Should some people live in Debt ?

[old medic]

Wow - I'm so sorry, Medic!

Thanks... Its a long twisting story, but somewhat a happy ending... He managed to survive, recover and became a real nice guy...
I actually told him... had I known it would have done him this much good I would have shot him years ago... His reply....
I wish someone would have...
He passed away 2 years ago at 84... refusing to do dialysis for kidney failure.

 

[tryan]

Little bit interesting .... I said on another thread a good friends BIL has 3 adult kids who borrowed up to thier eye balls to go to private out of state colleges only to get useless degrees. Sooo mom and dad work 2 jobs (heavy spenders themselves) to "help" pay the college loans ...all 3 kids still live at home.

Well, grandma stepped in YEARS ago and was paying them 4k/mo to "help". The "update" to this sorid story is that gradma has finally cut them off. Thier entire inheritance is spent, and she won't eat into the other kids gift. Sadly nothing really changed the gift from grandma just let the music continue for a few more years. Except now grandma is stressed about HER finances.

 

[Koolau]

Little bit interesting .... I said on another thread a good friends BIL has 3 adult kids who borrowed up to thier eye balls to go to private out of state colleges only to get useless degrees. Sooo mom and dad work 2 jobs (heavy spenders themselves) to "help" pay the college loans ...all 3 kids still live at home.

Well, grandma stepped in YEARS ago and was paying them 4k/mo to "help". The "update" to this sorid story is that gradma has finally cut them off. Thier entire inheritance is spent, and she won't eat into the other kids gift. Sadly nothing really changed the gift from grandma just let the music continue for a few more years. Except now grandma is stressed about HER finances.

A familiar tale!

Good friend inherited a decent amount from his mom and dad's farm. His kid got two (2) degrees in a row (oh, and got a girl pregnant and married her.) The kid eventually got a welders certificate and apparently was able to make a living at that. Good thing, 'cause all the money was gone by then.

 

[daylatedollarshort]

Little bit interesting .... I said on another thread a good friends BIL has 3 adult kids who borrowed up to thier eye balls to go to private out of state colleges only to get useless degrees. Sooo mom and dad work 2 jobs (heavy spenders themselves) to "help" pay the college loans ...all 3 kids still live at home.

We've heard pretty often from different neighbors that their kid got accepted at some expensive, elite school, "now we just have to figure out how to pay for it". I find that interesting because I don't hear people say I bought a new house or fancy car, but now I just have to figure out how to pay for it. Like we couldn't tell our home improvement contractors, thanks for the work, we'll get back to you when we figure out how to pay for it. But higher education in the U.S. seems to have an endless supply of easy credit for anyone who asks.

 

[brett]

I would not expect anyone who has lived on debt, consumer or otherwise, and minimum payments all their lives to change. Not unless the merry-go-round stops suddenly for some reason.

Sure they can continue on. But those minimum payments will have the same effect as inflation. They will keep buying on credit. The interest component of their minimum payments will get larger and larger.

I see no reason to help people in this situation to change when they themselves have no desire to do so.

I have a few relatives who are doing this. One is already on the way to loosing her home through bad financial decisions, over spending, and using a reverse mortgage to pay off her consumer debt just so she go out anew, spend, and reach her max. credit card limit.

Would I help her? No...from my perspective I would be helping the credit issuers not her. She will always be at the very end of her credit limit regardless of any financial assistance others may bring to her plight.

Would we ever consider paying off a deceased relatives credit card balance? Absolutely not. From my perspective the credit card company has already made out like bandits on the deceased interest payments over the years. Extending credit is a risk. It means that the credit card company accepts the risk along with the high rewards. No sympathy for them whatsoever.

 

[youbet]

I said on another thread a good friends BIL has 3 adult kids who borrowed up to thier eye balls to go to private out of state colleges only to get useless degrees.

I think the significant point here is that the children were not good enough students to be offered full or partial scholarships. Since they had to borrow the money to go, I'm assuming their FAFSA's demonstrated substantial financial need. That, coupled with good academic credentials, almost guarantees that good students get attractive aid offers at private colleges.

It's a tough call for parents.

 

[youbet]

Would we ever consider paying off a deceased relatives credit card balance? Absolutely not. From my perspective the credit card company has already made out like bandits on the deceased interest payments over the years. Extending credit is a risk. It means that the credit card company accepts the risk along with the high rewards. No sympathy for them whatsoever.

