Getting out of Debt Advice

[JJHardy7]

Rent is just as good as owning if you invest the difference; the problem is that few people invest the difference

 

I think it depends on one's situation. The apartment we lived in before buying our house was about $100 less a month than the house we built including property tax, insurance, etc. I think in our situation it would not have been smart at all to continue renting, but again a lot depends on where you live and one's situation.

[FVBrewerFan]

So I just opened an awesome notice from one of our credit card companies. First, our situation:

 

$10k in CC debt, $30k available (over 3 cards)

Card A: $2,000/$7,000 (13% APR)

Card B: $3,000/$10,000 (0% till April)

Card C: $5,000/$12,000 (9 % APR)

$2k in savings, adding $600/month

paying $1500/month toward the CCs

 

Card C just sent us a notice that they are jacking our interest rate from 9% to 19%, because they're really nice people and know how to maintain a customer relationship (I've been with that bank for 16 years, and I'm 26). I do have the ability to opt out of the increase in APR, however that would mean closing the account.

 

We were planning on buying a home next summer. Should I opt out? By the time we'd be pursuing a mortgage, our balance on the cards should be 0. However, being our oldest card, it will have some impact on our credit score. I tried to find a good site to estimate the impact of closing the card, but have had no success finding info.

 

I would strongly, strongly encourage you to retire all credit card debt before you think about buying a home. Not only that, you should really build up an emergency fund and "house" fund for all the things you'll need to buy for your house that you haven't even thought of yet. Otherwise, you're going to move in the house and rack up big credit card balances all over again.

[valpocrewsader]

For new cars I advocate leasing, but for used cars (if you run them into the ground) I'll go along with buying (as long as someone else took out most of the depreciation).

Leasing is the single most expensive way to operate a vehicle. (http://www.edmunds.com/advice/buying/articles/47079/article.html) I don't think there's any scenario where it's a good idea. It's like advocating you rent-to-own a bunch of furniture and electronics you can't truly afford as a way of life. That's not a way to win financially.

[jjfanec]

I wasnt' trying to enter strawman area valpo but I tend to have a problem with the cult of personality that people like Ramsey and Orman develop. They don't say anything original or earth shattering, much of it is common sense, and readily available for free but they caution people on spending money on everyhting yet are trying to sell you something or recomending high cost investment options with unrealistic risk reward expectations set in people's minds. The key to any investment return is in the risk reward area and these gurus usually don't discuss it so people understand it or they miss represent it, while raking in cash by shilling their buddies investment advisory services that may or may not be any good, may charge higher fees than others, or pay a referral fee to Ramsey or whomever.

My work had us take classes from Dave Ramsey (i work for a non-profit) and I think you misrepresent his position, at least from the classes we took. He was not selling us on his investments, as much as selling us on the dangers of debt and spending above and beyond. His budgets have room for going out to eat, getting cable and taking vacations. But he is leery about spending money you do not have unless it is on something that increases in value over time like house and even that he encourages a large down payment if possible to save on interest in the long run. We talked through risk/reward investment and talked about how a lot of how much risk you should take was based on your stage of life (time to accumulate wealth), your desired amount to live on, and your comfort level with taking risks financially. He talked about having safer more "sure thing" investments, but for people who were able to he talked about risk.

 

Yes a lot of what he says is common sense, but after talking to many people his common sense about debt and spending could have saved a lot of people from the struggle they are in. Postponing having everything you want for a little while, so that you can be more free to have what you want in a few years is wise for a lot of people. Maybe you have talked to different people, but everyone (and I mean that) has used his principles to get out of debt has come out the other side very happy and in a very good place financially. Now there are probably stories of people who it did not work for, but it has worked for the many i have talked to.

 

And you said cult personalities like Ramsey do not say anything new, well neither do the financial people I have talked to who advocate different philosophies on spending, debt, saving, etc. It mostly all stuff that has been out there. Some is just better than others. Like anyone you need to test what people say, so I do not follow everything Ramsey says, or any other financial person.

[bball123h]

I would strongly, strongly encourage you to retire all credit card debt before you think about buying a home. Not only that, you should really build up an emergency fund and "house" fund for all the things you'll need to buy for your house that you haven't even thought of yet. Otherwise, you're going to move in the house and rack up big credit card balances all over again.

