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Dude, I'm done lol. I'm tired of repeating myself to you and Low Expectations, then you guys respond with continued off the wall comments, statements, one size fits all, etc. It DEPENDS on the situation of the person on what financing matrix they utilize, period.
Debt is a good tool, MANY people are using it in the exact same fashion and PURPOSE that I outlined. If you and LowExpectations don't agree with that type of financing, then that's your opinion.
I don't disagree it's a good tool. I'm sure you can probably find dozen's of times where I've said those exact words on this forum. But a tool without a purpose as a "just in case" fund is not going to help anyone get ahead.
Quote:
Let me give you an example. Say a person can take out a $25,000 personal loan with a 10 year term at a 6% APR. The money isn't going to be spent, but instead it's just going to sit in their bank account. This same person works a sales position where they get a salary but the BULK of their monies are bonuses and commissions, which go up and down. Plus, their position is not that stable, they could be recalled in 1-2 years and be forced to do something else. Having the loan proceeds in the bank account helps to protect them in the case of a job loss where no or much lower income is coming in.
Ultimately THIS is the part that's bad advice. Money should only be borrowed for a purpose. Otherwise, the guy above just has a $125/month unemployment insurance cost, and unlike unemployment benefits, this needs to be paid back.
Dude, I'm done lol. I'm tired of repeating myself to you and Low Expectations, then you guys respond with continued off the wall comments, statements, one size fits all, etc. It DEPENDS on the situation of the person on what financing matrix they utilize, period.
Debt is a good tool, MANY people are using it in the exact same fashion and PURPOSE that I outlined. If you and LowExpectations don't agree with that type of financing, then that's your opinion. What it's NOT...is bad financial advice if it's being utilized properly. What it IS though, is not a preferred method for everybody which would include you and LowExpectations...which is okay.
You aren't tired of repeating terrible financial advice as you just keep doing
I don't disagree it's a good tool. I'm sure you can probably find dozen's of times where I've said those exact words on this forum. But a tool without a purpose as a "just in case" fund is not going to help anyone get ahead.
Ultimately THIS is the part that's bad advice. Money should only be borrowed for a purpose. Otherwise, the guy above just has a $125/month unemployment insurance cost, and unlike unemployment benefits, this needs to be paid back.
Urgh lol. Listen, I will break this down for you guys again:
1.) A person is a sales rep, the bulk of their compensation comes from commissions and bonuses which go up and down, aren't guaranteed, etc.
2.) The person utilizes a $25,000 6% APR loan to sit in the bank account with the PURPOSE of providing CUSHION in case of a downturn in sales where they might need to tap into that resource to help get them through a period of unemployment which might also be used along with welfare assistance if they qualify.
3.) The purpose of getting the loan NOW, rather than waiting until you actually have a downturn and NEED it, is that if you actually need it you probably won't get approved. So they would utilize the loan for bank balances, emergency reserves, etc.
THAT is what I said, and that is applicable to the example I provided with the SALES REP. If you are an Office Worker on a fixed salary and you also have a Trust Fund set aside, you don't need to take out a $25k loan because you have enough in reserves already to cover any down periods or periods of unemployment.
YOU say it's stupid to in this case, live off of the loan proceeds, well that's your opinion. Actually, it's quite strategic if you use it properly and as I stated, you have MILLIONS of students in this country and young professionals who are living off of their student loan proceeds for a short period of time while they get their careers on or back on track.
I don't understand what you and LowExpectations don't understand about this? The purpose of the loan is for CUSHION. If you don't need any cushion, or you have reserves already, or you prefer to only utilize a side line of credit, then fine. But to state that NOBODY should do this, to state that it's stupid and horrible financial advice, is just off the mark. It reminds me of the extreme stances that Dave Ramsey takes on things where it's a one size fits all recommendation. Ramsey says you should NEVER take out student loans and never take out debt at all. That's extreme and isn't tailored to an individual's personal situation.
Last edited by jotucker99; 12-17-2014 at 10:52 PM..
Urgh lol. Listen, I will break this down for you guys again:
1.) A person is a sales rep, the bulk of their compensation comes from commissions and bonuses which go up and down, aren't guaranteed, etc.
2.) The person utilizes a $25,000 6% APR loan to sit in the bank account with the PURPOSE of providing CUSHION in case of a downturn in sales where they might need to tap into that resource to help get them through a period of unemployment which might also be used along with welfare assistance if they qualify.
3.) The purpose of getting the loan NOW, rather than waiting until you actually have a downturn and NEED it, is that if you actually need it you probably won't get approved. So they would utilize the loan for bank balances, emergency reserves, etc.
THAT is what I said, and that is applicable to the example I provided with the SALES REP. If you are an Office Worker on a fixed salary and you also have a Trust Fund set aside, you don't need to take out a $25k loan because you have enough in reserves already to cover any down periods or periods of unemployment.
YOU say it's stupid to in this case, live off of the loan proceeds, well that's your opinion. Actually, it's quite strategic if you use it properly and as I stated, you have MILLIONS of students in this country and young professionals who are living off of their student loan proceeds for a short period of time while they get their careers on or back on track.
