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May 21, 2010


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"Borrow only for things that go up in value." - I think this is reasonable - any investment involves risk, but if you're comfortable with and aware of the risk and the return - borrow the money

This is nothing new, everyones knows that debt can bar you from life options.

I am happy that I am consumer debt free. Not sure if we will sell the house yet. I can say that being without credit card and car debt makes it better to plan vacations, dining out and celebrations.

On this blog, Seth Godin is preaching to the choir.
Everything he says is right of course but well educated, sensible, and mature adults usually figure these things out for themselves.
I have always had two mottos:
"Don't Lose Money" and
"Understand the Power of Compounding".

If you understand the second one then you learned years ago that compounding debt is great for the lender and that compounding savings is great for the saver. When I was a small boy in England and used to visit my grandparents every week for Sunday dinner I can still hear my grandfather lecturing his large family, "Don't buy things on the Never, Never! Wait until you have saved up the money! His generation seems a lot wiser in this regard compared with today's younger generation which I call "the Want All Right Now generation".
I saw a personalized license plate a few years ago on a new BMW that read WANT ALL.

In the spirit of this topic I love my credit cards. The card companies are giving me 2% cash rewards to borrow money which I pay off the day before it's due. Of course, it's the merchants that supply the 2% which is built into the prices they charge everyone.

I haven't paid a penny in interest since I closed my student loans in the 1990s.

That said, I don't have a mortgage. I'd take on debt for that (or to buy assets for a rock solid business plan, and that's very unlikely to be something I'll find!) but I'd never consume through debt.

You're paying for it twice, and making yourself poor if you do. It's a no brainer once the lightbulb goes on.

I saw earlier this week on MSNBC's site that the banks are taking advantage of a "minimum payment loophole" in the CARD act, so they can continue to put cardholders' payments towards the low interest balances first.

Basically, only the money *above* the minimum payment needs to be applied directly to higher interest balances, so they're still doing their best to keep people in debt longer. Further motivation to get out of consumer debt ASAP and stay out!

I don't think Seth hit on anything new since almost every pf blog I know sings the praises of a debt free lifestyle and the importance of compounding interest. Woot for compound interest for savings and not-woot for compund interest for debt, lol.

I am in complete agreement with what is stead here; as I suspect every regular read here is as well. Sometimes, though, debt is unavoidable. few can save up to pay for a house, or medium size family car, or an unepectable medical bill cost and probably a few other things as well ar relates to raising a family.

I know this is obvious but I felt like saying it anyway.
> ;-}

This is an interesting post because it made me think how much I would love reading more about your thoughts on Seth Godin's post and on marketing in general. I know it's not related to personal finance really but it's an interesting field to me nonetheless.

Borrowing smartly is very important, yet I think its one of the key things that gets people in trouble. If you can pay cash for most things - or use a credit card that you pay off in full every month - you'll be much better off.

Borrowing for a home is necessary for most people, but it needs to be manageable, within a reasonable budget, and not interfere with the concept that you need an income to expense gap in order to accumulate savings.

Borrowing for something that will have a good NPV makes sense - such as an education. Now, where you get your education is something that again, one should assess the investment. Basically, if you borrow for something that will pay off in spades down the road, it can be an example of smart borrowing.

I like that blog by the way - I have heard much about it but haven't spent any time on it. Thanks for sharing the link.

Wow, thankfully I'm not like "most people". There is no way my interest payments have EVER been in the "hundreds of thousands of dollars". I doubt the interest I've paid over my lifetime has even gotten near the "tens of thousands" of dollars. Of course, the downside to this is that I earn way less than most people too. But the upside is that earning very little keeps my lifestyle in check.

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