Thoughts on Financing...

[DieMonkeys]

Myth: If you pay off your credit card every month, you get the free use of someone else's money.

Truth: CardTrak says 60 percent don't pay off their credit cards every month.

As I said, when you play with snakes, you get bitten. I have heard all the bait put out there to lure the unsuspecting into the pit. A free hat, airline miles, brownie points back, free use of someone else's money, a discount at the register--the list goes on to get you to sign up for a credit card. Have you ever asked why they work so hard to get you involved?
The answer is that you lose and they win.

You won't wear the hat, and Consumer Reports says 75 percent of the airline miles are never redeemed. Next time you are in the store that gave you a discount for signing up for a card, you will have forgotten your cash, you'll use the card, and the cycle begins. Maybe you thing, I pay mine off, so I'm using their money. I'm winning. Wrong again. A study by Dunn and Bradstreet showed that the credit-card user spends 12 to 18 percent more when using credit instead of cash. It hurts when you spend cash, and, therefore, you spend less.

The big question is, What do millionaires do?
They don't get rich with free hats, brownie points, air miles, and use of someone else's money. What do broke people do? They use credit cards. An American Bankruptcy Institute study of bankruptcy filers reveals that 69 percent of filers say credit-card debt caused bankruptcy. Broke people use credit cards; rich people don't.

I rest my case.

This can all be found in My Total Money Makeover by Dave Ramsey.

www.totalmoneymakeover.com
www.daveramsey.com

[t_bonee]

To put it simply: Lenders are the masters, borrowers are the slaves. No two ways about it.

[tropicalhotdog]

Don't let the monkeys pull you down!

Debt has been sold to us so aggressively, so loudly,l and so often that to imagine living without debt requires myth-busting. We have to systematically destroy the inner workings of the myths. Debt is so ingrained into our culture that most Americans can't even envision a car without a payment, a house without a mortgage, a student without a loan, and credit without a card. We have been sold debt with such repetition and with such fervor that most folks cannot conceive what it would be like to have no payments. Just as slaves born into slavery can't visualize freedom, we Americans don't know what it would be like to wake up to no debt. Last year 5.3 billion credit-card offers were put in our mailboxes, and we are taking advantage of those offers. According to CardTrak, Americans currently have $660 billion in credit-card debt. We can't do without debt, or can we?

Working with tens of thousands of people on their Total Money Makeover in the last several years, I have found that a major barrier to winning is our view on debt. Most people who have made the decision to stop borrowing money have experienced something weird: ridicule. Friends and family who are disciples of the myth that debt is good have ridiculed those on the path to freedom.

John Maxwell tells of a study done on monkeys. A group of monkeys were locked in a room with a pole at the center. Some luscious, ripe bananas were placed on top of the pole. When a monkey would begin to climb the pole, the experimenters would knock him off with a blast of water from a fire hose. Each time a monkey would climb, off he would go, until all the monkeys had been knocked off repeatedly, thus learning that the climb was hopeless. The experimenters then observed that the other primates would pull down any monkey trying to climb. They replaced a single monkey with one who didn't know the system. As soon as the new guy tried to climb, the others would pull him down and punish him for trying. One by one, each monkey was replaced and the scene repeated until there were no monkeys left in the room that had experienced the fire hose. Still, none of the new guys were allowed to climb. The other monkeys pulled them down. Not one monkey in the room knew why, but none were allowed to get the bananas.

We aren't monkeys, but sometimes we exhibit behavior that seems rather chimplike. We don't even remember why, we just know that debt is needed to win. So when a loved one decides to get a Total Money Makeover, we laugh, get angry, and pull him down. We Americans are like the last set of monkeys. With rolled eyes we spout the pat lines associated with the myths as if anyone not wanting to have debt is unintelligent. That person must be a simpleton, a fanatic, or worst of all, "uneducated in finance." Then why are so many finance professors broke? I think a broke finance professor is like a shop teach with missing fingers.

I believe the monkey example he uses is apocryphal. The actual "monkey" study concerned chimpanzees (which aren't monkeys) in the wilderness who had learned somehow (I forget the source) to separate edible grains from sand by throwing handfuls of the mix into the water and letting the sand sink. They then taught the method to other chimps, without knowing how it was learned in the first place. Maybe it was replicated in a lab with monkeys and bananas for some reason - I don't know - but the logic in using it as a metaphor for this issue is lost on me. If every time I stuck my head out the window someone threw a rock at it, and I saw you about to stick your head out of the window, dude, I'd try to stop you. It's not the point of the chimp study anyway, as I recall. I haven't read this Ramsey guy myself so don't want to criticize, but the example you offer of his insight doesn't say much for him. It reads an awful lot like pop-psychology, Dr. Phil kind of stuff.