If there is no estate to cover the bill, I wouldn't pay out of my own pocket either. The CC company just eats the debt since there is nothing to go after. But if there is some small estate (perhaps the debtor had some home equity, etc.) the CC companies can move in effectively having estate beneficiaries pay the bill.

https://www.bankrate.com/finance/credit-cards/death-inherits-credit-card-debt/

Even if you’re not held personally liable for the debt on a credit card, you’ll feel the effects of it if you’re a beneficiary of the estate. That’s because debts will be paid from the estate before beneficiaries receive any distributions. In other words, any debts left behind when a loved one passes away can quickly gobble up much of their remaining assets, with beneficiaries receiving what’s left over (if anything at all).

 

[youbet]

Little bit interesting .... I said on another thread a good friends BIL has 3 adult kids who borrowed up to thier eye balls to go to private out of state colleges only to get useless degrees. Sooo mom and dad work 2 jobs (heavy spenders themselves) to "help" pay the college loans ...all 3 kids still live at home.

Well, grandma stepped in YEARS ago and was paying them 4k/mo to "help". The "update" to this sorid story is that gradma has finally cut them off. Thier entire inheritance is spent, and she won't eat into the other kids gift. Sadly nothing really changed the gift from grandma just let the music continue for a few more years. Except now grandma is stressed about HER finances.

Now that's not very smart. If grandma is stressed about her finances she should spend from her savings (prudently) to eliminate the financial stress and lead the most pleasant life she can. If the "other kids" have a problem with this, then they truly don't deserve an inheritance at all. Their grandmother comes first. Their inheritance comes in a distant second. Just my opinion of course.

 

[marko]

Buddy of mine: His wife was a professional making good money. She decided that getting an advanced degree via a full-time student, she would make even more.

So.....they took out a 2nd mortgage to cover her two years of lost income plus her tuition at a high priced school. Likely in the $400K range, I'd guess, thinking that her new extra income would even it all out quickly once she went back to work.

Next scene: she "met someone" at school, moved out of the country and left him with the bill. Took him a ton of lawyers to get her to pay half.

 

[jollystomper]

This very title goes against my very being, as the DW and I are very debt adverse as we move closer to ER.
why is it some people don’t realize how bad their position/decisions are until they are literally out of money?

In some cases, they simply do not realize they are out of money until they are out of money. They tend to assume that something will happen to eventually change things. Or when whomever they owe comes after them, the ones owed will accept whatever story they give them to cut them a break.

 

[Lron58]

Some debt might be good

This very title goes against my very being, as the DW and I are very debt adverse as we move closer to ER.

The question comes from knowing a very dear couple (she 74, he 84) who found themselves living month to month with a mortgage, CC payment and a consolidated loan from other CCs and expenses.
They each have SS and he has a very small pension. I found out recently that they burned through whatever savings they had by bad financial decisions, bad saving/spending habits, etc, etc. She recently started 2 part time jobs because they need the money.
They are both in okay health for now, but the situation will only get worse once one of them passes.
why is it some people don’t realize how bad their position/decisions are until they are literally out of money?
Whenever they have a unexpected expense, (dental, car problems, etc.) they either need to borrow money or resort back to the CCs.
So in reality, they just don’t have the resources to dig themselves out and any attempt to help financially, would be like throwing money on a dumpster fire.

I know this situation isn’t new and we all know someone like this, but would people in this situation be better off using the system, in a way, by paying the minimum amounts due. This way they can try to maximize available finances to live on ?

I refinanced my home earlier this year at 2.75% for 10 years instead of paying it off before entering retirement. The savings from this generates enough each year to pay the property taxes.

 

[cyber888]

I'm sure you are talking about overspending, running up debt, etc... However I've seen the other side first hand. My dad was the poster child for the ultimate saver all his life. When he died I'm "guessing" his annual spend was 25 to 30k a year. (give or take a few k) He and mom did "nothing" the last ~20 years of their lives, even though they could have. No Internet, no cell phone, no travel, house was in disrepair, one older/cheaper car, etc.

Oh, and they died millionaires and zero debt. So not spending (or not enjoying life a little) can be a bad financial habit too.

Wow, they should have blown the dough. But I guess you're very lucky to inherit it. I guess they were content?

 

[Badger]

We've heard pretty often from different neighbors that their kid got accepted at some expensive, elite school, "now we just have to figure out how to pay for it". I find that interesting because I don't hear people say I bought a new house or fancy car, but now I just have to figure out how to pay for it. Like we couldn't tell our home improvement contractors, thanks for the work, we'll get back to you when we figure out how to pay for it. But higher education in the U.S. seems to have an endless supply of easy credit for anyone who asks.

