Poll

What's the most debt you ever incurred at one time?

>200,000
20 (9.2%)
>100,000
19 (8.8%)
>75,000
10 (4.6%)
>50,000
17 (7.8%)
>20,000
57 (26.3%)
>10,000
36 (16.6%)
>100
27 (12.4%)
>0
3 (1.4%)
Never had debt
28 (12.9%)

Total Members Voted: 212

Author Topic: How deep was your deepest hole?  (Read 9727 times)

Slee_stack

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Re: How deep was your deepest hole?
« Reply #50 on: November 30, 2016, 10:13:11 AM »
Didn't vote as the rules don't make any sense.

There's no difference to $50 or $500K in debt if your assets offset accordingly.

Paying cash for a NEW car is just as much 'hole digging' as taking a loan on one.

Is robbing Peter better than robbing Paul?

AZDude

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Re: How deep was your deepest hole?
« Reply #51 on: November 30, 2016, 10:46:06 AM »
Paying cash for a NEW car is just as much 'hole digging' as taking a loan on one.

Not really. The hole if you pay cash is simply the value of the car minus the value you paid. A NEW car will lose like 20% of its value, allegedly, so the hole is 20% of the total price.

$30,000 car * 20% = ~$6,000 hole.

If you finance that $30,000 car because you have no savings, then all sorts of bad things happen. You lose cash flow(something like $300 to $500 a month, depending on interest rate, down payment, loan length, etc...), you probably pay interest, etc.

If you pay cash for a car and lose your job, you could immediately sell it and buy something cheaper(or buy nothing and go carless). If you finance and lose your job, you might be unable to pay the gap and are thus stuck with the car or the car gets repossessed and you get a credit ding.

It is not even close to the same.

honeybbq

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Re: How deep was your deepest hole?
« Reply #52 on: November 30, 2016, 10:52:08 AM »
I had about 10k in credit card debt when I graduated with my Ph.D. Part of it was planned and I didn't really worry about it.

I spent a month in Australia before I defended.
My roommate moved out about 6 months before I sold my condo and I decided not to replace her.
I was moving and needed to rent a uhaul to move 1500 miles, etc.

On the plus side:
- I sold my condo and made ~25k
- I had a 6 figure job waiting

I have never had a car loan, and only 1k in student loan debt that I used as a downpayment on my condo.

sol

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Re: How deep was your deepest hole?
« Reply #53 on: November 30, 2016, 10:59:15 AM »
I married into a few thousand dollars of debt for a car loan.  She had the money in the bank to pay it off, but had just never considered life without a car payment before.

At one point in college my research job paycheck was withheld because I hadn't paid a $1k tuition bill and wasn't a legal student anyone.  I borrowed it from a guy in my dorm who owned a chain of hotels, so I could pay the bill, so I could collect my paycheck, so I could pay him back.  It took about a week, and it was one of the more horrible feelings I've experienced in life.  And he didn't even charge me interest.

PoutineLover

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Re: How deep was your deepest hole?
« Reply #54 on: November 30, 2016, 11:27:08 AM »
Oops I just clicked on the poll before reading the post. My student loan debt was 33,000 but other than that I've never had debt. I don't count using my credit card, since it's paid every month.

Dicey

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Re: How deep was your deepest hole?
« Reply #55 on: November 30, 2016, 11:46:06 AM »
I borrowed $6k from my 401k. Used it for a condo that doubled in value in less than four years, so not a bad move financially, BUT:

What I despised about it was how easy my employer made it seem. No one explains that you borrow pre-tax money "from yourself, lol", pay the loan back with post-tax money, and get taxed again when you withdraw the money in retirement. All the while, your money is out of the market and not working to your benefit.

This was disclosed, but was the worst of all: you had to pay it back within 30 days  of leaving the company. That means you cannot leave the company for a better opportunity while you have this debt. I was shocked at how indentured I felt every second I had that loan. I killed it within a year, but hated every minute of carrying that debt, even if it was "to myself". No, just No.

Take heed, grasshoppers.

Oh, and I totally concur with boarder42's approach to super-cheap (used) car loans. Though I never had one for over 10k, so it wouldn't change my survey answer.

Edit: Autocorrect can be a sneaky sonofabitch.
« Last Edit: November 30, 2016, 09:55:21 PM by Diane C »

ender

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Re: How deep was your deepest hole?
« Reply #56 on: November 30, 2016, 12:19:46 PM »
We have had $6k on credit cards periodically.

I had a car loan at one point of around the same amount until I realized I could just pay it off, so I did.

Paying cash for a NEW car is just as much 'hole digging' as taking a loan on one.