I don't understand what you and LowExpectations don't understand about this? The purpose of the loan is for CUSHION. If you don't need any cushion, or you have reserves already, or you prefer to only utilize a side line of credit, then fine. But to state that NOBODY should do this, to state that it's stupid and horrible financial advice, is just off the mark. It reminds me of the extreme stances that Dave Ramsey takes on things where it's a one size fits all recommendation. Ramsey says you should NEVER take out student loans and never take out debt at all. That's extreme and isn't tailored to an individual's personal situation.
You keep bringing up student loans. Living off student loans is actually the main reason so many people are under a crushing amount of debt. They took out the loans under the assumption they would be able to pay them back when they got the job of their dreams after college and it never materialized.
That's also the exact reason this is a bad idea. So the sales rep isn't making as much this month because sales are low, so he taps the loan cushion under the assumptions that he'll make the income later on to pay it back.
What if he doesn't? He's now been living his life spending on things that aren't essential because he has cash in the bank due to a loan. THAT is why this is a bad idea. If you're living off a loan, you have a problem that you're putting off. Maybe you'll make a huge sale next month, and similarly maybe the student will get a starting job of $100k/yr. If so, great, but if they're wrong, that was a very expensive gamble that neither one has a way to recover from.
Most people don't recommend using student loans for anything beyond tuition. Yes, we've long passed the day where your part time job can pay for your tuition, I agree. But that doesn't mean your student loans should be funding your night on the town, and similarly you shouldn't be taking out a loan at 6% to continue your life as if you aren't suffering from a lack of income.
Best case scenario under your method: The interest is thrown away every month, guaranteed
Worst case scenario under your method: The interest is thrown away AND you're burning through the principal.
What if that big sales commission you think you'll get in Q4 never materializes? Then, you not only have to deal with the fact that you're running out of money, you now the loan payment to deal with.
There's a reason banks won't lend to someone without income. Trying to game the system by taking the loan out before you lose your job isn't going to end well.
You keep bringing up student loans. Living off student loans is actually the main reason so many people are under a crushing amount of debt. They took out the loans under the assumption they would be able to pay them back when they got the job of their dreams after college and it never materialized.
That's also the exact reason this is a bad idea. So the sales rep isn't making as much this month because sales are low, so he taps the loan cushion under the assumptions that he'll make the income later on to pay it back.
What if he doesn't? He's now been living his life spending on things that aren't essential because he has cash in the bank due to a loan. THAT is why this is a bad idea. If you're living off a loan, you have a problem that you're putting off. Maybe you'll make a huge sale next month, and similarly maybe the student will get a starting job of $100k/yr. If so, great, but if they're wrong, that was a very expensive gamble that neither one has a way to recover from.
Most people don't recommend using student loans for anything beyond tuition. Yes, we've long passed the day where your part time job can pay for your tuition, I agree. But that doesn't mean your student loans should be funding your night on the town, and similarly you shouldn't be taking out a loan at 6% to continue your life as if you aren't suffering from a lack of income.
Best case scenario under your method: The interest is thrown away every month, guaranteed
Worst case scenario under your method: The interest is thrown away AND you're burning through the principal.
What if that big sales commission you think you'll get in Q4 never materializes? Then, you not only have to deal with the fact that you're running out of money, you now the loan payment to deal with.
There's a reason banks won't lend to someone without income. Trying to game the system by taking the loan out before you lose your job isn't going to end well.
Dude, once again, ALL of this is just YOUR personal preference on not using a student loan for the cushion, that's not a hard fast rule AND it's not a terrible financial decision. And if you have problems paying back the student loans you have IBR/PSF options to get the payments reduced down to literally ZERO and forgiven in 10 years by working for a Non Profit.
Just because YOU wouldn't do it, doesn't mean it's BAD financial advice.
Dude, once again, ALL of this is just YOUR personal preference on not using a student loan for the cushion, that's not a hard fast rule AND it's not a terrible financial decision. And if you have problems paying back the student loans you have IBR/PSF options to get the payments reduced down to literally ZERO and forgiven in 10 years by working for a Non Profit.
Just because YOU wouldn't do it, doesn't mean it's BAD financial advice.
I mean this is becoming redundant lol.
Would you buy 10 year term life insurance that would cost you over the life of the policy 28% of the maximum possible benefit?
Dude, once again, ALL of this is just YOUR personal preference on not using a student loan for the cushion, that's not a hard fast rule AND it's not a terrible financial decision. And if you have problems paying back the student loans you have IBR/PSF options to get the payments reduced down to literally ZERO and forgiven in 10 years by working for a Non Profit.
Just because YOU wouldn't do it, doesn't mean it's BAD financial advice.
I mean this is becoming redundant lol.
Yeah, and if anything happens to that non-profit job at any point in the 10 year period, the PSLF "clock" begins anew. Plus you have spent all those years in the PSLF job which doesn't pay well, so it would be very difficult to make up all the money you've wasted on interest!
I don't believe jotucker99 was saying the loans should be gotten just for the benefit of death forgiveness.
That wasn't my point. A 10 year loan of 25k @6%(net interest of 5%) you don't need, for insurance purposes that cost you 28% of the orginal principal draw is what he was talking about.
First, what exactly do you mean better cashflow management? Debt reduces cashflow.
its a shame that as a knee jerk reaction to a lot of people having debt problems we ended up with the other extreme. debt doesnt reduce cashflow. debt reduces risk and increases cash on hand for other purposes. there is a cost of debt and everyone needs to decide whether or not that cost is too high.
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