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Old 01-30-2015, 02:05 PM   #21
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I visited a smart HS friend a few weeks ago and he indicated he was hoping to have his mortgage gone by the time he retired at 63. He's been a home owner since the mid 80s (30 years) and that will be another 11 years paying interest on his home (its his 2nd house) when he's finally done. He's in IT and I know he has had better pay than me for a long time (though that has reversed the past 5 years) and he seems to be thrifty. I was so surprised when I heard he still had a mortgage. With college loans for him and his wife, the cars, and the houses, its possible he will have paid $600,000 in interest when he finally retires. If he paid that much in interest, anybody could do it.

On my paid off home I probably paid about $50k, and maybe a few hundred on my education loans. I can't imagine being an indentured serf all my life. Just .... not .... happening.
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Old 01-30-2015, 02:09 PM   #22
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Walt - I suspect this is your equivalent to the giant-underwear and elastic-waist "slacks" ads I receive, merely because I'm a woman aged 55+.

Everyone else thinks I should just laugh at the ads, but there's a serious side, too...if it's "normal" to carry lots of extra pounds at my age, what does that say about the general state of older women's health?

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Ithis one ... was particularly insulting. .... lists as "typical" debts of $8,343 in funeral expenses, $15,956 in credit card debt, and $12,596 in auto and other loans.


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Old 01-30-2015, 02:21 PM   #23
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Walt - I suspect this is your equivalent to the giant-underwear and elastic-waist "slacks" ads I receive, merely because I'm a woman aged 55+.
I suppose. I just got my Medicare card a couple of weeks ago although it doesn't go into effect for a while yet and I've been inundated with ads for medical insurance.

It just seemed such a strange concept to be in debt for all of one's life. But my parents grew up in the 1930's and the emphasis with them was only borrow if you had to for a house or maybe a car but it was better to pay cash if you could. For a while there my father did run up some cc bills but that was not the norm and it only happened once.

Or as DW-to-be put it when we were dating: "The trouble with loans is they always want you to pay it back. Plus interest." The girl knew how to get my attention!
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Old 01-30-2015, 02:43 PM   #24
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My parents paid cash for both their houses. They never financed anything and never had credit cards. I owe them a debt...of gratitude.

After my mother died, leaving me a trust fund and a substantial estate, her (surprised) lawyer said "where did she get all the money?"

I think we know the answer!
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Old 01-30-2015, 04:54 PM   #25
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Originally Posted by PhrugalPhan View Post
I visited a smart HS friend a few weeks ago and he indicated he was hoping to have his mortgage gone by the time he retired at 63. ..... I was so surprised when I heard he still had a mortgage.
.....
I think you have a distorted view of this. I'm retired, I'll keep my mortgage as long as the rate is good (it's 2.875% right now). So what?


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.... I can't imagine being an indentured serf all my life. Just .... not .... happening.
Hah, hah - I consider the bank an indentured servant, loaning me such low rate money for 30 years (OK, it is an adjustable, so they are not locked in for thirty years at that rate, but it's been low, low, and lower for the past ten that I've had it, and I don't see rates going up soon). And if rates do go up, I may just pay it off. I can pay it off at anytime, without penalty. The bank cannot call it from me though. How does that make me an 'indentured serf'? Why are you mad?

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Old 01-30-2015, 07:25 PM   #26
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According to this article the average American will spend $600,000 on interest payments over their lifetime. How sad.
I couldn't find $600,000 in the article.

The average American earns about $45,000 per year. Earning that for 45 years means about $2.0 million of lifetime earnings. $600k of interest means devoting 30% of before tax earnings to interest payments alone.

I know that average Americans borrow more than I do, but I can't imagine that number.
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Old 01-30-2015, 09:20 PM   #27
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I don't know much about this topic. Does debt really roll over when a relative dies?
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Old 01-30-2015, 10:52 PM   #28
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I couldn't find $600,000 in the article.

It was in the last tile on the graphic at the top.

It's a staggering sum, for sure. I'm less surprised by it when talking to some of my neighbors, who have been paying on interest-only ARMs for *years*. These same folks say they wish they could build up some equity in their home. Because then they could tap that.

