Which type of debt is the most crushing? (drugs, myth, economic)
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Another particular life situation I'm looking at, that really points at this "conspiracy theory"...
End years of life for the elderly.
You could have an old person in the family who worked and saved and did everything right. They have accumulated wealth to pass on to next generations. But they reach a point where they need more care than what a relative is able to provide, even assuming that any of their relations is able and willing to live with them and take care of them. They may need skilled nurses around the clock, or supervision. Perhaps they have dementia. Whatever the cause, now they need to go into a nursing home.
And it's rare for them to have long term care insurance, that's actually become harder to get in recent years. And it won't be paid for by their health insurance or Medicare. What happens is that they are supposed to pay it themselves until their assets are completely wiped out, and only then, when they meet the poverty standards, Medicaid will step in. And we are talking something that costs about $5,000/month MINIMUM, $8,000 or more on average, and can go up into the stratosphere for the nicest places, over $20,000/month.
So yeah, deplete the senior's savings, assets, cash out the house, AND also let's have their whole family burn up their funds paying for this, too.
If that weren't bad enough, how many seniors do you know, despite the photos on the brochures, who even WANT to go into a home? Most of the time, they don't. And it's also really rare in America, except for DNR provisions, to be allowed to choose to just end your life. So even against their will, the aging person has to be plunked into a place to rapidly siphon away all of the family wealth.
Kids are expensive. Old people are expensive. Working age adults are sandwiched in between, and if they are being "sensible" then they seem to be expected to forego all the joys and fun of life even when they are physically best able to make the most of them...no wonder so many people are choosing not to have kids now.
I think maybe I will tell my kids, no matter if it seems like the right thing to do, not to "care for me" in my old age, or to feel like they have to prove that their hearts are in the right place and they love me for more than just my money, just don't do anything. Don't!! Visit, and then leave. If I reach the point where I can't take care of myself anymore, I'll go drive a car off a cliff or something. One last thrill. Whee! Boom! Except, it's hard, when you have loved your life, to be ready for it to be over, unless you are in terrible pain...and by that point, you no longer have the strength to do the job. And then of course, there's dementia. Can't really make the decisions you would have, then.
I think though, I'd rather leave wealth for my kids than burn it up being forced to live whether I want to or not, in a place where I don't want to be and in deteriorating health.
Anyhow, evidently the only solution to this is an irrevocable trust. And once you put assets into one of those, better hope you won't need or want it because as the name implies, you can't change your mind.
That’s what happened with my mom, 10 years in assisted living, she used all her assets in the first three years. I lived in a one bedroom, second floor apartment and worked full time so I couldn’t care for her.
Automobile debt.
I say that because most people will never outrun the debt. They borrowed money to buy a depreciating item, which must eventually be replaced. Replacement date comes before the loan for the original is paid off, so they trade it for another, more expensive, depreciating asset and begin the process all over. This nationwide habit insures that most people will never save enough money to actually buy a car for cash. ..... And they never do.
In that way the first car loan becomes a second, a third, a fourth, and so on. For most people it does not end for many, many years. Eventually, people buy a car and keep it past its "paid for" date and that cures their problem.
This was never the case for me. I bought a 1998 Acura with 35,000 miles in 2003 for $13,000 and drove it to 315,000 miles in 2016 when it finally died. I had 8 years payment-free. Then I bought a 2009 Hyundai for $16,000 in 2016 and made my last payment this past September. It has 85,000 miles and I hope to get at least 200,000.
I’ve never had a new car in my life and I don’t mind that. However a large chunk of the money I saved doing this was gone when I was out of work for ten months before and right after back surgery. $14,000 in out of pocket costs plus only income was $1800 a month from a private disability policy. I used my entire Roth and emergency savings plus accrued about $10,000 in credit card debt. At 59 I barely have time to make it up. But I have arthritis everywhere and most likely more surgeries to come that will deplete whatever I can save.
Automobile debt.
I say that because most people will never outrun the debt. They borrowed money to buy a depreciating item, which must eventually be replaced. Replacement date comes before the loan for the original is paid off, so they trade it for another, more expensive, depreciating asset and begin the process all over. This nationwide habit insures that most people will never save enough money to actually buy a car for cash. ..... And they never do.
In that way the first car loan becomes a second, a third, a fourth, and so on. For most people it does not end for many, many years. Eventually, people buy a car and keep it past its "paid for" date and that cures their problem.
