Author Topic: Debt free.... with a mortgage and a car loan... what?  (Read 13504 times)

dividendman

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Debt free.... with a mortgage and a car loan... what?
« on: December 01, 2014, 06:55:50 PM »
Sigh, my fellow citizens have let me down.

As the headline indicates... 27% of people in Canada think they are debt free even if they have a mortgage, 23% of folks think they would be debt free even if they owed money on a car and 11% think they are debt free even if they owe on a line of credit.

http://www.cbc.ca/news/business/manulife-survey-suggests-27-don-t-count-mortgages-as-debt-1.2855974

Good debt or bad debt, I think we can agree that debt free means zero debt?

ThermionicScott

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #1 on: December 01, 2014, 07:31:45 PM »
Yikes!
Good debt or bad debt, I think we can agree that debt free means zero debt?
One would think... I clicked on the article kinda hoping that people were at least equating having a zero or positive net worth as being "debt free", but nope...

- Scott

dorothyc

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #2 on: December 02, 2014, 09:17:54 AM »
It almost sounds like something from the Onion:

Quote
Considering that the survey looked only at people who own homes, it is perhaps not surprising that almost a fifth of them said they planned on accessing at least some of the equity locked in their homes to supplement their incomes in retirement.
« Last Edit: December 02, 2014, 09:23:04 AM by dorothyc »

going2ER

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #3 on: December 02, 2014, 11:08:04 AM »
To me, if I say I am debt free, it means I owe no one any money. I have a mortgage so I have debt.

My MIL is in her 70's and still has a mortgage. Her husband died 2 years ago, but because of his age they didn't qualify for life insurance on the home so she is left still paying for it. I have about 5 years left on my mortgage, which I believe is less than she has. She expects to die still owing a mortgage.

I also don't count my homes current value as an asset. I plan to live there the rest of my life, I don't intend to sell it, or to use it to withdraw money from it, so it is basically neutral once it is paid for.


RetiredAt63

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #4 on: December 02, 2014, 01:16:14 PM »
I am not debt free, but my assets are much greater than my debts.  Consumer debt (car loan at 0% so no rush) almost gone, mortgage still there.

I do think houses count, because most of us will not be able to stay in our houses at some point (unless we die suddenly at home).  Then the net from the house sale can be used for expenses (hopefully in terms of investment income, but even if it is capital being used, is that a problem at 95?  And our goals shift - at one point I thought I would want to be in my own house for many more years, but now I can see that winter travel will encourage me to move to a situation with less winter maintenance so I can take off.

DragonSlayer

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #5 on: December 02, 2014, 01:35:18 PM »
I agree that debt fee is not owning anyone, anything. However, in some of these people's defense, I will say that I've known people who don't count (reasonable) mortgages because they argue that they'd be paying to live *somewhere* and rent vs. mortgage is really a wash to them. At least with the mortgage (they argue) they're getting a tax deduction and ownership of something. Not saying it makes them "debt free" because they aren't, but I can kind of see where some people are coming from on that one.

Toffeemama

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #6 on: December 02, 2014, 03:01:53 PM »
My in-laws have been telling me for years about how they got into lots of consumer debt when they were younger, but "scrimped and saved" over the years to pay it off.  I recently found out they what they actually did was consolidate their debt into their mortgage, which they still have after almost 20 years!  I was floored when I found out the real story!

Lia-Aimee

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #7 on: December 02, 2014, 03:41:18 PM »
To add to DragonSlayer's point, I can perhaps see how some Americans would view themselves debt-free if they have a mortgage where their payments + taxes + carrying costs are equal to or less than they'd be paying in rent.  In Canada, though? We northerners don't get to lock into an interest rate for the loan's life period, nor do we get to write off interest on our taxes, so I can't picture calling a mortgage anything but debt here.

kib

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #8 on: December 02, 2014, 06:17:50 PM »
The only way I wouldn't count a mortgage in my debt is if I also didn't count the value of my house in my net worth.

MrsPete

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #9 on: December 02, 2014, 08:05:17 PM »
Sigh, my fellow citizens have let me down.

