S/O How to be comfortable with debt

[Anonymous]

Anonymous wrote:OP, I don't know what to tell you except that you are right and your friends are wrong. Is that what you wanted to hear? Well it's true.
Take a fancy vacation when you can afford one.

The OP was just giving herself a back handed compliment, but I think you knew that already.

[Anonymous]

OP, you are doing the right things and your friends are stupid!

Its not always fun to wear cardigans from Target, but remember the tortoise and the hare story.

[Anonymous]

Anonymous wrote:You shouldn't be comfortable with debt. I was raised and still firmly believe that you only borrow for three things -- a house, an education, and a car. I don't even do the car thing, and I hope to have enough saved up for my son that we won't have to borrow for that.

If you can't pay for the fancy vacation, don't take it. If you don't have enough to pay for a fancy vacation, it also means you don't have enough in savings either.

OP here. I have plenty in saving to take the fancy vacations, but I won't touch it. Savings is kind of "out of sight, out of mind" for me. It is there for emergencies, not a trip to the beach.

[Anonymous]

OP it sounds like what you are really looking for is some support in judging your friends for their behavior.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You shouldn't be comfortable with debt. I was raised and still firmly believe that you only borrow for three things -- a house, an education, and a car. I don't even do the car thing, and I hope to have enough saved up for my son that we won't have to borrow for that.

If you can't pay for the fancy vacation, don't take it. If you don't have enough to pay for a fancy vacation, it also means you don't have enough in savings either.

OP here. I have plenty in saving to take the fancy vacations, but I won't touch it. Savings is kind of "out of sight, out of mind" for me. It is there for emergencies, not a trip to the beach.

OP, it is really not that hard. The basics are:

*Do not take on debt other than mortgage debt or possibly student debt and car debt.
*Keep an emergency liquid savings fund of at least 3-6 mos of living expenses.
*Create a separate, non-emergency savings account for other uses, e.g. vacations, home renovations, big-ticket items.

When that second savings fund has enough money in it for you to go on vacation, then go. Put your expenses on a credit card that will give you money back, frequent flyer points, or perks of some kind, and pay it off 100% from the savings fund when the bill arrives.

Living debt-free is important (and liberating). Having an emergency fund is prudent and necessary. Vacations and occasional splurges are important too.

[Anonymous]

Anonymous wrote:

Anonymous wrote:From the CC thread it appear some of you have no problem with some debt following you. I grew up with a father who severely mismanaged money, making me obsessive about it. I'm very careful to pay off balances, don't take out loans, etc because I don't want to be like him. I even paid off my student loan before it came due for this reason. I use my credit card for everything for the rewards, but it is paid off completely each month. I'd love to just book a vacation on a card and worry about paying it off later. How it is now, I can't even handle something small like $100 hovering on the card.

How can I get comfortable with a modest amount of debt following me around?

Unless you are talking about a mortgage loan, I don't know why you would want to get comfortable with debt. You are right to be uncomfortable with it.

+1000 My dad, too, was horrible with money. I started working at 13 and foolishly gave him $1000 because he said he would invest it for me for college. He LOST it. As a result, I am like you. We have a house and a high HHI, but we're in a good position because we are not spenders. My dad filed bankruptcy last year. This is 10 years after one of his wives took all of his money. I mean can you see the path that never changes? Consider it a blessing that you got to witness a train wreck so that you aren't one yourself.

[Anonymous]

Anonymous wrote:I don't think paying off debt on time is something you have to practice forgetting about. Rather, it's do you have any money set aside for paying it off? do you have an emergency fund?

It's ok to use credit cards, in general, as long as you are paying them in full each month, or else you are managing your money incorrectly. If you are worried about paying them even before the bill comes, then what is driving that? That I would say is irrational.

+1 on paying CC's before the bill comes due being irrational. You're being given a interest-free loan for a few weeks, plus all your spending is right there.

I also pay for vacations via the CC but then either transfer money out of savings or just pay for it as the normal course of business.

[Anonymous]

I do that, we probably have 20K in debt right now. However all of it is on no-interest cards. We keep it there until it is close to the interest free card offer expiring. We have savings, so we can pay it off with one stroke of a check. I'd rather have CC debt and significant savings if one of us were to get laid off, that is why we run the cards as long as we can on the 0%. We have done this for years and luckily we have never had to face a lay off.