I also disagree. And I will go a step further with that, too...I disagree in terms of both "poor people debts" and "well off people debts" that auto loans are the worst. If you haven't had anything worse on your plate, count yourself lucky. Yeah, they are common loans to have, but the most crushing to have? No.
Starting in poverty with no credit, I had to go through a sketchy dealer (they are a nationwide chain, most have heard of them)...but they would lend to anyone, including a young person with no credit. I had to have a car in order to continue to work where I lived, so there was no "save up until you can afford something"...and it had to run. After we'd wasted a few hundred here and a few hundred there on a couple of cars that did not run reliably, I participated in their "program" where you get a car with an oversized loan and oversized interest on it, make payments for 2 years to build credit and then they let you trade it in on something better with a better loan after you build some credit, and they wipe out the old loan entirely.
I made the payments and went with the program. Both of those first two vehicles were Dodge Caravans. The first one was older, the second one only a couple of years old when I got it. The rate on the second van's loan was OK but not great. After I continued to improve my credit for a little and build history, I refinanced it with a major lender at a much lower rate. A little later, I paid it off. It ran well the whole time, until one day it did not, but I had it for 13 years, and the last 8 years of that, it was paid off.
Then I got another loan on another van. I was pretty desperate because I limped into the dealer's lot with a blown head gasket and steam rushing out, so...they had me and they knew it. Timing sucked. I was recently divorced, my finances were in bad shape, in fact I was considering bankruptcy. But they gave me a loan and took my old van in trade and off I went. It was not long after that I did declare bankruptcy. I did not reaffirm the auto loan, but with this particular lender, so long as I continued to make the payments, they were not going to repossess. I did that for a while. But the van was starting to have problems, and I had improved my credit a lot since the bankruptcy (I've been in the 700s for years) and I decided it was time to get something different.
So I bought a brand new Kia Sportage, something I actually wanted. Got a great rate and an affordable payment with my credit union. I'm really happy with it. I did not trade in the old van, but since it was included in the bankruptcy, I just called the lender and told them I wanted to voluntarily surrender it and stop making payments. So we arranged for that, it did not hurt my credit since it was part of the bankruptcy, and when they auctioned it off, they got more than the amount of the loan payoff and actually sent me a check for about $400.
The depreciation of vehicles relative to what we pay for them just means that most vehicles are more of a necessary expense, than they are an investment, for most of us. This might not be the case if everyone had better access to public transit, but...many of us don't. There is value in the utility that they provide.
But in terms of debt, so long as you don't get in over your head with payments that you can't afford (which is important in any and all forms of debt)...and you can meet the obligation... For a poorer person, they are getting a way to get to work, a very important thing to help them live life most of the time, as well as a chance to build good credit. For a more well off person, especially a "qualified buyer," you can get zero interest offers and generally good terms.
Even if you compare shady car lenders who prey on the desperate, they are not worse than payday lenders and tricky mortgage products and so on.
There is a distinct difference between debt coupled with a negative net worth, and debt coupled with a positive net worth.
Most all debt, when you have a negative net worth, is bad -- with the exception of debt incurred to build human capital when there is an expectation that the incremental human capital is a future benefit (that is, an asset) that will generate future incremental income.
The situation is different when you have a positive net worth. For example, I have significant investments in financial assets where my basis is small compared to current market value. Let's say I wish to purchase a car with a purchase price of, say, $50,000.
I can fund the purchase in one of two ways:
1) I can sell $50,000 of investment assets (stock or fine art, for example) and then pay for the vehicle with the resulting cash.
2) I can take out a loan for $50,000, and make monthly payments.
The problem with #1 is that I might generate $40,000 of so-called capital gains by selling $50,000 of stock. Come next April 15, I'll owe an incremental 8,000 in tax to the federal government. Or, if I generate the $50,000 vehicle price by selling fine art, which itself has appreciated, I'd owe even more in capital gains taxes for each dollar of capital gain.
Now, instead, if I take out a $50,000 loan, i can repay the loan from my normal income & cash flow, just as I pay my electric bill.
****
Above, I mentioned how I think much student loan debt is different. When you incur student loan debt to develop incremental human capital, that human capital is an asset that does not depreciate. Student loan debt should only be incurred when there is a statistical positive expectation that the incremental human capital will translate into future incremental earnings. When doing that, the debt is "good debt". You'll repay the debt from incremental cash flow from future incremental earnings that exceed the value of the debt itself.
Of course, there are many students who incur student loan debt but for some irrational reason they do not use that student debt to fund incremental human capital. That is, there is no expectation of future incremental income as a result of having spent the money.