As the headline indicates... 27% of people in Canada think they are debt free even if they have a mortgage, 23% of folks think they would be debt free even if they owed money on a car and 11% think they are debt free even if they owe on a line of credit.

http://www.cbc.ca/news/business/manulife-survey-suggests-27-don-t-count-mortgages-as-debt-1.2855974

Good debt or bad debt, I think we can agree that debt free means zero debt?
Maybe they think they're not "in debt" as long as they're current on their payments?  That doesn't make sense, of course.

fartface

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #10 on: December 04, 2014, 05:31:38 PM »
Last week my sister proclaimed the very same thing..."I'm debt-free!"

I said, "The hell you are - you even have a CAR payment in addition to your MORTGAGE."

She replied, "It's a 0% car loan so I'm not paying interest."

That's when I kicked her in the teeth (relatives get way more than a face punch) and told her the $500/month car payment she's making on her 0% loan is costing her plenty - namely investment gains that $500 invested would yield her over the long term.


minimustache1985

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #11 on: December 05, 2014, 09:53:34 AM »
I agree that debt fee is not owning anyone, anything. However, in some of these people's defense, I will say that I've known people who don't count (reasonable) mortgages because they argue that they'd be paying to live *somewhere* and rent vs. mortgage is really a wash to them. At least with the mortgage (they argue) they're getting a tax deduction and ownership of something. Not saying it makes them "debt free" because they aren't, but I can kind of see where some people are coming from on that one.
+1
I could easily be debt-free, all I'd have to do is sell my house.  I don't classify myself as debt-free (although outside of this board I might say "debt free except the mortgage") but see how others in my shoes might, especially if their mortgage+escrow payment is about or less than what they'd pay in rent otherwise.

mm1970

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #12 on: December 05, 2014, 10:34:36 AM »
To add to DragonSlayer's point, I can perhaps see how some Americans would view themselves debt-free if they have a mortgage where their payments + taxes + carrying costs are equal to or less than they'd be paying in rent.  In Canada, though? We northerners don't get to lock into an interest rate for the loan's life period, nor do we get to write off interest on our taxes, so I can't picture calling a mortgage anything but debt here.
Pretty much this.  With the tightening rental market, our mortgage+taxes+insurance is finally about equal to rent.

eyePod

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #13 on: December 05, 2014, 10:43:31 AM »
The only way I wouldn't count a mortgage in my debt is if I also didn't count the value of my house in my net worth.

Just tell the bank that when you stop making payments! "But JP Morgan sir, I don't count the house in my NW so really, I don't owe you anything." LOL

I think that's the best way to look at it. If you don't pay this next month, what happens. Granted, property tax screws up my argument.

kib

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #14 on: December 05, 2014, 10:57:37 AM »
The only way I wouldn't count a mortgage in my debt is if I also didn't count the value of my house in my net worth.

Just tell the bank that when you stop making payments! "But JP Morgan sir, I don't count the house in my NW so really, I don't owe you anything." LOL

I think that's the best way to look at it. If you don't pay this next month, what happens. Granted, property tax screws up my argument.
Ok, reconsidering my position; I'm thinking of debt more in terms of counting it in overall net worth.  Which is to say i count both the current value of my home and any current mortgage when figuring out my total net.  I don't count the home when figuring out my "worker dollars", though. 

The thing with a mortgage on your primary residence, to me, is that (at least in theory, in the good old days) you can sell the home and pay off the mortgage if you want to.  I see a mortgage in a way more like  a combination of rent and forced savings; it's an expense, and you could change it if you wished.   While that's a volatile equation, it's not like having $50,000 debt for an amazing vacation or restaurant meals that have already been eaten or even, sadly, a student loan, which are all completely 'nonrefundable' incurred debts.  Perhaps there should be a distinction between debt which could be wiped out by 'returning' the asset it represents, and debt with no material good of equal value to offset it.
« Last Edit: December 05, 2014, 11:10:12 AM by frufrau »

eyePod

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #15 on: December 05, 2014, 11:21:01 AM »
The only way I wouldn't count a mortgage in my debt is if I also didn't count the value of my house in my net worth.