Or, and here's a radical notion, you could get rid of the debt and not accumulate any more of it. I know, crazy. That fact that you think you are somehow financially prudent by floating $20k between no-interest cards is a testimony to the power of self-delusion. You are not a good money manager. You are, in fact, a bad money manager. Don't touch your savings, since that seems important to you, but pay off the debt through earnings, and live within your means. Then, if one of you suffers a layoff, you'll have the savings AND be debt-free. Isn't that preferable?

[Anonymous]

OP, you are right and your friends are wrong. I am the way you are too, but it was only from learning the wrong way in my early 20s, and I had to go thru a lot of financial pain and austerity to get myself back on track. Keep on doing what you are doing and all will be fine!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP, I'm the same way and my parents also grossly mismanage their money. I don't think I could ever be comfortable with debt, but I would love to not have these anxieties over money. Is this more about your anxiety or more about actually wanting consumer debt?

OP here. Anxiety is more of the issue. My friends book $3,000 vacations on their cards on a whim or go spend $1000 at the mall like it's nothing and I know from conversations with them that many of them are in the $10-15k range for their CC debt. I just need the anxiety of having anything on my cards to not be there. I don't pay things early like someone mentioned, I just have it all automated so on the 11th of the month the card is automatically paid off. I do have an emergency fund and everything I need. I just wish I could do the extras without the panic setting in.

I do that, we probably have 20K in debt right now. However all of it is on no-interest cards. We keep it there until it is close to the interest free card offer expiring. We have savings, so we can pay it off with one stroke of a check. I'd rather have CC debt and significant savings if one of us were to get laid off, that is why we run the cards as long as we can on the 0%. We have done this for years and luckily we have never had to face a lay off.

Yeah but what if you do face a lay off? Then you're going to be living off your savings and staring down a 20k credit card bill.

[Anonymous]

Anonymous wrote:

I do that, we probably have 20K in debt right now. However all of it is on no-interest cards. We keep it there until it is close to the interest free card offer expiring. We have savings, so we can pay it off with one stroke of a check. I'd rather have CC debt and significant savings if one of us were to get laid off, that is why we run the cards as long as we can on the 0%. We have done this for years and luckily we have never had to face a lay off.

Or, and here's a radical notion, you could get rid of the debt and not accumulate any more of it. I know, crazy. That fact that you think you are somehow financially prudent by floating $20k between no-interest cards is a testimony to the power of self-delusion. You are not a good money manager. You are, in fact, a bad money manager. Don't touch your savings, since that seems important to you, but pay off the debt through earnings, and live within your means. Then, if one of you suffers a layoff, you'll have the savings AND be debt-free. Isn't that preferable?

How much savings must I have? We already have 50K in cash and at least another 340K in stocks...this excludes 401K and college savings. We never keep more than 50K in cash and just keep moving the excess into stocks. In all honesty, we could probably live 3 years very comfortably unemployed by cashing out the stocks. 20-30K in interest free debt is a drop in the bucket. Furthermore, our CASH and stocks actually make money, so in our case the interest free debt is financially prudent. On stocks alone we have been averaging 10% over the last 2 years.

[Anonymous]

You're contradicting yourself - in your first post, you said, "I'd rather have CC debt and significant savings if one of us were to get laid off" - so you couldn't pay off the $20k in card debt. Now that same $20k "is a drop in the bucket." Which is it?

If you have sufficient savings to live comfortably for 2-3 years, there is just no reason to maintain consumer debt. It's not fine wine, it doesn't get better with age.

[Anonymous]

CC debt is a bad idea generally. But the reality is large purchases sometimes need to be financed. A line of credit is generally better. Secured line can mean an interest rate of prime plus or minus one. Anyone who claims that a reasonable amount of such debt at 3-4% interest, e.g. $300-400 year per 10k in borrowing is being financially prudish. The "right" amount of course will depend on your individual financial situation.

[Anonymous]

I'm comfortable with some mortgage debt and student loan debt, because they paid for appreciating assets. (my house is worth more than when I paid for it, and my education helped me get a job with yearly raises.)

I'm uncomfortable carrying much consumer debt, so I don't. That said, my spending isn't always a steady stream - occasionally I make a bigger purchase and spread the cost over a couple of months. (plane tickets, an unexpected car repair, a new computer when mine died an early death.) I would rather just put it on the card and pay it off the next month than liquidate a fund or CD to pay cash for something I need today. (can't telework without that $750 laptop; can't get the cheap xmas flights unless i buy the ticket early.)

[Anonymous]

for an earlier poster, if you get laid off, you could pay the minimum on your credit cards for a few months, but you probably couldn't pay your rent or mortgage with a credit card. i can see why some folks might keep a few thousand in cash while carrying a credit balance.