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Two ways to express debt -



1. Balance sheet type debt, assets minus liabilities = X If X is a negative number then you are in debt, if positive, you are not in debt. In this method, you may owe 100K on your house, but if it is worth (in the open market) 100K, you are debt free.



2. What you owe only, not offset by assets.



Seems to be a mix of these methods being discussed here.



I used method 1 to make my determination.
 

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Another interesting bit of data would be trends. Increasing debt or decreasing debt.



5 years ago my family owed 5 times what we do today. All we owe now is a small mortgage (while putting 2 kids through college!). Back then we had about $100,000 in credit card debt.



It is amazing the empowerment one feels when you reduce your debt.
 

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My house is the biggest bill I owe. If sold , I'd be home free so to speak. I was lucky early in Marrige , My wife ran up 2 credit cards, So finnally over the last 20 years their payed off. Now,We dont spend anymore than we have in the checking account. Were so used to that that we do ok. I should have sold right after Ivan. My house almost doubled in price but there was no place to move to.
 

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"Net Worth" is most important measure.. if your cars, boats, credit cards, etc. are all paid off.. and you have some income $$$.. you can afford a home mortgage of say 50% of home's value... for example $450,000 home (was over $600K at height of insanity in 2005) with a $180,000 mortgage... $100,000 total cars, boats, paid for... with a 401 K of $800 K means your net worth is still a milllion$$$ after economic meltdown last 3 years... I fell better already watching too much TV.. work & save before you BUY is the messsage :usaflag
 

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angus_cow_doctor (11/21/2009)I have to chime in on this home ownership thing. I just can't help myself on this one.



I agree, home ownership is crucial to longterm success and wealth building. However, you need a MINIMUM of 20% down, and preferably no more than a 15 year mortgage.



I "owned" a house for 3 years. I did it all wrong. 100% financed, 2 mortgages. Good rates, though! Yup! Me and the BANK owned that house.....



After paying the mortgage on a 200k house for 3 years, I had spent 36k in payments, and had accumulated only 2k in equity. That 34 k difference was just as much "up a rat hole" as rent would have been. Some people will say it is "good debt" because you can deduct it on taxes, but my experience has been that the standard deduction is almost always more than if you were to itemize mortgage interest.



For the record, I plan to buy my next house with cash, or else have a huge down payment and pay off the rest shortly thereafter.



And yes, I am renting. It is cheaper than owning, until I can afford to own........... again...




I agree with this to a certain extent. Except a fixer upper. I went 100% on a fixer upper and dropped the 20% on materials. After all was said and done I was well over 50% equity. Even in the housing slump I would come out WAAAAY ahead on this deal. But, you are 100% correct on a fully restored or new home for sure.
 

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Interesting thread.

I'm a big Dave Ramsey fan, and his financial management philosophy.

We just purchased our home, so we have 220k there. 1 car payment, total note is about 70% paid for in the 1st year. We have managed to rack up a little bit of a credit card balance. I went unemployed for about 2-3 months, sothe credit cards got a litte exercise, but we should have that under control by the end of the year, the car should be done by February, March time frame, then work on the house.

I am still working on a larger "emergency fund" currently I have about 2-3 months. I'm thinking pay off the Ccredit cards fast, and now, then go back to building the emergancy fund. Still not well enought money wise to afford a larger purchase in cash. Might have to finance that boat purchase in the spring !!

If memory serves, Dave Ramsey has a different point of view whenin it comes to revolving credit ( include car notes in this category ) as opposed to real estate loans.

Also a good book to read would be " The Millionaire Next Door ". It's a book that profiles the spending and savings habits of 1st Generation, self made millionaires, thier net worth, how they live their lives, and how they spend their money.....a very interesting read !!
 

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Personally I cant see why anyone growing financially will drop off into a 200K note. If so make it 40 years at 4%. You can always pay more! If you set it for 15 yr and 5% then you have to make the Higher payment no matter what.

No toys. no boats, new cars EVER, new rifles... if you do decide this, take those figures of the 600 bucks for a new Browning and work in some time value money figures.... the gun aint worth 30K in a few years, based on this!

Just remember, you dont need to own anything... PERIOD... You just need control. If you can control something for several hundred bucks each year and play with it, live in it, or drive it then why would you want to be LIABLE for anything larger to own it? Think about this! I cancontrol a house for $10000 a year to live in, or I can own it, taxes and insurance, liability of the grounds and all for $12000 a year..... Now what you need to look at here is.. is this an investment? Well it depends what you are doin with it... First ofall you should never get obligated unless the property creates cash flow. If it doesnt then you need to figure this out fast casue negative cash flow results in no future growth and future values of Negative cash flow isdetrimental to your portfolio.I was taught if it doesnt create cash flow you dont need it!