Just tell the bank that when you stop making payments! "But JP Morgan sir, I don't count the house in my NW so really, I don't owe you anything." LOL

I think that's the best way to look at it. If you don't pay this next month, what happens. Granted, property tax screws up my argument.
Ok, reconsidering my position; I'm thinking of debt more in terms of counting it in overall net worth.  Which is to say i count both the current value of my home and any current mortgage when figuring out my total net.  I don't count the home when figuring out my "worker dollars", though. 

The thing with a mortgage on your primary residence, to me, is that (at least in theory, in the good old days) you can sell the home and pay off the mortgage if you want to.  I see a mortgage in a way more like  a combination of rent and forced savings; it's an expense, and you could change it if you wished.   While that's a volatile equation, it's not like having $50,000 debt for an amazing vacation or restaurant meals that have already been eaten or even, sadly, a student loan, which are all completely 'nonrefundable' incurred debts.  Perhaps there should be a distinction between debt which could be wiped out by 'returning' the asset it represents, and debt with no material good of equal value to offset it.

These are all great points.

The reason why I think it's hard to ignore "housing" in general is that there's always some fee, either rent or property tax.

I think we can agree that a mortgage is debt, and I'm sure none of these people in the story are actually tracking their NW.

The crazy thing is that car and home debt have become so normal that people stop counting them. These debts are like taxes in their eyes. "Inevitable."

sky_northern

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #16 on: December 05, 2014, 02:11:38 PM »
Maybe that enplanes why Canadians are getting deeper it to dept - denial

Excluding mortgages, the average debt held by Canadians stands at $20,891.

pagoconcheques

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #17 on: December 06, 2014, 01:06:28 PM »
My MIL is in her 70's and still has a mortgage.

My mother is in her mid eighties and has a mortgage on the condo she bought when she was widowed.  She reasoned that her life expectancy was much shorter than the 30-year mortgage and that she would no longer be making payments after dying.  She could easily have paid cash for it without jeopardizing her finances, but this made sense to her.  A couple years ago when mortgage rates were low she refinanced to a 3% fixed 15-year mortgage because it resulted in a lower monthly payment. 

She also figures that liquidity will be worth more to her than the comfort of having no mortgage if she ever has to hire a daily or round-the-clock companions to care for her later on. 

nessness

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #18 on: December 06, 2014, 05:47:19 PM »
It almost sounds like something from the Onion:

Quote
Considering that the survey looked only at people who own homes, it is perhaps not surprising that almost a fifth of them said they planned on accessing at least some of the equity locked in their homes to supplement their incomes in retirement.

I guess I don't really see the problem with this? I mean, of course the market can decrease and you shouldn't rely on it, but downsizing after the kids move out to add an extra $100k (or however much) to your retirement savings can be a sensible decision.

dorothyc

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #19 on: December 07, 2014, 06:46:38 AM »
It almost sounds like something from the Onion:

Quote
Considering that the survey looked only at people who own homes, it is perhaps not surprising that almost a fifth of them said they planned on accessing at least some of the equity locked in their homes to supplement their incomes in retirement.

I guess I don't really see the problem with this? I mean, of course the market can decrease and you shouldn't rely on it, but downsizing after the kids move out to add an extra $100k (or however much) to your retirement savings can be a sensible decision.

But what happens when you've spent down all your equity and still have bills to pay?

nereo

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #20 on: December 07, 2014, 10:25:09 AM »
Yikes!
Good debt or bad debt, I think we can agree that debt free means zero debt?
One would think... I clicked on the article kinda hoping that people were at least equating having a zero or positive net worth as being "debt free", but nope...

- Scott

So this brings up a question I've had about myself... I have SL at 0% (deferred) and more than enough money in savings to pay off the loans once they come out of deferment.  I've been calling myself "debt free*" - (note the asterisk) - am I a big fat phoney?  Likewise my parents are retired with a 'stache well over $1M but carry a mortage simply because the interest rate is around 3%.  Same thing?

Realize it's all symantics, but wondering what MMMers think.

