Chase Bank

@DrewDad,

As far as consequenses - like using credit to buy a home - for the average home owner after living in 20 years and kids leave and down size - the consquence is having a nest egg for retirement when downsizing.

Credit is only "bad" when obused or used incorrectly.

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@Linkat,

Linkat wrote:

I agree for the average person even someone not into having all the best gagdets, etc., credit can help with certain items.

For example, just imagine some one starting out - they get a new job, but may need a car to get to it - voila - they can borrow so now they can earn an income to eat food and have shelter.

Or, you do what I did and buy a car you can afford - a $1000 used car. Then when you have saved more money up, you buy a better car.

The advantage is that you EARN interest on the money you save/invest instead of PAYING interest. This allows you to leverage your way up to the car you want a lot quicker then you might think. The disadvantage of course is that your car accurately reflects your status as someone who has no money - which is a problem for many status-oriented folks.

Quote:

A family wants a home - even a modest home - most would not be able to buy this home until saving up for 15 years or more. Not unreasonable - they can get a mortgage - and for the average home buyer they are in their home for quite a long time - there home will be worth more than when they bought it for - so bonus - they have a nice nest egg for retirement when downsizing.

This is highly dependent on market forces to be true. So many Americans are underwater on their mortgages right now, and the market certainly isn't going to turn around soon...

Whereas the family who saved the money and bought the house outright never has to worry about that, ever. And they get the same benefits for retirement as those who had a mortgage.

Cycloptichorn

3 Replies

@DrewDad,

DrewDad wrote:

Cycloptichorn wrote:
What's Idealistic is pretending that our national love for Stuff has no consequences, when we let that become the standard.

Where do you get the idea that I pretend there are no consequences to using credit? I suppose it's easier to maintain your superior attitude when you believe everyone else is stupid.

I don't think that everyone else is stupid; but I do think that many people are lazy and greedy. They'd rather buy into a harmful system that gets them what they want right now, then they would take the time to find a better plan for the long run.

Cycloptichorn

1 Reply

I reduced my carbon footprint by buying most of my Christmas gifts online, using my credit card of course.

In the interest of full disclosure, we probably messed that up by flying all over the country to hand them out LOL. Was fun, though Laughing

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@Cycloptichorn,

I share your contempt for a system that fleeces even responsible people to reward those better prepared to play the game.

But I accrued up to $3,000 in credit card debt not buying bullshit, but going to grad school. My entire tuition was paid on a scholarship, I received an annual stipend of $10000, and I worked part time. Still I had to take out loans to pay for health insurance, a shitty car, rent, books. And I had to bail myself out with the card every so often so that I could buy groceries or prescription medication.

So I do love stuff when it provides me vitamins, minerals, health, knowledge. And the people I know in serious debt aren't driving around in their Hummers and giving people the finger. Like idiots, they're teaching for $2000 per class, or giving piano lessons, or other silly work that has a positive impact on the community but pays jack ****. Some people go into debt following a dream. In fact most people following a dream go into debt, right? I don't know, I've spent too much time around artists.

So not to say you are condemning everyone in credit card debt, but only that it's a no-brainer when you're deciding between doing what you want to do or taking the moral highground. You seem to have accomplished both, and I'm jealous, but I think both discipline and luck were on your side.

1 Reply

@Gargamel,

Quote:

You seem to have accomplished both, and I'm jealous, but I think both discipline and luck were on your side.

You're right about that. Like many, I got into credit card debt in college. I signed up for a credit card at a kiosk on my college campus (which no longer allows such things). I got a free t-shirt. In retrospect, I was suckered by vultures who preyed on the weak and the stupid.

After I got rid of my debt (which exceeded 3k) I swore never to be in this position again, and have carefully engineered my life to not be in such a position; I have consciously chosen a location to live in which does not require a car and I limit my purchases to what I can afford, and that's it. I save money and have a hefty rainy-day fund for emergencies. I wasn't always able to live like this and there were a few hand-to-mouth years in my 20's....

I am not trying to be a purist or say that everyone is wrong for using the system, but I've watched the system **** people over and I hate it; and I am living proof that it's not necessary to buy into the system to have a good life. Someday I may have to buckle down and get a CC for various reasons, but I sure as hell hope not. I don't blame folks for doing what they have to do to survive. But I can't support a business model which relies on desperation in order to make gigantic profits for the owners.

Cycloptichorn

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@Cycloptichorn,

I am saying as far as buying a car if you have $0, then you cannot buy a car without borrowing. You cannot get the job and get income without getting to the job, thus you need the car to get income - doesn't matter if you are buying a $1K used car or a $50k new luxury car.

Besides a bit more expensive car, might be better as a $1k car would not be reliable thus making getting to work a problem where you could lose this income.

1 Reply

@Linkat,

Linkat wrote:

I am saying as far as buying a car if you have $0, then you cannot buy a car without borrowing. You cannot get the job and get income without getting to the job, thus you need the car to get income - doesn't matter if you are buying a $1K used car or a $50k new luxury car.

Besides a bit more expensive car, might be better as a $1k car would not be reliable thus making getting to work a problem where you could lose this income.

My question is, if you don't have a job or any assets, how did you get a credit card or a loan in the first place? They didn't used to issue CC's or give out loans to people who had no assets or income. How does this even make sense?

Cycloptichorn

1 Reply

@Cycloptichorn,

As far as mortgages as I stated for the average home owner, they purchase for long term - so even if they bought say a couple of years ago at the height of home values - 15 years from now, their home (most likely) will be worth more than what they bought it for.

