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Sure if you want to discuss personal versus investment then its a different concept.
But the point is simply this, which would you rather have?
A. Assets producing no cash flow with a current value of $200,000 and no debt.
B. Assets producing positive and growing cash flow with a current value of $1 million and $600,000 of debt.
Actually a comparable comparison would be:
a. Assets producing no cash flow with a current value of $400,000 and no Debt
B. Assets producing positive and growing cash flow with a current value of $1 Million and $600,000 of debt.
I'll take the $400K free and clear. (I'll simply make it increase in value and not have the liability.)
However... realistically, you need other options in case something happens, you need at least one credit card. Note, I did say, if something happens.. which would be a need issue versus a want issue.
There is no need for a credit card when you have MONEY!
a. Assets producing no cash flow with a current value of $400,000 and no Debt
B. Assets producing positive and growing cash flow with a current value of $1 Million and $600,000 of debt.
I'll take the $400K free and clear. (I'll simply make it increase in value and not have the liability.)
No no no. My point was clearly to ask would you rather have cash flow and net 400k or 200k with zero debt. That was the point and some genius here told me if you do net 400k you are certain to lose everything and be broke. As if debt on anything cash flowing will equal certain doom, which is patently ridiculous to assume. World business runs on this equation and while some strike out following this formula, most successful businesses and business people properly use leverage to their advantage.
Yes if it was 400k no debt and 400k net with debt then of course no debt is better, with 400k free and clear one could enter into the next round of investments to create more net assets with leverage.
No no no. My point was clearly to ask would you rather have cash flow and net 400k or 200k with zero debt. That was the point and some genius here told me if you do net 400k you are certain to lose everything and be broke. As if debt on anything cash flowing will equal certain doom, which is patently ridiculous to assume. World business runs on this equation and while some strike out following this formula, most successful businesses and business people properly use leverage to their advantage.
Yes if it was 400k no debt and 400k net with debt then of course no debt is better, with 400k free and clear one could enter into the next round of investments to create more net assets with leverage.
THAT is my point.
You attempted to change the question by asking people if they would rather have one value or another.
Scientific method, control group etc.
Just change one variable at a time for an accurate study.
You sought to change BOTH the new worth, and the circumstances, making it a convoluted study.
Thank you (In bold) for your answer to the question.
No debt (All else being the same... such as the ability to make income off your assets) IS better.
There is no need for a credit card when you have MONEY!
Anyone who believes otherwise is delusional.
Let's see how quickly your delusions smack you in the face, when you need to fly to a funeral or something, and try to rent a car at the airport without a credit card.
There is no need for a credit card when you have MONEY!
Anyone who believes otherwise is delusional.
Let's see how quickly your delusions smack you in the face, when you need to fly to a funeral or something, and try to rent a car at the airport without a credit card.
Most of us here have no problem with posters who disagree with our opinions, but it kind of irritating then they accuse us of being delusional.
Willy702's philosophy is partly why we have a debt crisis now. Leveraging absolutely can be a way to make a very substantial return on an investment, but it entails quite substantial risk that can destroy someone financially if one winds up on the "wrong side" of an investment.
A quick and simplified example:
Joe buys a $500,000 property with 20% down ($100,000) and borrows $400,000 at 6% interest, payable annually. His property taxes and insurance are $4,000. At the end of year 1 he sells the property for $550,000, 10% more than its original price. He's paid $24,000 in interest plus $4,000 in taxes, for a total expense of $28,000, netting him $522,000 from the sale. Subtracting the $400,000 loan that he pays off when he sells the property nets him $122,000, $22,000 more than his money that he put up as the down payment. That's 22% return on his money for one year. Not bad.
But suppose the property decreases in value by 10%, to $450,000 in that year. Now he only nets $422,000 from the sale, after deducting interest and taxes. After he pays the $400,000 loan back, he is left with $22,000, 88% less than what his investment was worth a year earlier. It's this downside part of leverage that most people don't take time to understand--they get seduced by the upside potential and ignore the downside risk.
Take it one step farther, suppose the property declines 20% in value. Then Joe nets only $400,000 from the sale, not even enough to pay off the note if he pays the interest on the loan and taxes on the property. Even if the bank allows Joe to pay the principal of the loan with the sale proceeds, Joe is broke if he doesn't have other assets or income--his $100,000 is gone, plus he still owes $24,000 in interest to the bank and $4,000 in taxes and insurance.
Quite bluntly, most people do not have the financial savvy to properly estimate the risk involved in leveraged investments. In the current grossly uncertain economic environment, even seasoned investors are getting hammered when supposedly "sure thing" investments are going sour. Of course, the slick salesmen who tout leveraged investments only talk about those success stories and not about the large numbers of folks who wind up upside down or worse on a leveraged investment. Sort of like thinking that the State Lottery is a good deal if you only look at the winners.
I'm a 29 year old single guy trying to pay off his debts. My debt load is pretty high,(about 40,000 including student loans, car, credit card and another loan). I'm on a downward trend, but right now I'm working a second job and looking for a higher paying one. Anyway, does anyone have any encouraging stories of becoming debt free? If so, what's your story? I could use the encouragement.
Thanks!
mackinac
Just keep at it, man.
I'm debt-free except for some investment leverage that I have, which will be paid off in about 2 years, or sooner if I leave my job before that.
You have to have a plan and some discipline. It will mean foregoing some things that other people charge up for a while, like expensive dinners, maybe some trips, etc. You will have to make sacrifices.
But it will be worth it when you succeed. Living in debt, and paying high interest on that debt, sucks the life out of you. Many Americans will never know the feeling of freedom that comes from owning your own paycheck, and not having it fully committed to pay for stuff you bought in the past.
Not all debt is bad. My general feeling is that education debt is OK if you're making a return from that investment in the form of a good job. Home debt is OK as long as you bought a house you truly could afford, and put down a healthy downpayment. Even a car loan is OK if you bought a relatively economical car.
But credit card debt is a curse and should be avoided.
What you need to do is track your progress to see how far you've come. Also track the declining amount of interest you're paying as the debt goes down. That should really encourage you, since paying less interest adds directly to your wealth. Have a plan of how long it should take and stick to it. Make it a realistic plan, and don't set yourself up for disappointment by overreaching or being too aggressive in your assumptions.
try to rent a car at the airport without a credit card.
Bank-issued check/debit cards with CC logos work just as well.
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