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August 23, 2011


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Do not get into debt,I know it sounds easy. I read a book about 40 years ago "Life Without Debt". We just do not need most of the stuff we have,we do not need to borrow to go to college(take an extra yaer,work a PT job,go to a cheaper school),nO new cars,buy a house you can afford,No credit card debt.

I firmly believe that because my wife and I had gotten out of debt a few years before I was laid off, we were able to survive my six months out of work in 2008 we bought a house and paid cash for two cars. And it is not like I am rich or anything. At the time we were making about 145K.

I have since put my daughter through a bachelor's degree and a master's degree for me without going into debt. I am very fortunate that I have been able to find work since I was laid off and am now employed full-time for a good company. And I am saving while it lasts.

I can say a lot about these but am choosing to only respond to the over 40 year old without savings, investments, etc. Not every over 40 year old has the same opportunity to save and invest. Again, it is based on income, choice of field, etc. When you make a certain salary, it is a lot easier to save, invest, etc. When you don't it's not as easy as it sounds and everyone that does not have savings is not due to irresponsibility. Stuff happens (i.e. divorce, single-moms, medical probleems, etc.). A sad and desperate state of affairs, indeed.

>•The less debt you have, the better. The less debt you have the safer/more >protected you are no matter what happens (like a job loss.)

I think you have to balance what you are going in debt for with the amount and the interest rate of the loan. Taking on a reasonable amount of debt at a reasonable rate for something that should improve your future income makes sense. However, it is a real risk. If you don't get the expected income- or get laid off you have a larger burden because of the debt.
There are positives to debt- it can allow you to do something you couldn’t otherwise do. I had to take out a few thousand in college loans, they were at a low interest rate and I was able to repay them quickly with relatively little pain. It certainly was less painful than other alternatives- like working over 20 hrs/week while I was a student.
Debt can magnify your investment returns- by borrowing in order to have more money to invest. It’s great when your investments go up, but this strategy will also magnify losses so it is riskier.
Debt is a hedge against inflation- you get to buy something today and repay it with less valuable dollars in the future. Say you had the cash to buy your house today. You might take a loan and invest the cash in something very safe like a CD ladder. Since today’s interest rates are historically low, it seems likely that in the next 15-30 years a CD will earn more in interest than a fixed mortgage costs today. This would be especially true if we see a lot of inflation like in the 80’es.

-Rick Francis

I definitely agree that for most people, less debt = more security. I just don't think the majority of people are knowledgable or disciplined enough to manage debt in a beneficial way. When my husband got laid off unexpectedly we were very thankful that we didn't have any debt other than our mortgage and student loans, and we could still afford those payments on my salary. It was a difficult time, but mostly self-imposed, because we essentially stopped all discretionary spending. It would have been so much worse if we had debt we could not pay.

That story about the father with the autistic son living in campgrounds and foreclosed houses is truly tragic. Some of the other stories, I have less sympathy for, though I suppose everyone comes from different circumstances.

Taking on debt to become a homeowner rather than a renter is a fabulous thing to do during an environment in which homes prices are escalating.
Just the opposite is true when home prices are falling.

Taking on debt to buy an automobile can be advantageous when you can borrow money at a lower rate that you confidently feel that you can make by investing your money.

Taking on debt by going on margin in the stockmarket 'to add to your holdings' is never a good thing to do.
However on a couple of occasions I have margined securities that I owned to obtain a short term loan to help my son close escrow on a real estate loan rather than lose the deal because the lender wasn't coming through in time.

Another type of debt that I have used successfully in the past is to take advantage of offers, particularly from furniture or appliance dealers, is an offer of "No interest if paid for in full in less than one year".

Back in the Jimmy Carter period when interest rates were very high indeed I found a situation where my company Credit Union was seriously lagging behind in raising their lending rates and would make me an unsecured loan at interest rates that were well below those being offered on CDs by banks and brokerages. Thus several colleagues and I each took out the largest loans they would give us and walked down the street to an office of Dean Witter and bought CDs paying much higher interest rates - that was an investment where we couldn't possibly lose.

It's definitely concerning that a few of these cases have huge student loan debts, ie. over $50K! I definitely feel for these people if they have no way of paying off their debts since they don't have a job. I really think there needs to be more financial education in high school and college to help people reduce the chances of making bad financial choices, including taking out excessive student loans with the idea they'll get a job right after graduation.

More financial education = better financial decisions = more freedom!

I'm a late bloomer in more ways than one and I just became completely debt-free at the beginning of this year; however, I rent an apartment, so I still have a ways to go to becoming completely self-sustaining. I am very grateful for my job, despite the downsides to it. I can usually take vacation time off relatively easily if it becomes too intense so I'm fortunate there as well. More than anything, count your blessings and keep your nose to the grindstone. (My late in life (age 49) undergraduate degree was paid for by my employer.)

