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Old 03-13-2021, 01:30 PM   #29
Vegas Bound
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Originally Posted by FarmerFran View Post
Simple example, how do you pay cash for a house? Live with your parents rent free? Win lottery? Pay rent and save for the house?

I haven't lived with my parents for 40 years. I bought a small house, fixed it up and sold it. Bought a little bigger house, fixed it up and sold it. Rinse, repeat over and over. On top of that, I haven't paid a penny in Capital Gains taxes.


People buy too much house, finance it for 30 years and are house poor. Nobody needs a McMansion.
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Old 03-13-2021, 02:13 PM   #30
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Vegas Bound, I’m sorry to hear about your 820+ score. You probably spent well over $100k on a card to get that status. As for the airline miles, I’m almost at my Diamond Member for life at Hilton hotels and the only credit card I’ve used is the one issued by my employer. When I stay on my own I use a debit card. Also, until I cashed out 200k points during a 2 week hotel stay during my move I was over. 750k points that I earned a little over a year.


0stones0 do you think the vendor doesn’t pass that 3-5% on to you? Have you ever paid cash for stuff at a show or event? Often times you can even negotiate if you go into the store and offer to pay cash. They will knock that 3-5% off or do better than that if you’re willing to pay cash. The myth that you’re making money off of the credit card company is false. There’s a reason why their buildings are skyscrapers and our houses aren’t.


Silver14, even if you use 5% of 20,000, that’s only $1,000. That’s IF you get 5% back on everything. Most of the time the 5% is on an extremely limited list of things and gets capped for annual earnings long before you max out your spending for the year.

As I said with 0stones0, the credit card companies aren’t making that amount off of the vendor. The vendor, if they’re smart, are passing that fee on to you. If they’re not they won’t last long. As for the “consumer protection, security, and convenience” all of that can be accomplished with a debit card. When you run a debit card as credit it is up to the card’s company (Visa, MasterCard, etc.) to offer the same protection that they do to their credit cards. As for extended warranties, that’s a whole other discussion on how big of a rip off they are. 60% of an extended warranty is pure profit. From there they have marketing costs/advertising, commissions, research on what to charge, and other adminstrative fees. On average 10% of the cost of an extended warranty is used for covering the item it is guaranteeing.


KenKat, you mentioned that you thought some debt is good, but then you contradicted yourself on some items. For example, the mortgage debt you thought was fine with the low interest rate, but then said that without the deduction it wasn’t worth it. Even when the deduction was available it still wasn’t worth it. For the “average” American making $50k a year, if they had a $200k mortgage at 5% interest (I know high by today’s standards, but not uncommon a few years ago and it makes for easy math), they would pay approximately $10k in interest in a year. The deduction based on a 25% income tax would allow them to get $2,000 back from the government. So they would spend $10k to get $2k back at the end of the year.

As for the HELOC for your Camaro, that’s not a good way to go either. What you did was take a depreciating asset and put it up against your home. If you got to where you couldn’t pay your bill for your car this way you have now risked your home. A repossession on a car isn’t great, but a foreclosure is worse.

As for your statement of earning 7% in an IRA to have debt, if you had a paid for house, would you go out and take a mortgage just so you could invest? That 7% isn’t guaranteed and if invested poorly you could lose all of the money. Then you’re stuck with a mortgage and no money where before you would have no mortgage and could invest your mortgage payment. You’ll get MUCH further along that way. Your best wealth building tool is your income. Don’t let someone else make their money off of your income.


Iron Lung Jimmy, I’ll give you that some insurance companies do look at credit scores when basing their rate quotes. It is sad because they’re looking more at the people who can’t get loans anymore because they have horrendous debt, terrible payment records with places that don’t loan money, but still charge (like utility companies), etc. They don’t look to see if someone has a zero credit score, but a pile of money in the bank as someone who should have a better rate. However, utility companies will allow you to use their utilities without a credit score. I’ve had a utility company write a letter of good faith for me in the past stating that I was a good payer when I moved to a new area. Not only did that apartment complex not even run my credit, they were thoroughly impressed that I had that letter.

I’m not sure who is telling you that the bank is working out an insurance deal for you, but that is false information. They’re legally not allowed to do that as it is a conflict of interest.