Rezdent

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #21 on: December 07, 2014, 10:46:23 AM »
Nereo
To me, being debt free means no debts owed.
Being in a position to cover existing debts may be a part of FI.
In my mind the two are different.

nereo

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #22 on: December 07, 2014, 10:49:40 AM »
Nereo
To me, being debt free means no debts owed.
Being in a position to cover existing debts may be a part of FI.
In my mind the two are different.
Fair enough. In that case it seems likely that I will be FI long before I am ever debt-free (and I am ok with that).

Rezdent

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #23 on: December 07, 2014, 11:19:08 AM »
Nereo
To me, being debt free means no debts owed.
Being in a position to cover existing debts may be a part of FI.
In my mind the two are different.
Fair enough. In that case it seems likely that I will be FI long before I am ever debt-free (and I am ok with that).
Yes I agree.  Being debt free may not even be desirable.  Many destitute people are debt free.  And asset free, if you will.

For me (and sounds like for you), leverage is a tool to get to FI.

eyePod

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #24 on: December 08, 2014, 07:27:07 AM »
Yikes!
Good debt or bad debt, I think we can agree that debt free means zero debt?
One would think... I clicked on the article kinda hoping that people were at least equating having a zero or positive net worth as being "debt free", but nope...

- Scott

So this brings up a question I've had about myself... I have SL at 0% (deferred) and more than enough money in savings to pay off the loans once they come out of deferment.  I've been calling myself "debt free*" - (note the asterisk) - am I a big fat phoney?  Likewise my parents are retired with a 'stache well over $1M but carry a mortage simply because the interest rate is around 3%.  Same thing?

Realize it's all symantics, but wondering what MMMers think.

Don't your SL accrue interest while they're deferred (obviously at a different rate than 0%)?

nereo

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #25 on: December 08, 2014, 07:52:03 AM »
Don't your SL accrue interest while they're deferred (obviously at a different rate than 0%)?
No.  They are subsidized student loans, hence why they currently have an interest rate of 0%.

SpicyMcHaggus

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #26 on: December 08, 2014, 09:11:23 AM »
Don't your SL accrue interest while they're deferred (obviously at a different rate than 0%)?
No.  They are subsidized student loans, hence why they currently have an interest rate of 0%.

If you have enough to pay them off in savings, you're losing money (to inflation).  You should consider investing your lump sum.

nereo

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #27 on: December 08, 2014, 10:10:13 AM »
Don't your SL accrue interest while they're deferred (obviously at a different rate than 0%)?
No.  They are subsidized student loans, hence why they currently have an interest rate of 0%.

If you have enough to pay them off in savings, you're losing money (to inflation).  You should consider investing your lump sum.
what??  this makes no sense to me.  the loans are the ones that are decreasing due to inflation because they are at 0%. 

SpicyMcHaggus

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #28 on: December 08, 2014, 11:38:17 AM »
you say you have 'more than enough' in savings to pay off the loans in a lump sum.
If you have a large chunk of money sitting in a savings account, you could be making better use of a lump sum by investing it wisely.

nereo

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #29 on: December 08, 2014, 11:58:26 AM »
you say you have 'more than enough' in savings to pay off the loans in a lump sum.
If you have a large chunk of money sitting in a savings account, you could be making better use of a lump sum by investing it wisely.
ok... but that's just seems to be making some ridiculous assumptions about what my savings are and the terms of my loan while implying that i am currently investing it 'stupidly.'  I'm trying not to be insulted, but man ...

Bob W

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #30 on: December 08, 2014, 12:27:58 PM »
Debt free is highly overrated.   

If a mustachian really seeks to retire early then it makes abundant financial sense to buy a very modest house at a low, fixed, interest only 30 year rate.   So for example a 75K (nice house in small Midwest college town) home loan might run $250 a month.   The 75K in an s and p Vanguard fund will generate $560 a month on average over the long run.  (a dividend fund should generate enough to cover monthly mortgage and then appreciate)

My suggestion is that a positive net worth with good quality low interest leveraged notes is far better than being so called "debt free." 

3% on a used car,  3.5% on a modest used house,  3% on a student loans.  These are all manageable debts for sophisticated mustachians and should not be paid off early when investing the funds is an option. 

In many cases paying off a house could delay retirement for 1 decade or more vs. carrying a note and having the investments to pay the note. 

