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Credit Cards (in the US)
Donkbaca:
Ugh... I HATE it when people don't read properly. No I don't pay interest for a tax deduction. The tax deduction lowers the effective interest rate on the loan. If you look at the return on debt, it's essentially the interest rate. If you have credit card debt, pay it off since that is a 17% interest rate and essentially you are not goin to get a 17% return on anything else, except maybe a small business, so it makes sense to pay off credit cards. UNLESS you are financing a business through it that you expect to earn a better return on, OR unless the item you are purchasing brings some greater non economic satisfaction that hydroids it's overall cost to you.
Paying off your house makes little economic sense, the effective the effective rate of your loan, due to the interest rates means it's easier to find a better use for that money. I dont Carr about foreclosure, it's non recourse where I live, plus I bought smar and have equity so even IF I somehow couldn't pay
my mortgage, I could sell my house and pocket some cash. Who cares if you get foreclosed on? It just means you have to move, and rents are really cheap now anyway.
So you are saying that you are going to pay off your house, guaranteeing yourself a net 3% return, when instead you could easily invest that money in an index fun and earn 5-7%. You really think this is good money advice?
ChadTower:
--- Quote from: pinballjim on March 17, 2011, 09:32:52 am ---Maybe the psychological relief of paying off a house is better than the extra 2% you could make in an index fund?
--- End quote ---
Pretty much. Your primary residence is not an investment. It's a home. It can't be viewed as equivalent to an investment fund or other real estate. Your lifestyle is dictated in so many ways by the location, style, and size of your home that it has to be as much psychological as economic. 2% in either direction is meaningless compared to being safe and secure in your own residence.
Trust me, that "odd event" that screws up all your plans can happen at any moment. People like to put their head in the sand and ignore their mortality but all it takes is one accident or bad news from the doctor. Leveraging short term debt for absolute maximum return is fine so long as nothing goes wrong but a cash only lifestyle is just as good and feels better to those who are used to being on the ugly side of debt. I have heard so many people say "well I could just sell my house and cash out" only to discover they actually can't sell their house when it comes time because the only buyers are offering 60% of value.
ark_ader:
Be liquid and buy gold. :applaud:
javeryh:
--- Quote from: Samstag on March 16, 2011, 05:43:36 pm ---
--- Quote from: ChadTower on March 16, 2011, 03:13:06 pm ---
--- Quote from: Samstag on March 16, 2011, 03:03:18 pm ---Why pay cash when the banks are willing to pay you to use their card?
--- End quote ---
Mostly because cash is a relatively zero risk proposition. You're not running up a balance to be paid at the end of the month. The risk of running that up and something odd happening so you can't pay it off within the cycle does exist.
--- End quote ---
That doesn't make sense. If I buy the same amount of stuff on credit as you buy with cash, that "odd happening" that keeps me from paying off the entire balance would be a bigger problem for you, since your cash is already spent. I would have the option of paying a month of interest while still covering that "odd happening". You'll need to borrow the money and you may not have the luxury of finding a reasonable rate on short notice.
But I don't operate without emergency reserves (as you shouldn't whether you pay in credit or cash), so it's all the same to me.
--- End quote ---
I totally agree - I use my credit card to pay for EVERYTHING. I'll buy a pack of gum at the store and use the card if I can. I've also never ever missed a monthly payment (I only spend what I have) so interest is of zero concern to me. Plus, I get free gifts from just using my card! Right now I've got about $500 coming to me for the next time the family goes to Disney - it adds up!
The only debt I carry is on my house and it is unrealistic for me to think I can pay it off in less than 30 years but I don't look at it as an investment...
ChadTower:
...or noting that the price of gold is at or near an all time high.
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