During a recent such conversation I said that that's a slippery slope, and I prefer not to be leveraged. The 2 guys I was talking to looked at me liked I'd grown a 2nd head.
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Old 01-30-2015, 11:01 PM   #29
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I don't know much about this topic. Does debt really roll over when a relative dies?
The dead person's estate has to pay the debts prior to distributing the estate.
So if the dead person has nothing (nobody really counts furnishings and clothing) then the debt will be cancelled.
Thats why life insurance policies should always state the name of the beneficiary person instead of "the estate" , so something will pass onto the heir.
Of course if spouse and dead person are co-signers or joint on the debt, then the remaining spouse is responsible for the full debt.

That is my basic understanding, as someone who avoids debt when possible.
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Old 01-30-2015, 11:06 PM   #30
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On my paid off home I probably paid about $50k, and maybe a few hundred on my education loans. I can't imagine being an indentured serf all my life. Just .... not .... happening.
Do you pay property taxes on that house? Welcome to lifelong serfdom.

If we'd paid cash for our house rather than get a low-interest fixed mortgage, I would have had about $100K less in stocks over the last 12 years, and would have missed out on all the growth of those investments. It wasn't a sure thing, but it has worked out okay. The $100K has turned into about $250K over the intervening 12 years, and we've even paid the mortgage down a bit. But at the present approx 4.5% fixed rate, I'm not in a hurry.
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Old 01-30-2015, 11:13 PM   #31
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Back when I was in college I used to earn extra money by tutoring people in various math/science classes. That's how I learned that your average person is really really dumb.

I went to a relatively good public university (my state's flagship research university) and I was amazed at how stupid your average college student was. I'm sure it is even worse now.

Your typical person is not very smart and has no willpower. They aren't capable of delaying gratification even if they could understand concepts like compound interest.
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Old 01-31-2015, 12:25 AM   #32
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The dead person's estate has to pay the debts prior to distributing the estate.
So if the dead person has nothing (nobody really counts furnishings and clothing) then the debt will be cancelled.
Thats why life insurance policies should always state the name of the beneficiary person instead of "the estate" , so something will pass onto the heir.
Of course if spouse and dead person are co-signers or joint on the debt, then the remaining spouse is responsible for the full debt.

That is my basic understanding, as someone who avoids debt when possible.
Makes sense.

I only ever had minimal student loans (thankfully I figured out school was worthless to me before I had spent too much - dropped out and went to work), and I have financed a few cars.... Noting now. I have to buy credit when I need it. Or just pay all cash because the thought of %fees makes me
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Old 01-31-2015, 01:27 AM   #33
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Do you pay property taxes on that house? Welcome to lifelong serfdom.

If we'd paid cash for our house rather than get a low-interest fixed mortgage, I would have had about $100K less in stocks over the last 12 years, and would have missed out on all the growth of those investments. It wasn't a sure thing, but it has worked out okay. The $100K has turned into about $250K over the intervening 12 years, and we've even paid the mortgage down a bit. But at the present approx 4.5% fixed rate, I'm not in a hurry.
THIS!
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Old 01-31-2015, 07:38 AM   #34
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If we'd paid cash for our house rather than get a low-interest fixed mortgage, I would have had about $100K less in stocks over the last 12 years, and would have missed out on all the growth of those investments. It wasn't a sure thing, but it has worked out okay. The $100K has turned into about $250K over the intervening 12 years, and we've even paid the mortgage down a bit. But at the present approx 4.5% fixed rate, I'm not in a hurry.
DH and I moved from an HCOL area to a LCOL area in 2003 and could have paid cash for our house. Instead, we took out a traditional mortgage, bought $200 worth of wine and invested the rest. Sinking it all into the house would have been a very bad idea; we'll be lucky to get maybe 20% over what we paid although we've built up significant equity because we took out a 15-year mortgage.