I absolutely agree with you. We were figuring that, at our current rate, by June or July, we'd have 0 CC debt and about $6k in savings. From that point, taking that $1500 a month and adding it to our savings, we could build up a pretty large savings/emergency fund pretty quickly. Plus, a mortgage in the area we plan to move would cost us only about an extra $100/month compared to rent.

 

We don't even carry our credit cards around anymore, using only our debit card or cash.

[LouisEly]

Leasing is the single most expensive way to operate a vehicle. (http://www.edmunds.com/advice/buying/articles/47079/article.html) I don't think there's any scenario where it's a good idea. It's like advocating you rent-to-own a bunch of furniture and electronics you can't truly afford as a way of life. That's not a way to win financially.

Thanks for posting the link - an interesting comparison. I'm not sure that their numbers are relevant now. A friend of mine just leased a new BMW 328i for $3000 down and $349/month, and that isn't a $20,000 car. I would like to see what the numbers look like for a $35K car. Another scenario is this: a few years ago a friend leased a small SUV; the lease was up last summer when gas prices had skyrocketed. There was also something wrong with the vehicle, but because of the terms of the lease the dealer had to take the vehicle back, and he got a much more fuel efficient vehicle. If he owned it he would have been stuck with it, and with the repair bill. (And it was a Toyota or Honda.)

 

Without a doubt though, the best thing to do is buy a used vehicle that is 4-5 years old; the used car market has so much inventory now that the same $20K car in their example that is 4-5 years old could probably be had for $5K. Just hope you don't get a lemon; once the warranty is up on an "owned" vehicle it can be a gamble, but with the money you'll save versus buying new you can just buy another one if something major goes wrong.

 

Also along the vehicle lines, increase your deductible to $1000 and if your vehicle is worth less than $4000 (and paid for) drop the comp/collision and just get liability.

[davego]

Allow me to bump this thread and be a bit self-indulgent. Tomorrow AM I will be officially debt-free. Paid off just over $60-grand in 33 months, not counting a few Laws of Murphy's (to borrow from Dave Ramsey).

 

Dave is not the end-all-be-all, but helped me work a plan and change a mind-set. Needless to say...this is a pretty cool Christmas. Now get us into the playoffs, Zach!!!

[Outlander]

That is most impressive, congratulations.

[hawing]

High-fives for davego!

[Invader3K]

Good job davego. I listen to Dave Ramsey a lot as well. I don't 100% follow everything he says, but for the most part his philosophy makes a lot of sense.

[Thurston Fluff]

An easy thing to do that doesn't cost any extra a month but reduced the interest paid on credit cards is to make weekly payments instead of monthly payments on credit cards. If you budget X amount to the card why not pay it in 4 installments a month instead of one and save the interest? It doesn't seem like a big thing but if you see the interest paid each month now and when you do weekly payments it's visible and adds up over time.

[homer]

Wow, that's awesome, Dave. I remember you mentioning this a few years ago. Nice to see that you followed through.

 

As for leasing cars, the one thing it gets you is the ability to drive a better car than you normally would. I'm considering it because I need a bigger car (i.e. SUV) for my business but can't afford to buy one. Probably won't do it but I can see why someone would in certain circumstances. Yes, it's not a good investment but for me it was a cost of doing business.

[sgtcluels]

Wow Dave! That's amazing. I just got out of debt 2 months ago thanks to the help of my wife. Paid off 32K in about 21 months.

[davego]

Thanks Sgt and congrats to you, too. It's a neat accomplishment. Next goal is to save a pile of

Money I can use to blow on a Brewer road trip.

[Invader3K]

As for leasing cars, the one thing it gets you is the ability to drive a better car than you normally would. I'm considering it because I need a bigger car (i.e. SUV) for my business but can't afford to buy one. Probably won't do it but I can see why someone would in certain circumstances. Yes, it's not a good investment but for me it was a cost of doing business.

I would think you would be better served saving up and buying a used SUV. There must be tons out there available at affordable prices that aren't total beaters.

[DocLuna7]

Thanks Sgt and congrats to you, too. It's a neat accomplishment. Next goal is to save a pile of

Money I can use to blow on a Brewer road trip.

Congratulations Davego. I want to be you in two years.

[davego]

Good luck. If I can, you can. The biggest challenge was the odd, unplanned expenses that would come up and slow down the debt snowball. Just gotta hang in there.