It appears there is also an endless supply of people who don't have any sense of basic personal finance.

In some cases, they simply do not realize they are out of money until they are out of money. They tend to assume that something will happen to eventually change things. Or when whomever they owe comes after them, the ones owed will accept whatever story they give them to cut them a break.

Or they play the lottery thinking that will take care of their lack of gray cells.

Cheers!

 

[ShokWaveRider]

Inevitable for some, the norm for most.

 

[Imackenzie]

This very title goes against my very being, as the DW and I are very debt adverse as we move closer to ER.

The question comes from knowing a very dear couple (she 74, he 84) who found themselves living month to month with a mortgage, CC payment and a consolidated loan from other CCs and expenses.
They each have SS and he has a very small pension. I found out recently that they burned through whatever savings they had by bad financial decisions, bad saving/spending habits, etc, etc. She recently started 2 part time jobs because they need the money.
They are both in okay health for now, but the situation will only get worse once one of them passes.
why is it some people don’t realize how bad their position/decisions are until they are literally out of money?
Whenever they have a unexpected expense, (dental, car problems, etc.) they either need to borrow money or resort back to the CCs.
So in reality, they just don’t have the resources to dig themselves out and any attempt to help financially, would be like throwing money on a dumpster fire.

I know this situation isn’t new and we all know someone like this, but would people in this situation be better off using the system, in a way, by paying the minimum amounts due. This way they can try to maximize available finances to live on ?

The biggest surprise I had in early retirement was how big dental bills can be...and they get bigger and bigger unless you want to have "choppers"But if you aren't ready for a 20K surprise every year, you aren't ready to retire--and you need to adjust that 20K for inflation every year.

 

[athena53]

The biggest surprise I had in early retirement was how big dental bills can be...and they get bigger and bigger unless you want to have "choppers"But if you aren't ready for a 20K surprise every year, you aren't ready to retire--and you need to adjust that 20K for inflation every year.

I agree. The "Oh, crap" expenses since I retired have included having to replace the entire HVAC system in a 20-year old house DH and I had just bought in 2015 (we knew it was original equipment but hoped it would last a few years), having an 8-year old car develop transmission problems not worth fixing in 2020 and needing two dental implants last year (replacing one holding up a bridge and one to fill in the gap under the bridge). There's slack in the budget for that and if I don't need it I use it for nice-to-have, non-emergency work on the house.

I can see where people on SS alone can easily fall into the trap of resorting to credit cards and finding it impossible to get out.

 

[Walt34]

I can see where people on SS alone can easily fall into the trap of resorting to credit cards and finding it impossible to get out.

That was FIL's issue during the last ten years or so of his life, with medical bills and prescriptions. He otherwise lived a fairly spartan lifestyle - no travel, if he ate out it was at Burger King or similar, replaced clothing when it had holes in it, and the like. No big splurges on anything at all that DW and I could see. He owned the house outright but was helpless when it came to fixing anything but he had a list of reputable and honest tradespeople (one advantage of small town living) so he had to hire someone when anything broke. He passed away about eight years ago and his gross income then was just under $20k/year so he didn't have a lot of wiggle room.

The big drain on his finances was prescriptions so for that he resorted to credit cards. It was that or do without the medicines, and he wasn't in a position to do that either.

 

[Major Tom]

But if you aren't ready for a 20K surprise every year, you aren't ready to retire--and you need to adjust that 20K for inflation every year.

Absolutely, and adjust that 20K figure upwards for those with a higher material standard of living. Even for those on low incomes, the 20K figure stands, IMO. Low income healthcare options (Medicaid and similar) only include basic dental work. Either you need to pay a high monthly premium for true dental insurance, or you pay a low premium for what amounts to a discount plan, even though it is often called insurance. With these discount plans, you can still end up paying out quite a bit. I had an extraction and bone graft earlier this year. I'm about to have an implant in the same location, and then a crown. It'll end up costing me around $6K - and that's just one tooth. Even more reason to floss and brush daily!

 

[indiajust]

They are old enough to have no need for long term wealth. Could die tomorrow. Planning horizon contracts quite a bit at 74 and broke. If her health is good though, another 20 years might be hard row to hoe. Tough decision when there is nothing left but consequences for life as lived.

 

[brett]

I refinanced my home earlier this year at 2.75% for 10 years instead of paying it off before entering retirement. The savings from this generates enough each year to pay the property taxes.

My BIL has been doing exactly the same with a low interest HELOC for the past 15 years.

