we dont believe in debt

May 4th, 2009

We Don’t Believe In Debt

I was having a conversation with a friend the other day, and he was talking about car payments.  Specifically, how he had told his son that having a car payment is just part of life – just expect to always have one and then you’d be prepared for it no matter what.

Without even thinking, I said “I used to feel that way too, but now we don’t intend to ever again have a car payment.”   When he asked why, I thought about it for a moment, and all I could come up with was “We don’t believe in debt.”

And basically, that is the truth.  Debt used to be a very basic part of my life.  It was not just a tool I could use to live beyond our immediate needs, it was practically a lifestyle choice.  The amount of money people (people meaning banks, credit cards, etc) would lend me to finance my future was a very real consideration in all the choices I made in the here and now.

But through this debt reduction and ultimately elimination journey, at some point I made a very real, concrete change in my brain.  Although I am not strictly anti-debt, I don’t believe in debt any more as a fundamental part of my life.  I don’t put my faith in the financing of others to create the life that I want to live.

Understanding that debt didn’t actually have to be a part of life has been both a fundamental and incredible realization to make.   And although I didn’t realize I was making that shift when it was happening, it is a very real and important and integral part of how I view money and our lives now.  We may still have debt, but we don’t necessarily have to take on more.  We can make choices that minimize our potential exposure to debt.  And hopefully someday, we’ll be in a position where debt as a whole becomes a choice and not a necessity.

This is not to say I think all debt is bad, and that I am 100% anti-debt.  But debt is now seen in our lives as something we can consider carefully and make a choice about its usefulness, instead of a necessary part of our existence.  And that has made all the difference.

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17 Responses to “We Don’t Believe In Debt”

  1. Debt by itself isn’t a bad thing but not being able to manage your debts is where the trouble starts. I am still paying for my car with bi-weekly payments but when it comes time to get another car I will do everything I can to remove the need for a car payment. All that extra money in interest over a 5 year loan is enough to take a nice vacation.

    I too have been shifting my viewpoint to not relying on debt for my life. When I get out of debt then I’ll be more inclined to say I don’t believe in debt like you but its definitely something to strive for. I’m sure I will always have good debt but the goal will be to minimize and expunge any bad debt as soon as it appears.

  2. Not using debt takes discipline, and you certainly have it. The easy thing to do is just reach for a credit card. To paraphrase Robert Kiyosaki, things that are easy now end up being harder later on, and vice versa. Not getting into debt in the first place is easier than getting out of debt after the fact. I like your approach.

  3. I would have thought you’d say you’re sick of paying for things twice! The purchase price for most things far exceeds their actual value (how else would the retailers them make money?). To pay interest on top of that is just madness! Besides, rich people don’t have to rely on others for money. When I don’t have debt, I feel rich. Who doesn’t want to feel rich?

  4. I used to be that person as well. As I used to think that a mortgage, a car loan, and college loan was a just a given – an unavoidable aspect of life for the majority of us. My viewpoint on this didn’t change until I decided to pay off my credit cards a couple of years ago. It finally sunk in then. All debt threatens prosperity – it doesn’t matter if its a mortgage or a racked up credit card. Sure, some of them may be worse than others, but all debt has the potential to harm and enslave you.

    With that being said…

    Yes – debt is dangerous, but so is driving to work everyday. It’s almost impossible to rid your life of any and all risk. Debt, like anything else that can harm you, needs to be approached with an appropriate level of caution. I’m sure that I will take out another auto loan someday in the future, but I won’t do it without carefully weighing my options first and limiting my exposure.

  5. I have a different take on this too, I have never understood the concept of “good” debt. I just want to pay off everything, house, cars, student loans etc. so that I don’t have to pay out as much moeny each month. Then if something happens and I lose my job, I won’t lose everything I have worked for. I have saved up 10 months of living expenses and now I just want to get debt free except for the mortgage. Then I want to pay off the mortgage early, I don’t care about the “tax deduction.”

  6. My transformation has gone one step further. I went from debt is necessary to debt is evil to finally debt is a great tool. Following that progression I originally financed cars. Then I started paying for them in cash. Now, even though I can afford to pay cash, I’m open to the idea of financing them anyway, if I can get a low enough rate (thanks to my excellent credit score) and can find alternative investments that return a higher after tax rate. If I can’t meet that criteria, I pay cash. But often the opportunity to earn more with my money than I’m paying in interest presents itself. There can be an opportunity cost to paying cash.

