The concept of debt

[Eli]

But that's the future. Who knows what will happen then?

Life is quite predictable. Most of us are not going to be surprised by a job that pays five times more than the current one or a lottery win. If you're an average Joe and your net worth drops by a $2000 a month, it's really easy to predict what will happen five years down the road.

[Jon Miller]

Originally posted by Eli

But that's the future. Who knows what will happen then?

Life is quite predictable. Most of us are not going to be surprised by a job that pays five times more than the current one or a lottery win. If you're an average Joe and your net worth drops by a $2000 a month, it's really easy to predict what will happen five years down the road.

I will get a PhD in the next 2 years. Then, yes, I should have a job that will be paying 2+ times what I currently make.

In fact, if I just went into the normal workforce (Right now), I would expect to get payed over twice what I am payed now.

Jon Miller

[MOBIUS]

Debt is for fools. The only debt anyone should ever have is the most likely unavoidable one of a mortgage, and the effects of even those can be at least slightly offset if you get the right type etc.

Even cars should not be bought with debt. If you can't afford to buy it outright, you shouldn't be owning it in the first place - it's not like they're expensive these days.

Everything else should be 'affordable' without having to pay interest. E.g. credit cards are brilliant as long as you pay them off in full each month - same with interest free borrowing as long as you're able to pay it off in full.

All debt does is ultimately destroy your ability to actually pay for things and that is the biggest irony that is completely lost on the average person in debt...

[Saras]

Originally posted by MOBIUS
All debt does is ultimately destroy your ability to actually pay for things and that is the biggest irony that is completely lost on the average person in debt...

Henry Kravis would disagree and laugh all the way to the bank.

[MOBIUS]

The debt I believe we are talking about, is that spent on frivolous things that depreciate with little or no resale value.

If you are taking on debt as an investment risk, then of course there is a potential of making far more money than you would otherwise. But your average Joe in debt isn't doing that.

Basically I should have said: "I agree with Pekka"

[Pekka]

"Even cars should not be bought with debt."

I agree to the extent that a normal car is not an investment. It does not rise in value. So you're not going to get anything out of it at any point, except the luxury of commuting. But there are alternative options for that in some cases, so I don't think you should buy a new car unless you can really afford it.

[MOBIUS]

Er, exactly!

[rah]

I'm with you guys most of the way, except for the car thing. A car can be a necessity and not a luxury. So I can see buying that and making payments. But other than houses, cars, and investment opportunities (like starting a business, college tuition, or other such things), debt shouldn't be an option. When I was younger, I fell into the Credit card trap, and it took a long time to recovere from it, but now my only debt is my house. (and it won't be for long)

And the classic, since I don't need credit, it's offered to me more.

[MOBIUS]

Originally posted by rah
I'm with you guys most of the way, except for the car thing. A car can be a necessity and not a luxury. So I can see buying that and making payments. But other than houses, cars, and investment opportunities (like starting a business, college tuition, or other such things), debt shouldn't be an option. When I was younger, I fell into the Credit card trap, and it took a long time to recovere from it, but now my only debt is my house. (and it won't be for long)

In the UK you should be able to get a reasonably reliable car from £500+, which is hardly a vast amount of money. On a average wage in the UK you should be able to pay for that in a month - or two if you credit card it...

Besides, in the UK for work you shouldn't need a car anyway because of public transport - which I suppose is different to whole areas of the US. If you need a car for your job it is most likely provided anyway.

And the classic, since I don't need credit, it's offered to me more.

Tell me about it...

Just the other week one of my credit card companies arbitrarily raised my limit by £2000, because 'they thought I might like it'.

[DAVOUT]

In the concept of debt, the only interesting player is the lender; the more painful is the debt for the stupid debtor, the more it is enriching for the lender. You can even become a Nobel prize if you dare to extend the lending system to the poorest of the poors.

[Pekka]

rah, yes, it can be a necessity if that's the only realistic way you could do your traveling. Of course. And you might need a car to do your job, business etc.

[Caligastia]

Originally posted by MOBIUS
Even cars should not be bought with debt.

Depends on the terms. We bought our car with dept, but we won't pay a cent of interest on it.

[rah]

Originally posted by MOBIUS

In the UK you should be able to get a reasonably reliable car from £500+, which is hardly a vast amount of money. On a average wage in the UK you should be able to pay for that in a month - or two if you credit card it...

For about a grand US, you're not going to get the most reliable car here. Public tran is good only in some areas. (thank god chicago is one of them) But in a lot of areas a reliable car is necessary, and one that won't be in the shop more than on the road is probably closer to the 3-5 grand range.

I work downtown and can take public tran but still need my car to get to the train station.

Before when I worked in an adjoining suburb, a car was my only option. (there was a bus but it took 5x as long and didn't run late enough at night) I'm not going to sit on a bus for 50 minutes when driving only took 10.

[Pekka]

For a grand in here, you get a bicycle

But I think the idea, if you want to play smart and accumulate wealth is that first of all you live by your own limits that lets you have that little bit extra to create action, but even if you get a loan to invest in something, there's only few ways it can pay off, one if you are buying a collectable. Now that's risky. And there's no way it will be multiplying in value unless you're lucky like you won the lottery. Not recommended, plus you need special skills, like art dealers etc.

Being owner is not a bad idea. Own land, property.. if you can reasonably calculate that the value should rise and then you can see if it's a good thing to do, how long it takes, what kind of an investment it means in terms of your balance, what is the return of investments.. it might be a smart thing to do.

So I'd say, if you're getting debt, get it to own something. TVs aren't going to be valued more next year, or the car. A house might be. Land might be. If you have some skills, you can even put some house and add value to it by fixing some things up, or adding something completey new to it that adds the value so, that the actual cost of fixing it actually gave you more value in return so it was worth it.

[DanS]

Debt, and consumer debt above all, has been one of the great advancements in personal finance tools of the late 20th century. I understand that debt is not nearly as available in some countries compared to the US, and think that this is a shame.

Consumer debt has saved my ass on numerous occasions.