For what it's worth, we just bought a new car and we paid about the same that 2015/2016 model years with miles on them cost. Not all new cars are created equal when it comes to digging a hole.

ambimammular

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Re: How deep was your deepest hole?
« Reply #57 on: December 01, 2016, 05:47:23 AM »
So I mis-answered. I always try to answer before I read the comments so I don't bias myself, and consequently, I put student loans and mortgage in the debt category. Other than those the biggest debt was a car loan for 4000. They wouldn't let us pay it all with a credit card (for the rewards/travel points). We went home and weighed out the flexibility of drawing it out and investing vs just paying it all off. 4 months later I was over it and we sent them a check.

Slee_stack

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Re: How deep was your deepest hole?
« Reply #58 on: December 01, 2016, 11:54:15 AM »
Paying cash for a NEW car is just as much 'hole digging' as taking a loan on one.

Not really. The hole if you pay cash is simply the value of the car minus the value you paid. A NEW car will lose like 20% of its value, allegedly, so the hole is 20% of the total price.

$30,000 car * 20% = ~$6,000 hole.

If you finance that $30,000 car because you have no savings, then all sorts of bad things happen. You lose cash flow(something like $300 to $500 a month, depending on interest rate, down payment, loan length, etc...), you probably pay interest, etc.

If you pay cash for a car and lose your job, you could immediately sell it and buy something cheaper(or buy nothing and go carless). If you finance and lose your job, you might be unable to pay the gap and are thus stuck with the car or the car gets repossessed and you get a credit ding.

It is not even close to the same.
Unfortunately you missed the point.  I'm unsure why folks don't accept the context of this forum.  I am not talking about broke idiots buying cars they can't afford. This is the MMM forum!!  Its moving assets and liabilities around. 

If you have $1M in assets and you buy a NEW $30k car with cash or you take a loan for that $30k, there is zero difference.  You either end up w/ $970k left earning money plus a vehicle (with a 15% loss off the lot) worth $25K.  Thats a new NW of $995K.

Or you can take a loan at a low loan rate that most mustachians (ie not broke idiots) will get.  That means liability of $30k at X% (usually 2% nowadays even on used cars) plus untouched $1M earning money.  What's the NW total?   Yup, $995k.  EXACTLY the same. 

The ONLY difference is that $30k now sits in liability at X% while an additional $30k sits in investments at some other rate (hopefully higher than X!).

Its called opportunity cost.  You are wasting money (ensuring a loss) buying the NEW car either way, that's a constant.  Where will you bet the $30k will do better?  Thats the only question.

Similar applies to Investment properties.  You take a loan (liability) for several $100k presuming that you will have a positive return on that loan.  You shift a cashed out asset to real estate that (hopefully) produces a better income stream.  Does that put one 'in the hole' several $100k? Heck no!  The poll is useless.   If all my money is in cash, stocks, or rental properties, the only difference is asset type.

As an example I have a used car loan for $7000 at 2%.  And yes I could have sold after tax mutual funds instead and just purchased the car out right.  I am simply wagering my funds will net me a better return over the next 3 years than 2% (+ancillary costs...insurance...etc).  They may not. 

Regardless, my NW at time of purchase dropped by transactional costs (title, tax, etc.). That is the actual 'hole'.  I am not suddenly in a $7000 hole just because I have a liability added to the balance sheet.


« Last Edit: December 01, 2016, 12:08:46 PM by Slee_stack »

redbird

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Re: How deep was your deepest hole?
« Reply #59 on: December 01, 2016, 12:11:37 PM »
$10,000 for a car loan. I had it with my bank so the interest rate was low. I paid it off in only about 2 years. The loan was for 5 years, so I avoided a bunch of interest that I could've had at least. This was about 15 years ago. All cars since I've paid for in cash.

Since we're excluding mortgages (I used to own a house - not currently), that's the only debt I've ever had. I have never had student debt (work partly paid, I partly paid out of pocket) and never got myself into credit card or other debts.

Vic99

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Re: How deep was your deepest hole?
« Reply #60 on: December 01, 2016, 02:20:32 PM »
Car loan, 4 years, 0% interest.

robartsd

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Re: How deep was your deepest hole?
« Reply #61 on: December 01, 2016, 02:37:05 PM »
Reading the topic, I thought this would have been lifetime negative net worth. Ignoring mortgage (~150k), and student loans (~30k), the only other significant debt for me has been a (pre-MMM) auto loan (~13k). We could easily pay off the remaining balance of the auto and student loans now, but the rates are low enough that I don't choose to. We did pay off student loans with rates around 6% before saving a down payment for our house. Our current highest rate is 3.75% fixed on the mortgage.