Aggressively paying off student loans can also have an adverse effect.   Student loans are forgiven if you die and can be forgiven for disability.   Many student loans could be deferred indefinitely if one's income (early retired mustachian) is low.   So it makes no sense to pay off low interest student loans vs investing. 

So while I agree with everyone that mortgages, car payments and student loan debts disqualify you from being debt free,  I do assert that debt free,  especially on a modest house, or student loans should not be a goal.     The goal is more like Financial Independence. 



SpicyMcHaggus

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #31 on: December 08, 2014, 02:20:01 PM »
you say you have 'more than enough' in savings to pay off the loans in a lump sum.
If you have a large chunk of money sitting in a savings account, you could be making better use of a lump sum by investing it wisely.
ok... but that's just seems to be making some ridiculous assumptions about what my savings are and the terms of my loan while implying that i am currently investing it 'stupidly.'  I'm trying not to be insulted, but man ...

Maybe you should be insulted ?
I'm pretty sure I'm only making assumptions based on plain english sentences that you have written that have a very narrow band of possible interpretation.

You are saying that you have loans at 0%. These are the 'terms'.
You have 'more than enough' to pay them off in a savings account (savings accounts are liquid cash.).
You think that isn't a stupid way to invest money.

If there's a misunderstanding here, then fine, tell me where it is. If you think that cash in a bank is a good investment, then I call that 'stupid' and you can consider yourself insulted. On the other hand, if maybe you didn't provide enough information and you're offended at someone saying that you're doing it wrong, maybe you should provide the information that is missing or respectfully withdraw from the conversation. It's a PF forum afterall, and all we talk about is PF and FIRE.

daverobev

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #32 on: December 08, 2014, 07:40:50 PM »
Chill out, no need to get heated.

Maybe the money is sitting in a savings account earning a couple of percent and will be used to pay the loans off when they stop being zero interest. Maybe it's for a house downpayment. Maybe it's an emergency fund. None of those things is a bad reason to have cash.

Also, could be they are doing permanent portfolio, have a year's worth of expenses, whatever.

Also - yes, Americans, we all know you get 30 year fixed mortgages! Yes, we're all jealous! No, it doesn't apply to most of the rest of the world! Not Canada, anyway, which is where the OP's article is from.

I had a friend who had one fixed for the life of the mortgage, in the UK. I think he was paying maybe 2% more in interest. Would've felt silly for the last couple of years, no doubt.

dividendman

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #33 on: December 09, 2014, 06:42:39 PM »
Wowzers, nowhere in the article or in my post did I say debt free was good or bad. Indeed, I specifically said there could be good debt (debt that makes you $$) or bad debt.

I think the funny part of the article is some people just don't realize what "debt" means. I agree debt can work for you... but if you think having a mortgage and a car loan and a line of credit isn't debt, my bet is that you don't have the debt earning more for you than the interest :)

MustachianAccountant

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #34 on: December 10, 2014, 01:31:41 PM »
you say you have 'more than enough' in savings to pay off the loans in a lump sum.
If you have a large chunk of money sitting in a savings account, you could be making better use of a lump sum by investing it wisely.
ok... but that's just seems to be making some ridiculous assumptions about what my savings are and the terms of my loan while implying that i am currently investing it 'stupidly.'  I'm trying not to be insulted, but man ...

Maybe you should be insulted ?
I'm pretty sure I'm only making assumptions based on plain english sentences that you have written that have a very narrow band of possible interpretation.

You are saying that you have loans at 0%. These are the 'terms'.
You have 'more than enough' to pay them off in a savings account (savings accounts are liquid cash.).
You think that isn't a stupid way to invest money.

If there's a misunderstanding here, then fine, tell me where it is. If you think that cash in a bank is a good investment, then I call that 'stupid' and you can consider yourself insulted. On the other hand, if maybe you didn't provide enough information and you're offended at someone saying that you're doing it wrong, maybe you should provide the information that is missing or respectfully withdraw from the conversation. It's a PF forum afterall, and all we talk about is PF and FIRE.

First: you come off like an asshat. Stop it.
Second: his loans are in deferment, which means that at some point they're going to come OUT of deferment and have an interest rate. If that date is in the very near future (within 10 years, say), he is absolutely within his rights to be conservative with that "loan payoff" money in order to insure that it's there to pay the loan when it's no longer 0%.