We've all read about ridiculous university classes - here's one such list. http://www.freepressindex.com/ridicu...llege-classes/ Now, we should always take such lists with a grain or two of salt - but you get the idea.
At the end of the day, students must be held accountable for having taken out the loans. They must repay. It is imperative to prevent student loan debt from being discharged.
Automobile debt.
I say that because most people will never outrun the debt. They borrowed money to buy a depreciating item, which must eventually be replaced. Replacement date comes before the loan for the original is paid off, so they trade it for another, more expensive, depreciating asset and begin the process all over. This nationwide habit insures that most people will never save enough money to actually buy a car for cash. ..... And they never do.
In that way the first car loan becomes a second, a third, a fourth, and so on. For most people it does not end for many, many years. Eventually, people buy a car and keep it past its "paid for" date and that cures their problem.
Years ago, when I was in my late 20s, I purchased a new car. My coworkers saw me park it and asked about it. 1 inquired to what my payments were. I said I don't have any car payments. She replied that I had to have a car payment since I just purchased a brand new car. Again I assured her I didn't have a monthly payment. She asked how was that possible. I told her I paid cash for the vehicle. She didn't say a word. She just turned around and silently walked away from me. She looked pissed off. I wasn't sure why me buying a car would upset her.
That was the last time I paid cash for a new vehicle though.
Any debt is crushing. It haunts people day and night. Taking advice of an expert can solve many problems and become financially free.
That’s more than a bit of an overstatement. I’ve had debit (mortgage, car) in my life and I never felt haunted or even stressed about it. If you have adequate income to service the debt and save for the future and a fully funded emergency fund, debt is just one more financial tool in the toolbox. No haunting need occur.
Any debt is crushing. It haunts people day and night. Taking advice of an expert can solve many problems and become financially free.
No, it's really only crushing for those who are relatively poor...in which case by definition their whole situation is not good. Or those who are middling but who have an emergency they didn't prepare for or bad judgment in terms of spending habits or something.
For someone who is financially savvy and doing reasonably well, as a couple of other posters have said, debt can be just another tool in one's overall portfolio.
People with very good credit can carry debt with zero interest. I am fortunate enough to get those terms, sometimes. And the credit cards I have now are all rewards cards that pay me as much as 5% and occasionally more, for using them. And so long as I am able to pay the bill, which I am...no interest charges. No annual fees. I don't pay them, they pay me. I only pay the charges that I actually make, which I'd be paying anyways...but I only buy what I would even if I were paying cash. I do not actually spend more than I can afford, just because my credit card has a limit that could be a lot higher than that. I keep it within my means.
But the key there, is not borrowing more than you can repay. Debt starts to be "crushing" and inhibit your feelings of freedom, the moment you cease to be able to manage it and stay on top of it, and it starts to burden you with interest and/or fees.
And this is far more likely if one does not understand how the terms actually work.
Also. A whole lot of "experts" charging money for "advice" are in fact salespeople trying to get people to take out predatory loans or some other kind of hucksters looking to take advantage...I don't for one second trust any of them to be acting in the spirit of altruism.
IIRC, Albert Einstein was once asked about the strongest force in the universe to which he replied: "Compound Interest."
Debt can be crushing as seen with uninsured people bankrupted by health care bills, or it can be a limiting factor as people live paycheck to paycheck. High interest rates on credit cards can keep a person in debt servitude for years.
I grew up in poor circumstances and saw the bill collectors at my Mother's door. Things got better after several years of misery but it was a lesson I never forgot: stay the hell out of debt.
Proper use of credit can be a strong benefit to people and couples, and should be part of every family's financial planning, family budget, and family planning. If we fail to plan then we have a plan to fail.
Early in my marriage we paid off our car loan asap and saved a few thousand on interest, we never paid any interest on credit carts (except the first year of our marriage). We bought a home on a 30-year mortgage and paid extra on the principal each month, paying it off in 12 years after which time we started piling up savings in the stock market. Haven't had a mortgage in decades. I let the corporate world pay ME every month with dividends, about $3k month of dividends plus our two pensions. Love those dividends, come to papa!
__________________
- Please follow our TOS.
- Any Questions about City-Data? See the FAQ list.
- Want some detailed instructions on using the site? See The Guide for plain english explanation.
- Realtors are welcome here but do see our Realtor Advice to avoid infractions.
- Thank you and enjoy City-Data.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