I always look at these stories and realize how your financial picture can change suddenly, even though your choices made sense at the time.

I am taking some of the very same gambles that are written about in these "massive debt" stories - I went back to school, started a side-business, looking for employment in a tough job market...

I was lucky to have had a solid emergency fund, but can see how things can get really hairy if I complete the course and can't find a job after committing time and money to school.

I can truly empathize with those who were pretty conservative in their risk-taking, but did not take into account the cumulative effect if more than one thing goes wrong (for instance: the economy tanking, car breaks down, medical bills etc, all at the same time).

The current economic environment makes you really appreciate how precarious your financial situation may be, even if you were pretty conservative in your planning and choices.

Having just read the details of the 7 extreme debtors it seems the common thread has lots to do with the current financial and economic state that America finds itself in and a lot less to do with the decisions made by them during the last few years.

The job situation is of course the biggest problem but the roots of that problem go very deep and back to "Free Trade" agreements and the ease with which US companies were allowed to close down their factories and production lines, lay off workers, and instead, seamlessly go about importing the identical goods that American workers used to make from a whole variety of countries where the labor rate is a fraction of what it is here, and where expensive benefits are non existent.

Even if your job wasn't even in manufacturing you could be affected because the workers whose jobs disappeared overseas are no longer able to buy all the products that they used to regardless of where they are made which leads to store closures, a collapse of housing prices, and lower state and federal tax revenues.

Meanwhile automation and increased efficiency have reduced the number of workers required regardless of where they are located. I don't see a solution leading back to the "Good Old Days". There's talk of creating jobs repairing all manner of infrastructure throughout the country but with nearly all of the States facing budget shortfalls does that mean more Federal stimulus programs and more Federal debt - I hope not since the last $787B program only produced temporary benefits, not permanent jobs.

It would appear that there has been a major change where high unemployment numbers will be the norm for the forseeable future. If I were a young man today with an interest in Science, as I was in 1951, I would set my sights on a career in the Healthcare industry. The Defense and Aerospace industry was personally great from the post WWII period up to the end of the Cold War in 1991, but I see the Defense budget taking big hits in the future but an increasing demand in Healthcare because of our aging population and all of the recent advances and new discoveries. Providing that Medicare can be put on a solid financial path this is where there will be lots of good permanent jobs with initial requirements ranging from a Junior College degree up to the highest University graduate degree.

Doesn't anyone look at the return on investment of a college education anymore? Do people just go to college just for the sake of learning? That seems like a pretty extravagant luxury, if you ask me.

I know I started college 20 years ago but I was fully aware of what my chances of employment in my field at the end of 4 years were going to be (95%). The economy was in a recession when I was nearing graduation, so I took the chance to do a year long co-op in hopes of the economy recovering. It ended up working. Two years before I graduated only 20% had jobs upon graduation, but then after the actions I took delaying my graduation, the year I graduated it was back up in the 90s, plus I had relevant work experience. Have people lost all their pragmatic tendencies? I would never fork over $200,000 for an education without pretty good certainty it's in a field with a lot of demand and a decent starting salary. Having put myself through school, I was acutely aware of the economy in the early 90's and I planned accordingly.

Sorry, this is a hot button for me. I know people who are burdened with these types of student loans and are making $25K/year. How the heck can you ever get ahead with that kind of salary? A little basic math would have told you this before you even spent a penny on your education. At the very least you could have picked a cheaper school for part of it and then transferred.

Any people in debt because of housing problems? I think you missed this example.

A college degree is becoming the new high school diploma. You can make the argument that secretarial/ adminin assist jobs and the like don't require it. That may be true in a very small town, but anyplace where they have a choice, they generally prefer a college degree. Furthermore, there are less and less "blue collar" classes (shop, welding, cooking, etc.) available. For many, it's flipping burgers or taking on debt in order to make a living.

I worked for the state for 18 years and did lots of p/t (sometimes f/t) home health care at the same time, which boosted my SS payments. I put money in my 503b and have less than $100k in it, all in general savings. My first withdrawal after retire-ment was to pay off our used car loan. For the first time in our married life, we were debt free. Really felt great.

I have SS & 2 small retirements. However, I know people who live on just the amount of one of my retirements, small though it is. The 503b I use only for major expenses, usually fixing up my home. I withdraw the minimum only most years. My 503b should last me 20 years, unless I have any really major expenses.

I own my own home, have excellent insurance and am very frugal most of the time. I should last nicely til my homegoing day, but I still am trying to save. I see all the prices going up and know I must be prepared.

If you make 145,000 dollars a year you are rich very few people in this country make that amount of money

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