  7. Before I started my blog, I would have never thought of buying a car without a car loan. I also don’t think I would be buying a condo while in grad school…it’s weird how things shift.

  8. Funny – I just met a neighbor who moved in a few weeks back. “Are you settling in?” I asked. She replied, “Oh yeah, just waiting for our new living room set to arrive.”

    “Good for you! It took us forever to get things unpacked,” I replied, truly impressed. Seriously – we’ve been trying to choose a sofa for two years.

    “I just put it all on the credit card – figure we’ll worry about it later,” she said.

    You could have knocked me over with a feather. And all of a sudden our house with the futon-left-over-from-college in the family room? It looked just fine to me.

  9. The only debt I think one cannot avoid these days is, unfortunately, paying for college, and medical catastrophes. You don’t have to have a car loan (just get a clunker), you can rent, you can live on peanut butter and jelly, but I can’t imagine anyone being able to get through school without borrowing money–unless your parents are really well off– and medical expenses can add up in seconds. Assuming any other debt is a personal choice, not a necessity. We live in a strange world where folks would assume it IS necessary to live with all this debt, just as it’s ironic that you’re considered a bad credit risk if you haven’t generated debt (i.e., your FICO score). Crazy.

  10. Very, very well put. Bravo!

  11. The problem is, as Jay suggests in remarking on the cost of higher education, most young people starting out have no choice but to rack up debt. At the very outset, it’s mighty hard to get a college education without going into hock. You might be able to get an employer to underwrite the cost of a master’s degree, but unless you’re parents are paying for your undergraduate work, you’re pretty much on your own at the B.A. level.

    The cost of housing is outrageous. Even at “deflated” rates (where I live, housing prices have allegedly dropped 50%), buying a house will put you in debt slavery for the rest of your life. The cost of a car that’s reasonably safe to drive is as much as I paid for my first house; a junker is likely to be unsafe and guaranteed to rack up staggering repair bills. When it’s considered reasonable to devote half your net income to the roof over your head (before utilities and maintenance!), it’s not surprising that most people regard debt as inevitable, right up there with death and taxes.

  12. I think a regular car payment–to yourself– is a good idea (especially in a multicar household) unless you have a truly massive emergency fund. After we finished paying off the loan on my Honda Pilot last year, I continued to put the $600 payment we had been making into a “new car” ING sub-account. I figured that by the time we were ready to replace our aging 1999 Saab, that we’d at the very least have a hefty down payment. Life happens, and the Saab was totaled three weeks ago. Between the insurance payout for the old car, what was collected in the new car fund, and some money I had been waffling about investing, we paid for a new 2008 Subaru Legacy with cash (last year’s model, so we got a good deal). I’m still going to deposit a “car payment” every month, though. With luck, we’ll have enough to buy another car outright by the time my Honda needs to be retired. I’m pretty sure that if I hadn’t specifically set aside the money for a new car, that I wouldn’t have managed to save nearly as much in just regular savings. So I’m planning on making “car payments” for the rest of my life, but it’s a hell of a lot better to pay myself upfront, collect interest on the balance and also avoid the interest I would have spent by borrowing. As a bonus, paying with cash cuts the time you spend at the dealership to a fraction of what it is when you finance!

  13. I’m following the “car payment to yourself” rule as well. I’m continuing my car payment into a separate account, so that the next one can be paid for outright or at least be paid down significantly. My new car loan rule is “no more than 200.00 a month. No longer than 3 years”. We’ll see how that goes though. New Car Smell is my financial Achilles heel. I always have an easy time justifying my stupidity to myself as well – I drive almost 80 miles a day and I am anything but an auto-mechanic. Driving and maintaining a beater probably isn’t in the cards for me.

  14. Very nice! I would have loved to see your friends expression or hear his/her internal dialogues on this topic over the next couple of days.

    Hopefully you planted the seeds for a new convert.

    Dave

  15. Beaters can last long and even with repairs come cheaper than a new car

    Had an old chevy caprice 1990 2-3 years ago paod 1100 for it sold it 1000 a year after put about 100 bucks in it ( a shock and battery here it s cold in canada ), a dude hit the front fender of it when not doing a stop … it was only a little puck

    the worst i had to put in a car in maintenance and loss of value vas about 1200 buck … old hondas or toyotas are lasting very long and dont cost that much to maintain

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