and equity-debt onto companies in exchange for his own ownership

How does he reconcile the fact that the companies he lauds in the beginning, would completely shun any business with him (an investor) for precisely the reasons described?

I feel like investors and VC are unaware of their own values

Re: How I think about debt

#24

Post by coldpie »

deadbabe wrote: post #20
tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

Are you going to live in that house for 30 years? What’s your plan when you need to move?

Sure, why not? I can't speak for OP specifically, but generally living in the same house for decades is very common. I'm coming up on 15 years in my house with no plans to move, and most of my neighbors have been there even longer. My parents lived in the house I grew up in for 40 years until my father passed away and my mom needed to downsize.

In any case, if they move, then the price of the home they are selling will have gone up (or down) more or less the same as everyone else's, so it basically works out to a wash.

Re: How I think about debt

#25

Post by [deleted] »

AndrewKemendo wrote: post #23

This guy's entire life (He's a VC) is about pushing debt in the form of promissory notes and equity-debt onto companies in exchange for his own ownership How does he reconcile the fact that the companies he lauds in the beginning, would completely shun any business with him (an investor) for precisely the reasons described? I feel like investors and VC are unaware of their own values

[deleted]

Re: How I think about debt

#26

Post by francisofascii »

tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

People don't realize how risky housing is compared to other investments. It is risky because it is SO MUCH MONEY and it is not diversified at all. If your house loses half its value, that represents hundreds of thousands in losses. And don't think that can't happen. You buy a penny stock for $2K and lose half, no big deal compared to your house. BUT, we need housing, we need a stable school for our kids, or a comfortable place for our partner, etc. So we have to take this risk.

Re: How I think about debt

#28

Post by dmoy »

leononame wrote: post #12
tombert wrote: post #6

I don't think all debt is equal, and I don't think all debt hurts your ability to handle volatility. I have a 30 year mortgage on my house with a 2.75% interest rate. That has effectively given myself "rent control"; outside of a potential rise of property taxes, my "rent" payment will not exceed a certain number of dollars. That means that if the housing prices rise rapidly, I'm covered. If I had decided not to leve…

I think the article still holds up. A financial crisis where you lose your job, a war causing deflation, a housing bubble bursting are all events that could lead to you paying _much_ more than rent. If you can't pay, they'll take your house and everything else until they decide that the debt is paid. In case of a bubble bursting this can mean that you _still_ owe money after they took your house. This has happened to…

> and everything else

Unless you live in a no-recourse state, where they can't take everything else.

In AZ, CA, TX, WA, and a handful of other states, banks can't go after your other assets, just the house that's mortgaged.

Re: How I think about debt

#29

Post by phkahler »

sssilver wrote: post #15
coopertyme wrote: post #11

Earlier quoted context omitted.

>For some people, not having any debt at all is extremely liberating Indeed. I lived with my parents into my 30s, saved up for ~10 years and bought a nice house cash, no mortgage. Was it financially optimal? Probably not, but the peace of mind of being immune to market crashes or interest hikes (we tend to not have 20+ years fixed mortgages here) is just really nice.

You simply restructured your debt and borrowed from parents instead, no? That is to say, you owe them for those ten years. Not saying there’s anything wrong with it. Most people in average circumstances owe a lot to their parents.

>> You simply restructured your debt and borrowed from parents instead, no?

>> That is to say, you owe them for those ten years.

To me that seems like a strange take on it. I saw no indication of a debt owed in the GPs comment.

Re: How I think about debt

#30

Post by throw0101d »

The author of the article, Morgan Housel, is also the author of the book The Psychology of Money. This thoughts on, e.g., paying down his mortgage:

> It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.

* https://rationalreminder.ca/podcast/128

* https://www.youtube.com/watch?v=NSaRb-iFwPA

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