SpicyMcHaggus

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #35 on: December 11, 2014, 08:59:11 AM »
Hey, you brought the name calling.
We discussed it via PM and it came down to a difference of terminology. I disagree that money invested in the market can be referred to as savings, but that's what is going on.  I just didn't think it was wise to leave a large chunk of money in a savings account. You follow now?

Kindly take some of your own medicine.

Le Barbu

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #36 on: December 11, 2014, 09:43:50 AM »
A mortgage on your principal residence or a car loan are "debt". LOC used to pay for vacations or kitchen upgrade is also definetly what we can call a "debt"

Then a mortgage on a rental property or using your HELOC for buying shares in a private or public company? Leverage. In both cases, your assets backs the loan and the income are not generated by yourself but someone else.

Oh, wait! is this the good vs bad debt definition ?

vivophoenix

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #37 on: December 11, 2014, 09:52:43 AM »
A mortgage on your principal residence or a car loan are "debt". LOC used to pay for vacations or kitchen upgrade is also definetly what we can call a "debt"

Then a mortgage on a rental property or using your HELOC for buying shares in a private or public company? Leverage. In both cases, your assets backs the loan and the income are not generated by yourself but someone else.

Oh, wait! is this the good vs bad debt definition ?


in all the cases you listed,  your own assets back the loans.

debt is if you owe someone money. period.

sounds like the only difference is you diversified. if you lose your job, you cant make payments on your mortgage or on the LOC for those kitchen cabinets.  vice versa if you cant find renter or more people find it cheaper to buy, or your shares tank, you lose out. so how is it good vs bad debt. it sounds like you just put all your eggs in different baskets, but you still owe the farmer for the eggs

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #38 on: December 11, 2014, 10:15:44 AM »
A mortgage on your principal residence or a car loan are "debt". LOC used to pay for vacations or kitchen upgrade is also definetly what we can call a "debt"

Then a mortgage on a rental property or using your HELOC for buying shares in a private or public company? Leverage. In both cases, your assets backs the loan and the income are not generated by yourself but someone else.

Oh, wait! is this the good vs bad debt definition ?


in all the cases you listed,  your own assets back the loans. Thrue

debt is if you owe someone money. period.

sounds like the only difference is you diversified. if you lose your job, you cant make payments on your mortgage or on the LOC for those kitchen cabinets.  vice versa if you cant find renter or more people find it cheaper to buy, or your shares tank, you lose out. so how is it good vs bad debt. it sounds like you just put all your eggs in different baskets, but you still owe the farmer for the eggs

How is it good vs bad debt?

Bad debt is when you go into debt to buy something you cannot afford to pay upfront

Good debt is when you decide to buy something with an expectation to improve your cashflow, whether you could pay in cash for it or not.

In the eggs example, you can have to borrow money to buy some or take a loan to buy hens and then pay only the "cost" (feed, rent) if you "expect" these costs + interest of the loan to be lower than buying eggs at market price.

mydogismyheart

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #39 on: December 12, 2014, 01:35:26 PM »
I consider myself debt free except the mortgage.  I see the mortgage as being a necessary debt for many people at least temporarily (until paid off).  I live in a HCOL area and to save up to buy a house with cash would take so many years it would be crazy (at least for me). Yes, I could do it, but it would take a long time.  Between the high rent I'd be paying vs. the amount I'd have to save, it would be awhile.  I'd rather get the mortgage and pay it off as fast as I can. I also see more benefits to having a mortgage vs. paying rent. At least I'm (hopefully) gaining equity and it's an investment where I'll eventually get my money back.  There is no benefit to a car loan that I can find... 

As for a car, you can get a very decent used car for just a few thousand.  That I can save up fairly easily.  So I would never consider myself debt free with a car loan.

RangerOne

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #40 on: December 12, 2014, 04:46:22 PM »
   But debt free is black and white. You either are or you aren't. It isn't a point of negotiation, lol. If you owe money to a bank for a home, you have debt. Its not necessarily a bad thing. If a sensibly priced home is your only debt you are probably doing pretty well.