His after tax gain, after writing off the HELOC interest has paid for things like property tax, new roof, airline tickets, etc over the years.

 

[daylatedollarshort]

It appears there is also an endless supply of people who don't have any sense of basic personal finance.

With regards to college costs, I believe it means marketing works. I don't know anyone offline who looked at ROI by college and major. People we know in real life will often brag about their kid getting into some expensive college they can't afford, at least not without working another ten years or going into debt, for some unmarketable degree like gender studies, but not about their kid becoming a respiratory therapist with good pay, high demand and only two years of inexpensive community college tuition. Respiratory therapists in our area average over $100K. Not bad for a two year degree and a highly marketable job.

 

[isisdave]

... but not about their kid becoming a respiratory therapist with good pay, high demand and only two years of inexpensive community college tuition. Respiratory therapists in our area average over $100K. Not bad for a two year degree and a highly marketable job.

We have family friends where this just happened, too. RT is almost as good as becoming an electrician or drywaller or somesuch non-offshoreable trade, and you can do it longer as the physical demands aren't as great.

Interestingly, this is not the first case where a young man we knew floundered through ten years after high school, failing to find a direction, getting in minor legal and substantial financial trouble, before, at about age 27, a young woman saw something salvageable in him, swooped in, and married the guy.

The second one is the new RT; the older one just retired after 30 years with New York State and 5 kids with great jobs, including an attorney.

 

[teetee]

Yes some people should forever live in debt. That is how credit card industry works: people with good sense of spending management enjoy the reward points plus other credit card benefit and encourage others to get into credit cards (essentially free marketing for banks), while those without strong principles, prefer instant gratification, or are less fortunate in life (thinking about medical bills), get themselves into debt and enjoy avg 16+% APR interests. From the credit card bank perspective, those credit delinquents are necessary to support the ones that are able to take advantage of the system. The banks are sitting in the middle, scraping the cream of the top.

I don't play the game any more but I can see the need for some people (actually half of the credit card holders are carrying balance month over month) to be in debt so that the others can benefit from it. Some people need quick borrowing power, some people need reward points, and banks need to prey on thise with lesser financial knowledge / discipline. It is a needy world out there.

 

[Koolau]

Yes some people should forever live in debt. That is how credit card industry works: people with good sense of spending management enjoy the reward points plus other credit card benefit and encourage others to get into credit cards (essentially free marketing for banks), while those without strong principles, prefer instant gratification, or are less fortunate in life (thinking about medical bills), get themselves into debt and enjoy avg 16+% APR interests. From the credit card bank perspective, those credit delinquents are necessary to support the ones that are able to take advantage of the system. The banks are sitting in the middle, scraping the cream of the top.

I don't play the game any more but I can see the need for some people (actually half of the credit card holders are carrying balance month over month) to be in debt so that the others can benefit from it. Some people need quick borrowing power, some people need reward points, and banks need to prey on thise with lesser financial knowledge / discipline. It is a needy world out there.

Long term CC debt is like the old "company store" way of living. Essentially folks are paid in company scrip which can only be used at the company store. It's never enough so the employee eventually "owes his soul to the company store." It's just been updated with credit cards.

I've counseled my BFF (in debt half a mill at 78) that if he had ever just decided to put off his wants for a while, he would have gotten much more "stuff" instead of paying 20% to the CC companies. He acknowledges that I am right, but can not deny himself the gratification for a few days, weeks or months. Very sad but YMMV.

 

[athena53]

Yes some people should forever live in debt. That is how credit card industry works: people with good sense of spending management enjoy the reward points plus other credit card benefit and encourage others to get into credit cards (essentially free marketing for banks), while those without strong principles, prefer instant gratification, or are less fortunate in life (thinking about medical bills), get themselves into debt and enjoy avg 16+% APR interests.

<snip>

Some people need quick borrowing power, some people need reward points, and banks need to prey on those with lesser financial knowledge / discipline. It is a needy world out there.

When I was married to my Ex, who was a financial train wreck with perpetually maxed-out credit cards, he got more and bigger credit card offers in the mail than I did. I never looked at the APRs but I bet they were awful. Banks whine that they need the high interest rates to cover their default risk- but that's because their lending standards are practically non-existent and they write off a lot.

I'm in the "reward" camp and don't pay a dime of penalties or interest. I don't feel too guilty about it- they're collecting merchant fees and given that I pay in full every month they get more from my spending than from those who are maxed out and paying the minimum (so they have little to no new spending) every month.