Comments on: The Case Against a Life Without Debt

By: flexman

flexman — Sun, 22 Feb 2009 10:57:58 +0000

LIving debt free is the way to go! I’ve been on both sides of the fence. Why would I spend a dollar to save a quarter like most of us do? I’d rather spend a quarter to save a dollar, wouldn’t you?

By: Yana

Yana — Thu, 28 Feb 2008 16:03:06 +0000

Having been a big user of credit in the past, but never taking on the debt of a house or car, I’ve done a complete turnaround in attitude. I don’t want debt of any kind or to pay interest. To me, there is no such thing as “good debt”. I bought a new car with cash a couple of months ago, and don’t expect to have a home unless I can purchase it outright. I don’t understand keeping housepayments for a tax write-off, but a friend of mine did just that, when she could have paid off the home and actually owned it. In deciding to purchase a new vehicle, I heard from friends that the vehicle would depreciate as soon as I drove it off the lot. I don’t understand why this matters, as I didn’t plan on selling it as soon as I drove it off the lot. Nor do I plan on purchasing a vehicle every two years. As far as a home, I’d like one for a place to live. Its appreciation would serve me if I sold it. Outside of that, it seems that people like equity because it is a way to incur more debt, and pay more interest.

By: Carnival of Personal Finance #89: Quick Picks → We’re In Debt

Carnival of Personal Finance #89: Quick Picks → We’re In Debt — Sat, 03 Mar 2007 02:40:42 +0000

[...] Commentary argues against a life without debt. This goes towards the whole good debt versus bad debt [...]

By: Kevin

Kevin — Mon, 26 Feb 2007 22:23:13 +0000

Looks like we had the same idea!
http://www.kmull.com/2007/02/26/the-same-idea/

By: tinyhands

tinyhands — Fri, 23 Feb 2007 14:56:19 +0000

I stand corrected. I have never never worked for a company that offered a HSA (only FSA) so I was unfamiliar with the difference.

However I still contend that unless an individual has substantial (qualified) health-care costs, a HSA will not provide material tax-avoidance, merely tax-deferral.

We have strayed from the original subject though.

By: MossySF

MossySF — Thu, 22 Feb 2007 23:42:24 +0000

You are wrong. HSAs are not use-it-or-lose-it — FSAs are. Any unused HSA money rolls over next year. Upon age 65, it then becomes an IRA plus where you can use the money for any reason by paying income tax. Qualified medical continues to be tax-free.

By: tinyhands

tinyhands — Thu, 22 Feb 2007 18:41:16 +0000

Mossy-
Unless you know with some certainty what your qualified medical expenses are going to be, the use-it-or-lose-it aspect of many HSA plans is unattractive. (For those fortunate enough not to be familiar, this means that any unspent pre-tax dollars are forfeited, NOT returned to you and/or taxed. And yes, this stipulation is common in HSAs.)

For the small (I sincerely hope) percentage of persons with considerable health-care costs, HSAs are useful beyond their basic premise. For the rest of us, I don’t believe the materiality of a few hundred dollars warrants calling this a ‘tax-avoidance investment strategy’. Not long-term anyway, and not for retirement savings.

By: Golbguru

Golbguru — Thu, 22 Feb 2007 09:43:46 +0000

I am not falling for the debt free argument. Fine, I could buy a house with cash in the next 10 years if I save enough. What about the rent I will pay for the next 10 years? What if it’s in the best interest of your family to own a house *now*?

A good example is a student loan. You need it for your college education. Now, you may wait for 5~6 years and generate enough cash to fund your education without loans. One doen’t need the math in this case to realize that 5~6 precious and productive years would be wasted.

Forget about mathematics, there are things that need to be done at the right time. Look at debt as an instrument that helps you do just that. Of course, there is a charge… but don’t all conveniences have some charge associated with them.

It’s like a gun. You could probably use it wisely for your protection or shoot yourself in the foot. :)

Flexo, sorry about the extra-long comment.

By: Alias

Alias — Wed, 21 Feb 2007 18:13:59 +0000

ntguru – you are making 2 very common mistakes in your logic.
1 – you are not including the risk you take when you borrow money (yes it is real and part of a formula).
2 – you don’t include the taxes you pay on the invested money growth.

When you combine those 2 factors you don’t actually make any money using your method and you take on more risk.

Bottom line is…pay off your mortgage as quickly as you can.

By: Callie

Callie — Wed, 21 Feb 2007 06:42:36 +0000

It’s very true about lenders and no debt. You may as well be back at square one with no purchases on your record. You can’t win the debt game because it’s not designed to be won, just try to play wisely without digging a large hole.

By: MossySF

MossySF — Wed, 21 Feb 2007 03:28:52 +0000

There is one pre-tax vehicle that will produce tax-free income — a HSA when used for qualified medical expenses.

If you have the discipline, you can aggressively invest the difference between buy/rent and in less years than a typical mortgage, have enough money to buy a house in cash. So for the rare few who can pull it off, no credit will not hamper them.

By: tinyhands

tinyhands — Tue, 20 Feb 2007 22:28:15 +0000

NCN-
Which pre-tax retirement investment generates tax-free income? Every pre-tax retirement account I’ve ever heard of is merely tax-deferred, and unless you’re self-employed, the average person cannot contribute enough to significantly impact his overall tax liability.

By: ntguru

ntguru — Tue, 20 Feb 2007 20:12:15 +0000

NCN, your comment about paying 100% to save 30% does make sense, but only if you do not already have a mortgage. I think the point is that if you already have a mortgage like the couple in the example, it often makes more financial sense to NOT pay down the mortgage faster. If you locked in a 5 or 5.25% mortgage rate and your marginal tax rate is 25%, your effective mortgage interest rate is about 3.5-4%. Instead of paying an extra $x a month toward that effective 3.5% loan, you would be better off putting that $x in a money market account making 5%, or into stocks which over time are 8%+.

The other major advantage of putting the $x into something like a money market account is liquidity. It’s easy to use in an emergency.

By: NCN

NCN — Tue, 20 Feb 2007 16:47:14 +0000

So, it makes sense to borrow money and PAY INTEREST so that I can get a TAX DEDUCTION? No way. While I’m thankful for the tax deduction, justifying the PAYING of interest b/c of a tax deduction is crazy. How about this? Instead of a tax deduction, invest in pre-tax retirement and have tax-free income. You don’t have a “tax deduction” but you have a smaller amount of income which is taxed. Being debt free is awesome, by the way, whether the mathematicians agree, or not!
NCN

By: tinyhands

tinyhands — Tue, 20 Feb 2007 16:39:37 +0000

Spot on. Since “debt-free” isn’t necessarily ideal, we need a new term or catch-phrase to describe “thriving with intelligent and manageable debts”. My specialty was finance, so I’ll leave it to the marketing folks. ;)