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How I think about debt

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Re: How I think about debt

#91

Post by mikestew »

trogdor wrote: post #63
dmoy wrote: post #28

Earlier quoted context omitted.

> 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.

Interesting. Do you know if mortgage rates in those states are higher, to compensate lenders for the increased risk?

WA resident: our mortgage is 2.5% from the credit union. I've not noticed that current rates are any worse than other states I've checked. OTOH, in 25 years of living here, I've never seen house prices go down, only stay steady.

Re: How I think about debt

#92

Post by GenerocUsername »

phaedrus wrote: post #90
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…

Besides taxes, there is another sense in which outside circumstances can break your "rent control" model of home ownership with 30 year mortgage. Here in Oklahoma, insurance rates have skyrocketed in the last couple years. I now pay more in homeowner's insurance monthly than either my principle or interest payment (though perhaps not both together - yet). And I have a 4.something% mortgage. I suspect it has or will s…

You don't HAVE to carry home insurance do you? You can also change policies for different levels of insurance at any time. It's not exactly a debt, but an ongoing service

Re: How I think about debt

#93

Post by yellow_lead »

throw0101d wrote: post #33
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

> 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 There's a difference between business finance and personal finance. There's a difference between what needs to be done to start a business and what needs to be done to keep it going. Apple started in a garage, but it is no longer run out of one. Apple started with…

Well, the article specifically references Japanese businesses

Re: How I think about debt

#94

Post by incomingpain »

sokoloff wrote: post #79
incomingpain wrote: post #68

I love this article. Very well laid out and simply explained. This article is explaining the set in stone mental health association with debt servicing. >I’m not an anti-debt zealot. There’s a time and place, and used responsibly it’s a wonderful tool. I am, here's how I would add to this article. How do you tell how in debt you are. How tight is the graph? Its not just your debt. Your paycheque comes from your neigh…

> Norway is 210% debt to income. > Canada is 178% debt to income. > The threshold of 100% is a big deal. It's when discretionary spending stops. At 100%, your income goes 100% toward servicing debt. You're confusing two different measures there. The first two are "total debt" (a stock) vs "total income" (a flow). Then, in the last paragraph, you switch to talking about consumption declines as if the total debt stock…

>The total interest due on the debt is the flow that you should be comparing to the total income flow.

That's what these numbers are.

I'm talking about a calculated popular metric many people use for many countries all over the world.

It's really not a controversial or debated subject for either of these countries.

Re: How I think about debt

#95

Post by muffinman26 »

CalRobert wrote: post #21
tombert wrote: post #19

Earlier quoted context omitted.

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.

I do think the snowball method also makes sense mathematically, depending on the loan terms and what you're optimizing for.

If your loans have a minimum payment and a penalty for missing a payment above and beyond interest (which seems to be common for loans in the US), the snowball method gives you more flexibility. Paying off a loan completely eliminates that part of your monthly minimum payment.

If in 2 or 5 years your income decreases unexpectedly (layoff, etc.), but by that point you've completely eliminated 1 or more loans, you're more likely to be able to continue making minimum payments.

Re: How I think about debt

#96

Post by ChrisMarshallNY »

> they tend to share a common characteristic: they hold tons of cash, and no debt.

That describes the old-fashioned company that I worked for. They are only a bit over 100 years old, but they are cheap bastards. I learned how to work quite frugally, under them.

Re: How I think about debt

#97

Post by crooked-v »

glitchc wrote: post #88
francisofascii wrote: post #26

Earlier quoted context omitted.

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 comfort…

No, it's far less risky to invest in housing. These two graphs over long term illustrate the difference in risk: Average home price since 1965: https://fred.stlouisfed.org/series/ASPUS Average Dow Jones index since 1919 [adjust scale to ~1965]: https://www.macrotrends.net/1319/dow-jones-100-year-historic...

Though it helps to keep in mind that returns there are because the US housing market has been distorted beyond all recognition by under-building that goes back to the civil rights era.

Re: How I think about debt

#98

Post by yowlingcat »

anon7725 wrote: post #72
galdosdi wrote: post #7

Earlier quoted context omitted.

The way I think about this is: You already are in "debt" by being alive. You have the huge liabilities of needing food and housing and maybe sometimes some healthcare, in order to stay alive. By buying a perpetual source of one of those you aren't investing or expanding your liabilities-- just the opposite, you are hedging against and closing out your liability by prepaying for it. To take this idea further, this is…

There are lots of ways that stock in food and energy companies could go down while prices go up. A drought or pipeline disruption come to mind.

Absolutely. And I think the same is true for the commodities market correlates there; if memory serves correctly, crude commodity futures went negative for a break period during the supply chain volatility spike during the beginning of the pandemic.

Re: How I think about debt

#99

Post by dhosek »

GenerocUsername wrote: post #92
phaedrus wrote: post #90

Earlier quoted context omitted.

Besides taxes, there is another sense in which outside circumstances can break your "rent control" model of home ownership with 30 year mortgage. Here in Oklahoma, insurance rates have skyrocketed in the last couple years. I now pay more in homeowner's insurance monthly than either my principle or interest payment (though perhaps not both together - yet). And I have a 4.something% mortgage. I suspect it has or will s…

You don't HAVE to carry home insurance do you? You can also change policies for different levels of insurance at any time. It's not exactly a debt, but an ongoing service

If you have a mortgage, you are required to insure the building at the least.

Re: How I think about debt

#100

Post by quadyeast »

GenerocUsername wrote: post #92
phaedrus wrote: post #90

Earlier quoted context omitted.

Besides taxes, there is another sense in which outside circumstances can break your "rent control" model of home ownership with 30 year mortgage. Here in Oklahoma, insurance rates have skyrocketed in the last couple years. I now pay more in homeowner's insurance monthly than either my principle or interest payment (though perhaps not both together - yet). And I have a 4.something% mortgage. I suspect it has or will s…

You don't HAVE to carry home insurance do you? You can also change policies for different levels of insurance at any time. It's not exactly a debt, but an ongoing service

Banks want to insure the collateral.
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