RetiredAt63

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #41 on: December 13, 2014, 07:55:07 AM »
I'm not debt free but getting pretty close (except for the mortgage).  I could pay everything off if I sold investments, not willing to do that.

But anyway, my mortgage and carrying costs for the house are known, manageable quantities.  If I sold the house and moved to a city, I could pay my rent out of the income from the house (invested) and what is going to the mortgage now.  But my quality of life would not necessarily change (some things would be better, some worse).  And some portion of my income has to go to housing.  Yes, it is a smaller portion if there is no mortgage, but there are still expenses.

So having a mortgage is a trade-off, you have to live somewhere.  You also need to have the solid income to carry the mortgage and the desire to be there for a reasonable length of time (other threads have discussed buy versus rent criteria).

To me, student loans (if done responsibly) are an investment in a person's future.  A house mortgage (manageable, no more than 80% of purchase price and ideally less) is doable.  Everything else (including car loans) is non-useful debt, except in special circumstances (money that would have paid for a car is invested in something that more than offsets the money going to the car, for example).

However, it is a lovely feeling to not have debt.  Are we making decisions here based on feelings?


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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #42 on: December 18, 2014, 01:03:18 PM »
I consider myself debt free except for my mortgage, because I have enough money that I could pay off the mortgage if I wanted to.  But the interest on the mortgage is less than the interest the money is hopefully earning in investments.

If I couldn't turn around tomorrow and pay off the house, I wouldn't look at it this way.
I don't consider the value of my house in this. If the bank said the note was due tomorrow, I wouldn't have to sell my house to pay for it.

I guess, technically, I am in debt, I owe someone money- but I think of it more as a 'lifestyle'. I'm not a slave to my debts. The repayment in no way effects my lifestyle.  I don't have any sort of consumer debt (credit card, car loan), I don't have any student loan debt.



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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #43 on: December 20, 2014, 08:58:33 PM »
The problem lies in most people not really understanding what "debt" is, and when it is "good" or "bad".


People shy away from the word "debt", or declare themselves "debt-free", because they're not interested in the dynamics of how different debt obligations work. For example, if a partner in a successful business uses debt to buy out his/her partner, this could be a use of debt that increases the person's profitability.

Whenever debt is portrayed as 'bad' in media, the word "debt" is used. Whenever debt is portrayed positively, we hear things like "0% down financing.


An extension of this logic, I guess, is people who think they're debt-free because they don't have credit card debt.

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #44 on: December 21, 2014, 12:44:27 AM »
The only way I wouldn't count a mortgage in my debt is if I also didn't count the value of my house in my net worth.

I count my mortgage as debt and I do not count the value of my house in my net worth. My house is where I will live unless I downsize so all owning my house does is allow me to live on a reduced expenditure.

The debt has to be paid off for me to invest in assets that will allow me to draw down during my retirement.


commodore perry

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #45 on: December 21, 2014, 06:53:51 AM »
My vote is you aren't debt free until all your DEBT is paid off (including mortgage). I have $87k left on my mortgage and I wouldn't say I'm debt free until that's paid back. I know people categorize debt differently and I think that makes sense (credit card debt is worse than mortgage obviously) but I won't be happy until I'm completely, totally debt free (~18 months +/-).

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Re: Debt free.... with a mortgage and a car loan... what?
« Reply #46 on: December 21, 2014, 07:24:12 AM »
The problem lies in most people not really understanding what "debt" is, and when it is "good" or "bad".


People shy away from the word "debt", or declare themselves "debt-free", because they're not interested in the dynamics of how different debt obligations work. For example, if a partner in a successful business uses debt to buy out his/her partner, this could be a use of debt that increases the person's profitability.

Whenever debt is portrayed as 'bad' in media, the word "debt" is used. Whenever debt is portrayed positively, we hear things like "0% down financing.


An extension of this logic, I guess, is people who think they're debt-free because they don't have credit card debt.

At the other end, some "debt is debt" purist would claim you are not debt free if you CC statement come in telling you OWE 700$ for the month and plan to pay in full in 2 weeks from the 4,000$ dit tint in your checking account. You OWE 700$, thats it :/