When I was a kid my parents once told me they had the cash to pay off their mortgage but it would be a bad idea. I was puzzled; in general, they never borrowed for anything. Now I understand- they had a low interest rate and figured the money was better deployed elsewhere.
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Old 01-31-2015, 09:55 AM   #35
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Where you are on the mortgage is the rub. From the bottom looking up at a mountain of home debt my priority was to lower that mountain. The day when we felt that we were well on our way to ascending it, the desire to pay it off was lessened, and the idea of investing was stronger.
In my business (yes OMY again at a lesser role) we carry debt as a tool, as many here do with their mortgage.
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Old 01-31-2015, 03:14 PM   #36
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DH and I moved from an HCOL area to a LCOL area in 2003 and could have paid cash for our house. Instead, we took out a traditional mortgage, bought $200 worth of wine and invested the rest. Sinking it all into the house would have been a very bad idea; we'll be lucky to get maybe 20% over what we paid although we've built up significant equity because we took out a 15-year mortgage.

When I was a kid my parents once told me they had the cash to pay off their mortgage but it would be a bad idea. I was puzzled; in general, they never borrowed for anything. Now I understand- they had a low interest rate and figured the money was better deployed elsewhere.

Exactly. There is smart debt and dumb debt. Suffice it to say, any debt on a depreciating asset is dumb debt.


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Old 01-31-2015, 03:24 PM   #37
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... Suffice it to say, any debt on a depreciating asset is dumb debt.
I'll challenge that.

The asset will depreciate whether you pay cash or borrow. It has no effect either way on the depreciation of the asset.

So the question remains - can you borrow for less than you can reasonably expect to earn from investments?

-ERD50
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Old 01-31-2015, 03:37 PM   #38
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It just seemed such a strange concept to be in debt for all of one's life.
Amen. I was in debt from age 18 (college loans) to age 41 (paid off the mortgage). 23 years was plenty for me.

It bewilders me how people don't look up a few years into life on the debt treadmill and say "Hey, wait a minute, this sucks!"

I still smile when I update my finances every 6 months and my spreadsheet says:

Debt:Assets Ratio = 0.0
Debt:Income Ratio = 0.0

It's a vestigial calculation from by gone days, but I leave it there because it reminds me never to owe anyone, anything again...
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Old 01-31-2015, 03:45 PM   #39
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Exactly. There is smart debt and dumb debt. Suffice it to say, any debt on a depreciating asset is dumb debt.
Money and debt are fungible. It doesn't matter what the debt is securitized by or what it is used for, since a $1,000 debt on your balance sheet doesn't matter if it's on a house or on a car or on your credit card - it's still subtracted from your assets in the same mathematical equation. All that matters is what your net worth is growing by, in relation to what interest you are paying on your gross debt.

If I had a 0.9% car loan from the manufacturer and bought a new car, is that "bad" debt because the car drops 15% in value when I drive it off the lot? Does that debt suddenly become 'good' debt if I took out a HELOC on my house for 3.0% instead?

Obviously, for most Americans who take out debt for many things and who don't comprehend many basic financial concepts, it can be a handy rule of thumb. But for the average reader of this forum, there is no "good debt" or "bad debt", since the balance sheet doesn't have emotions and doesn't care what it's for.
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Old 01-31-2015, 05:11 PM   #40
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Thanks to ProspectiveBum I found the $600,000. But, I still can't find support for it in the article, and that still looked awfully high, so I went looking.

According to the Fed, outstanding consumer credit in Sept 2014 was:

$ 849 billion, "Revolving"
$ 944 billion, Auto
$1,311 billion, Student loans
$ 144 billion, other non-revolving
----------------------------
$3,248 billion, Total

If I assume auto and student loan loans charge 6%, and credit card and others charge 13%, I get total interest paid as $264 billion.

There are about 230 million Americans over 19, so this averages $1,150 per person per year on $14,000 of debt.
If people pay that for a full 65 year (to age 85), that's $75,000 lifetime interest payments on non-mortgage debt.

According to the Consumer Expenditure Survey, household that are paying mortgage interest averaged $8,100 in 2013.
About 41% of adults lived in households that were paying mortgage interest (the rest were renters or lived in paid-for homes).

If people paid $8,100 per year for 30 years, that would be $243,000 lifetime.
But, most people who buy houses are married when they are buying, so let's say $150,000 lifetime mortgage interest payments per person.

So I get $225,000 lifetime for the average American.
That's a lot of money, but also a lot less than $600,000.
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