Frankly, I've never in my life met a single person who believes that personal debt is "good" or who has tried to convince anyone that it is, so I don't know what his point is to begin with. Craving material things that you don't really need (the fuel of our economy at present) is the problem, in my humble lefty opinion.

There are many good analyses of these (admittedly complicated) issues out there, so you might want to read more than one metaphorically-challenged pop author's take on it before calling other people "brainwashed."

[t_bonee]

I believe the monkey example he uses is apocryphal. The actual "monkey" study concerned chimpanzees (which aren't monkeys) in the wilderness who had learned somehow (I forget the source) to separate edible grains from sand by throwing handfuls of the mix into the water and letting the sand sink. They then taught the method to other chimps, without knowing how it was learned in the first place. Maybe it was replicated in a lab with monkeys and bananas for some reason - I don't know - but the logic in using it as a metaphor for this issue is lost on me. If every time I stuck my head out the window someone threw a rock at it, and I saw you about to stick your head out of the window, dude, I'd try to stop you. It's not the point of the chimp study anyway, as I recall. I haven't read this Ramsey guy myself so don't want to criticize, but the example you offer of his insight doesn't say much for him. It reads an awful lot like pop-psychology, Dr. Phil kind of stuff.

Frankly, I've never in my life met a single person who believes that personal debt is "good" or who has tried to convince anyone that it is, so I don't know what his point is to begin with. Craving material things that you don't really need (the fuel of our economy at present) is the problem, in my humble lefty opinion.

There are many good analyses of these (admittedly complicated) issues out there, so you might want to read more than one metaphorically-challenged pop author's take on it before calling other people "brainwashed."

You are a self admitted lender. Nothing wrong with that at all. You are the master. You control those who borrow from you, they are the slaves. Regardless of metaphors. That is a fact.

[tropicalhotdog]

I believe the monkey example he uses is apocryphal. The actual "monkey" study concerned chimpanzees (which aren't monkeys) in the wilderness who had learned somehow (I forget the source) to separate edible grains from sand by throwing handfuls of the mix into the water and letting the sand sink. They then taught the method to other chimps, without knowing how it was learned in the first place. Maybe it was replicated in a lab with monkeys and bananas for some reason - I don't know - but the logic in using it as a metaphor for this issue is lost on me. If every time I stuck my head out the window someone threw a rock at it, and I saw you about to stick your head out of the window, dude, I'd try to stop you. It's not the point of the chimp study anyway, as I recall. I haven't read this Ramsey guy myself so don't want to criticize, but the example you offer of his insight doesn't say much for him. It reads an awful lot like pop-psychology, Dr. Phil kind of stuff.

Frankly, I've never in my life met a single person who believes that personal debt is "good" or who has tried to convince anyone that it is, so I don't know what his point is to begin with. Craving material things that you don't really need (the fuel of our economy at present) is the problem, in my humble lefty opinion.

There are many good analyses of these (admittedly complicated) issues out there, so you might want to read more than one metaphorically-challenged pop author's take on it before calling other people "brainwashed."

You are a self admitted lender. Nothing wrong with that at all. You are the master. You control those who borrow from you, they are the slaves. Regardless of metaphors. That is a fact.

Actually, no, it's not a fact. I'm not a lender. It's not that kind of bank. I give advice to a Central Asian government that has a lot of oil and wants to keep Exxon, Chevron and the other large international oil companies from raping them. I'm not even "master" of my own damn dog, as it's a Jack Russel Terrier.

[Nalian]

What is with this misnomer that credit = debt? debt = debt only. You can have a credit card and pay the balance off every month and you will build credit. Or you can have something like a car which you pay to use while you pay it off. No one said a car was an investment, but I hardly see the issue with buying a car and paying it off. That really has yet to be explained as to why it is bad. Other than the fact that it means you have debt. I still fail to see the issue with secured debt. If something happened to me I can sell my car and the debt is gone. Unless you go and get yourself upside down - it's not a big deal. It's really no different than renting an apartment vs buying one. Hell, everytime I renew my lease I'm putting myself down for "debt" by saying I'll continue to rent each month for the next year. I don't see anyone screaming about how renting apartments is terrible debt.

