Main > Everything Else
Credit Cards (in the US)
Hoopz:
--- Quote from: Fordman on March 23, 2011, 03:36:33 am ---For those that want to keep paying someone else to carry your debt, go right ahead and do it. When my home is paid off (im not wealthy-$60,000 a year job) and the money I bring home goes into my savings account, I then become a winner with my money.
I havent used credit cards in 5 years. I do have a debit card with Mastercard logo on it, but the money comes right out of my bank account.
When you have a debt to someone else, in a sense, you have become "a slave to the lender". Im tired of working for someone else, Im working for me and my family!
Fordman
--- End quote ---
You're missing the point. Regardless of what you think or what you heard on a radio show, you incur a cost when you pay off debt. The economic term is "opportunity cost". Whenever you do anything with your cash, whether its buy something that's necessary (food, clothes, shelter) or something that you want (hookers, video games, internet access) you lose the chance or opportunity to use those funds somewhere else. With a limited number of resources, you can only buy so much stuff with your cash.
In your situation, you're losing a return on the cash that you're paying towards your mortgage means your'e not investing that cash. Yes, you are definitely lowering how much you're paying in interest but you are also limiting how much you may earn on that cash via interest, investment appreciation, dividends etc. Missing out on that is the cost of paying off your mortgage sooner.
That's not to say you are wrong to do it. It's a personal decision as others like Chad have said. For your situation, it meets your comfort level and your goals. It doesn't mean it is right for everyone.
I'll just suggest that you should meet with a financial advisor and have him/her put your financial information into a model to show you the "real" cost of your decision. You are, potentially, missing out on not just a 2-3% return this year, but the effect of having that return compounded year over year. Yes, it's a variable as far as the return, but historically almost all situations show that it's better to have your money in the market working for you and having your mortgage at the same time.
It's not always an easy concept to grasp the first time whether it's an article on-line, some schmuck telling you on a message board, or listening to someone on the TV or radio. I've found in dealing with clients or in my own finances, that I need to see the numbers side by side to see what's best for me. Any reputable financial advisor will have the ability to changes multiple variables to show you what your financial situation would be like in 5-10-20-30 years based on various return rates.
Regardless of anything else, I strongly suggest you meet with someone who can work with you on this. Financial advisors aren't just for the wealthy. They can help people become wealthy or more carefully manage their funds.
And no, I'm not a CFA or in the financial sector any longer. I left about 7 years ago and run a non-profit foundation. I have no dog in this fight anymore.
javeryh:
--- Quote from: ChadTower on March 22, 2011, 04:41:06 pm ---Do a little reading on amortization periods so you understand why you're setting yourself back with each refi. It's an important concept to grasp if you are refinancing every 3-4 years.
--- End quote ---
I know I pay more in the long run but in 30 years my mortgage payment shouldn't seem like too much due to inflation. When my parents bought their house back in 1981 they really stretched themselves but the last 5 years of the mortgage were a joke because the payments seemed so low relative to the cost of things at that time.
--- Quote from: Donkbaca on March 22, 2011, 04:48:11 pm ---he's not setting himself back if he's using that capital to bring back a greater return then the present value of the future interest payments. The future interest payments might not even matter because he could 1) sell before then; or 2) walk away and not pay them.
--- End quote ---
yeah - I mean I invest and stuff but really the extra money I'm saving each month just ensures I can survive if I were to lose my job or it helps me buy crap that the kids need, etc. I also max out my 401K and we have 529 plans for the kids.
--- Quote from: ChadTower on March 22, 2011, 04:53:04 pm ---
If he's talking about the inability to escape credit card debt he's not going to be bringing back a greater return. He's going to be folding in consumer debt to lessen the interest going out.
--- End quote ---
I have ZERO debt (other than my mortgage). No credit cards (I pay the balance monthly), no car loans (both cars are paid for) and no student loans (paid those back already).
I think I'm doing the right thing but I honestly don't know (and my CPA wife is in charge of the finances for the most part). There is a part of me that wants to just say screw it and spend it all but I don't think I'd be able to sleep at night. ;D
ChadTower:
--- Quote from: Hoopz on March 23, 2011, 08:59:06 am ---historically almost all situations show that it's better to have your money in the market working for you and having your mortgage at the same time.
--- End quote ---
You can't say that without knowing his age. The closer you are to retirement age the riskier the market becomes. How many people were about to retire 3-4 years ago and now cannot because their entire retirement portfolio was in various forms of the stock market? Those people don't have time to wait for the correction to average back out to a 10% anuual return. They needed their money now and the recession wiped it all out. If those people had paid off their mortgage they'd be in much better shape when retirement came around. Historical averages are great for people who have the luxury of time. They mean a lot less to a 65 year old who may never be able to retire as it stands now.
Hoopz:
--- Quote from: ChadTower on March 23, 2011, 09:57:04 am ---
--- Quote from: Hoopz on March 23, 2011, 08:59:06 am ---historically almost all situations show that it's better to have your money in the market working for you and having your mortgage at the same time.
--- End quote ---
You can't say that without knowing his age. The closer you are to retirement age the riskier the market becomes. How many people were about to retire 3-4 years ago and now cannot because their entire retirement portfolio was in various forms of the stock market? Those people don't have time to wait for the correction to average back out to a 10% anuual return. They needed their money now and the recession wiped it all out. If those people had paid off their mortgage they'd be in much better shape when retirement came around. Historical averages are great for people who have the luxury of time. They mean a lot less to a 65 year old who may never be able to retire as it stands now.
--- End quote ---
Based on his past posts, he's about 40. I factored that in.
And you're taking it out of context. I said repeatedly that he should work with someone to see the numbers. If his time horizon was 5 years or 25 years, it gets factored into the model.
javeryh:
Me or Fordman? I'm 36. Plenty of time before retirement.
Navigation
[0] Message Index
[#] Next page
[*] Previous page
Go to full version