1 Reply

@Cycloptichorn,

Who could buy a house outright? Where would you live while you are not paying a mortgage? I guess you would need to pay rent...so even if the rent was less than a mortgage - it would take over 15 years of saving, giving your money to some one else (who by the way is using that to pay their mortgage) to live and building no equity over that time.

Yep sounds like an awesome deal to me.

2 Replies

@Linkat,

Linkat wrote:

As far as mortgages as I stated for the average home owner, they purchase for long term - so even if they bought say a couple of years ago at the height of home values - 15 years from now, their home (most likely) will be worth more than what they bought it for.

I highly doubt that this is true for many. In fact, I would be willing to bet heavily against that. Perhaps in areas of the country other then the one I live in, but here in CA the prices won't return to the heights they were at in 2006 and 07 within 15 years; hell, they're still falling considerably and it's already been 3 years or more into that 15 year period!

Cycloptichorn

1 Reply

@Linkat,

Linkat wrote:

Who could buy a house outright?

I know many people who have done this, including my parents, who certainly aren't rich.

Quote:

Where would you live while you are not paying a mortgage? I guess you would need to pay rent...so even if the rent was less than a mortgage - it would take over 15 years of saving, giving your money to some one else (who by the way is using that to pay their mortgage) to live and building no equity over that time.

Yep sounds like an awesome deal to me.

Equity for what? To take out more loans? The whole point is to AVOID taking out loans, not to make it easier to do so! You are moving in the wrong direction with the problems you are pointing out.

There are also significant costs associated with owning a home which you aren't taking into account - insurance, upkeep, taxes. In my area these add up really quickly. You might respond by pointing out that these are factored into my rent, but that makes the rent/mortgage calculation look BETTER for those who are paying rent and saving money on top of it.

15 years of saving is hardly a ridiculous thing to do... and it's exactly the plan I'm currently on.

Cycloptichorn

2 Replies

@Cycloptichorn,

I did when I graduate college - all you had to do was go to the car dealership and show proof that you had gotten a job. Easy peasy lemon squeezey.

And I never had a problem with credit card debt. I work in the financial industry and studied economics so I suppose I have a bit of an advantage over others who didn't start out that way.

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@Linkat,

Quote:

Who could buy a house outright?

Me. But I worked in a high income field for a number of years while I continued to live in my dumpy, rent controlled college apartment. I think people (especially a working couple) can do it if they don't have student loans, wait to have children, use public transportation, and really pay attention as to where their money goes. The savings over 5-8 years should equal the cost of a starter home in many parts of the country. At least people should try and put away as much of a down payment as possible in order to avoid longer term interest payments. Most people buy more house than they can really comfortably afford. Being mortgage free is real freedom.

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@Cycloptichorn,

Yes, it is quite likely that in 15 years the housing market will be back up. The stock market is already up in this current year. I have a graduate degree in economics and overall in the long term the economy climbs " there are “blips” of large ups and downs, but overall in the long term it is a consistent increase. 3 years is the short term " 15 years is a long term view.

Here is a basic image of the business cycle over time -

http://www.thebluecollarinvestor.com/blog/wp-content/uploads/2008/11/business-cycle-graph-better.jpg

1 Reply

@Green Witch,

I definately agree with "buying more house than you can afford" and putting as much as a down payment as possible. But there is nothing wrong (and many financial benefits) to having a low interest mortgage over renting.

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@Cycloptichorn,

Besides your parents who has done this? And depending on location " the average person cannot. Maybe if you live in the backwoods of Mississippi you could or perhaps even 50 years ago like possibly your parents when houses costs $24k, not over $300k now for an average house (not a luxury home).

Equity is the difference between mortgage and value and for the average home owner isn’t used to borrow against, but when retiring and becoming empty nesters, they downsize and use the difference in earnings for retirement.

I think I fully understand the costs involved with a home. When I first bought my place my taxes and insurance were included in with my mortgage bill, my rent previously was $25 more than this combined amount. Now, as a result I currently have over $40k in equity " even in this down size by using the 2010 new tax assessed value (which is typically a conservative value). So if I continued renting assuming that rents would go up/taxes would go up and $25 difference used for maintenance - costs would have been pretty close either way. So net gain after 10 years of $40k. So in this case was renting better?

15 years of savings isn’t ridiculous and I would never say so " but having your own home and gaining $40k in 10 years isn’t bad either.

1 Reply

@Cycloptichorn,

Over 15 years your rent creeps up.

With a house, your payment remains stable.

Also, are you saying you don't pay renter's insurance? If you don't, I strongly advise you to get some.

1 Reply

@Green Witch,

Green Witch wrote:

Quote:
Who could buy a house outright?

Me. But I worked in a high income field for a number of years while I continued to live in my dumpy, rent controlled college apartment. I think people (especially a working couple) can do it if they don't have student loans, wait to have children, use public transportation, and really pay attention as to where their money goes. The savings over 5-8 years should equal the cost of a starter home in many parts of the country. At least people should try and put away as much of a down payment as possible in order to avoid longer term interest payments. Most people buy more house than they can really comfortably afford. Being mortgage free is real freedom.

Bingo!!!

Cycloptichorn

0 Replies

@Linkat,

Linkat wrote:

Yes, it is quite likely that in 15 years the housing market will be back up. The stock market is already up in this current year. I have a graduate degree in economics and overall in the long term the economy climbs " there are “blips” of large ups and downs, but overall in the long term it is a consistent increase. 3 years is the short term " 15 years is a long term view.

Here is a basic image of the business cycle over time -

I know how the business cycle works, thanks. But have you examined the cycle that housing prices have lately been in?

http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case-shiller-chart-updated.png

In 15 years it is highly unlikely that housing prices will match what they were in 2006-07, your economics degree not withstanding.

Cycloptichorn

1 Reply

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