Sure, if you get something with a payment that is a significant portion of your income that's bad. That's true whether it is an investment or not.

I think the chimp example is pretty dumb, as tropicalhotdog said. First of all - I have never, ever experienced someone telling me that having no debt is good. I paid everything off a while back and all I ever got was positive congrats from people. Second of all, if you experience something negative, you'll definitely warn someone else about it like tropicalhotdog mentioned. You're warned from a very young age not to stick your finger in a light socket - do you think you need to stick your finger in to figure it out, or are you gonna listen to the other 'dumb chimps' about it? That's the only thing that analogy applies to.

The other giant assumption that living with no credit makes is that you are making enough money to be able to afford any of that. Take MA as an example. The average income in this state according to state statistics is around 35k a year for a family of 4. The average rental rate is around 1k a month. Where are they supposed to get this amazing savings to buy the homes that cost 250k for a hole in the wall plus? Which of course leads to the problem many people are facing which is the fact that real estate absolutely fluctuates and can burn you just as bad as anything else - whether you have the house paid off or not.

I agree that living with large amounts of debt is very obviously bad. It doesn't take a rocket scientist to figure that out. But there is a vast amount of difference between a lot of debt, and taking on $1k to pay off over a year to gain credit. Each situation should be reacted to individually, rather than as a group or by some rhetoric from a rich guy who can afford to do everything with no debt. He is, in effect, the monkeys with the waterhose telling people they can't have things like a house, etc, because they can't afford them.

[t_bonee]

It's nothing personal against you.

If I float my brother $500, it becomes a master/slave relation. He owes me, I will want what he owes me back. I can control how comfortable our relationship is at that point. It can be a great relationship where I get what I'm owed quickly. It can be a tense and uncomfortable relation when every time we're together I have to ask if I can have my money.

It's not terrible master/slave relation for him in that situation. I don't report slow or non payment to credit bureaus. Unfortunately banks and other lenders do, and can really control and affect peoples lives.

[Ian522]

Wow did this thread snowball.

I might try to get a credit card again, maybe one of those store based cards like from best buy, home depot, etc. From what I hear they are very easy to get approved for since the interest is pretty awful...like 20% or more. But if I keep a small balance and then pay it off in full each month, I wouldnt have to really worry about interest anyway.

If I end up still getting turned down for cards, im gonna bite the bullet and finance an inexpensive bike next season...getting a parent to co-sign if I have to. I need to put myself on the map. As nice and worry free as it is to live without credit, I think in the long run it makes things more difficult. Credit is really a necessary evil for all the reasons everyone has stated. Just learn to manage it smartly and you'll be fine.

Diemonkeys I respect how strongly you believe in your opinion, but I think your hatred/fear of credit is blinding you to the benefits of having it. But to each his own I guess.

[tropicalhotdog]

Wow did this thread snowball.

No joke. And a more interesting exchange of ideas than anything in business school or anything in the financial papers.

I guess what everyone in this forum shares is the love of an activity that ain't cheap, and so everyone's had to work through this issue of credit and debt to pull it off.

[BMK]

Wow did this thread snowball.

No joke. And a more interesting exchange of ideas than anything in business school or anything in the financial papers.

I guess what everyone in this forum shares is the love of an activity that ain't cheap, and so everyone's had to work through this issue of credit and debt to pull it off.

Not a bad summation.
Anything you finance or buy on credit involves some level of risk on your part. It all comes down to what you're willing to take that level of risk for. A house? Sure..it's an appreciating asset that will be worth more than you paid for it. That's a no-brainer. The risk comes into play when you heavily finance a depreciating asset such as a motorcycle...which, even though your payments and intrest remain the same, the value of the bike continuously drops.
Again, nothing really wrong with that....it's all about assesing the risk and determining what you're willing to go into debt (with it's potential upside AND downside) for.

On a side note....Apparently, there are millions of people in this country that have a poor credit history, which, contrary to what some here may think, is much worse and detrimental than no credit history.
I'm willing to bet that a majority of those people thought the same thing I'm reading here...."I'll just finance this (because they'll let me), pay off the low monthly payments in two years and everything will be great".
All I'm saying is that things don't always go as planned and the consequences can be severe. (Spare me the "I'm too smart for that" or the "it can't happen to me" reply) I'm just saying be careful.