If you want a boat, or a truck then create a cash flow to support your habbits. Take 100 bucks and go buy a home to rent.... "O really, you cant do that"Ill show ya over 10 I bought this way and one for 20 bucks! Still rents! took me 6 years to pay it off but I gained control for 20 bucks and took over payments. Rent is 450. Its not a Stonebrook 4800 sq ft mansion but its 450 a month! I can promise ya my cash flow is greater than those homes are (homes purchased retail).

Credit cards...... Ewwww.... Took me 10 years to pay mine off.... yeah I was foolish once.. lets say it had to do with College spending! LOL BUT.. I paid every penny no settlements or discounts. I caused it I learned. If you cant pay the balance each month then you cant afford a credit card! Keeping this under control is the key.

I had an aunt and uncle who had 15 different cards, had over 66K in debt and they were calling and driving them crazy so they called me for help.... They owned their home free and clear. I contacted each creditor and since they were in no shape for credit, I worked on discounts for them to pay off their headaches... GET THIS..... For $24,000.00 I paid off 15 cards, and 66K in debt..... Can you imagine how much an Attorney would have cost them for this process! I have an investor who loaned them the money for the home as collatteral ("In God we Trust, Everyone else furnishes Collateral!") the nightmares from creditors ENDED and although their credit sucked it didnt matter they lived on the cards anyways. So for 300 bucks a month now thats their liability.... from over 2grand a month in bills to 300...... Sometimes its a good decision. Plus they had a tool to use for collateral. Been a dream for them! They enjoy life now.

That is the same thing as debt consolidators do. BUT... The settle the balances for 1000 and tell you 2000 and then make the spread when they set you up on the personal notes. Its good for you but it makes them very rich long term!

Prestige rentals

$200K rented for $1800 a month

Homeowner fees, taxes out the yingyang, insurance from hell..... cash flow.... NEGATIVE

$18K rented for $450-600 a month

Taxes and insurance.... cash flow POSITIVE normally 20-25% returns!

BUT........ A lot fo work! So you have to decide which is better for you.... are you working now... then the work isnt a problem. Yes its not a prestigous property but it makes more money even though your dealing with bigger numbers. Equity.... Cant eat that! You always make the deal when you buy.... buy wrong and you cant make enough money!

Its all numbers at the end.Todays market requires a little change. Today cash is King...You can buy the 200K homes for 50 cents on the dollar and equity will someday pay off. Might even be cash flow by the end of the year. Those might bereal good for you when the market is sucking and "kicking the tires" is part of your portfolio... so pulling out cash before its gone and reinvesting it inReal Estate might be the betteroption.. at least you have control of your money!

CONTROL!!! Man I rambled all over... maybe some will help you though!

Steve
 

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Discussion Starter #28
still seems to be spikes in the 30k, 150k, and debt free sections. I guess that would make sense. Those numbers likely represent:

$0 debt, speaks for itself

30k debt, small loans and cc debt?

150k debt, likely mortgage debt?
 

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The 15 year mortgage is definately the way to go. Financed my house for 15 years when it was built, plus paid extra each month. Paid it off in 9 years and saved nearly $100k in interest.
 

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Always remember its also the Cheapest money you will ever borrow. Your home is the best way to borrow cheap.

I agree on the 15 yr Mtg if you can afford it! If you bank on the next 15 years your gonna pay around 2xs the 30 Yr mtg prices, if you have a hiccup its gonna be bad! I will always suggest to others to run it on 30 yrs and pay the 15 yr amortized price each month. Then your not LOCKED in on that big payment and can take a break of need from the high price!

I like playin with money!
 

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Discussion Starter #33
Come on guys! just 9 more votes, and it will be a true % based set of numbers!

I am proud to see so many with no debt. Way to go!!
 

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Angus,



As a statistician by education, I have thought about your poll and would make the following hypothesis:



More Debt = 30-55 years old



More Debt = Family with wife and kids



More Debt = Higher Income when the debt was assumed



It would be interesting to see 4 year trends. Who's debt is lower or higher as a percentage of earnings. Today Debt to Assets is of little consideration. Debt to income is all that matters.



My best friend just changed carrers away from the mortgage business. It is very difficult to get loans approved for anyone today. Who believes they can qualify to borrow today.
 

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Dept free except......I wanted to build another boat.



I Needed / wanted a New Toy. :)



So I signed for a signature loan. When this boat is finished I will sell the inshore boat that I'm using now. The debt will be almost paid off with that.



House, Truck,Car,Tools,Shop, 2 boats paid for.



The 401 account doesn't look all that great, but whose does?
 

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I'm a Dave Ramsey guy, but I have some personal thoughts anyway...

Try to earn a good income, regardless of anything else. Work hard for a good firm and have the courage to change if it is needed. Don't buy a house that is more than you can afford. 25% of your net pay is plenty for a house payment, or just do something other than owning-renting has its advantages. Save some cash- you can't have too much. This fund should be separate from your 401K. If you do borrow money limit it to big ticket items like boats, cars, and houses. You have to strike a balance and find a comfortable place for yourself.
 
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