I’ll assume you’re talking about new to you car vs. brand new car, but the principle goes pretty equally either way. When you purchase a car, you immediately lose equity. A car is a horrible investment shy of a couple ultra rare examples. If you pay for the car outright you have whatever the car is worth available to you later without the concern for paying the payment, or what happens if you miss a payment or two.

Ultimately the credit arguement is for at most a couple hundred dollars a year at most in savings of not having a credit score vs. not having any debt.


mlee, playing the game of maintaining a credit score is like playing with snakes. Most of the time you can get out without getting bitten, but eventually you’ll get bitten and some bites are worse than others.


FarmerFran, if you’re curious about my career, I’m an engineer. As you might guess from my alias, I’m an explosives engineer. However, I did not start off with a pile of money or rich parents that paid for everything. I was fortunate to get some assistance through college years, but I came out with a pile of student loan debt and my wife brought even more to the marriage that we’ve worked VERY hard to pay off in addition to other debt before learning more about the dangers of debt.

As for the comments of society needs people to do all kinds of jobs, I agree. However, in this society of a diverse workforce many believe that everyone needs to have the same luxuries. Not everyone can afford a brand new car, the latest smartphone, or the biggest, newest TV with all of the channels broadcast, yet many people get all of those even with the most minimal of incomes.

With your question about paying cash for a house, I wish I could be 100% debt free right now, but that is my final remaining debt and I’m working hard to eliminate it too. However, a few points that I’d suggest towards that is to not buy too much house, put it on no longer than a 15 year fixed rate mortgage, and pay it off early. If you choose to pay cash it can be done. Renting a minimal apartment knowing you’re saving for the house you want is one way, living with parents for a short period of time while saving like crazy can be another, but the likelihood that you’ll win the lottery is slim to none so that’s pretty much out.
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Old 03-13-2021, 02:15 PM   #31
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Originally Posted by Vegas Bound View Post
I haven't lived with my parents for 40 years. I bought a small house, fixed it up and sold it. Bought a little bigger house, fixed it up and sold it. Rinse, repeat over and over. On top of that, I haven't paid a penny in Capital Gains taxes.


People buy too much house, finance it for 30 years and are house poor. Nobody needs a McMansion.
Bravo sir!

I agree, so many people are house poor. Just because a bank says you can afford the payment doesn’t mean you can. Too many people go off of what a banks says they can afford and then have zero breathing room for anything else in their budget.
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Old 03-13-2021, 02:30 PM   #32
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Originally Posted by pyroguy View Post
Silver14, even if you use 5% of 20,000, that’s only $1,000. That’s IF you get 5% back on everything. Most of the time the 5% is on an extremely limited list of things and gets capped for annual earnings long before you max out your spending for the year.


As for extended warranties, that’s a whole other discussion on how big of a rip off they are. 60% of an extended warranty is pure profit. From there they have marketing costs/advertising, commissions, research on what to charge, and other adminstrative fees. On average 10% of the cost of an extended warranty is used for covering the item it is guaranteeing.
If I have the cash and can get cash back from using a credit card, it's no risk to me. Some people keep the cash saved and use the card for its benefits. Credit card companies make money on most of their customers but not all. You seem to ignore that it's been mentioned several times that each deal requires it's own evaluation. If a place doesn't give a cash discount, if I have the cash to pay for the item, why wouldn't I charge it if I can get the benefits of the card and pay it off without incurring interest and getting cash back?

I didn't mention purchasing an extended warranty, credit cards usually include them for being a member. Here's links if you'd like to see details:
https://usa.visa.com/supporting-info...rotection.html
https://creditcards.usnews.com/artic...rranty-benefit
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Old 03-13-2021, 02:48 PM   #33
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mlee, playing the game of maintaining a credit score is like playing with snakes. Most of the time you can get out without getting bitten, but eventually you’ll get bitten and some bites are worse than others.
I don't really play any score games. It's just super easy to be above 800 if your debt to income ratio is excellent. Everything else falls in line without doing anything because I have used credit in the past. I like you did not come from a rich family and raised 3 kids while in the Military so I guess a steady climb to almost zero debt gave me a top score and until I get really old and stop working I'm quite sure it will stay there.

Just bought a 60k truck last week... took a loan for 30k since I do like to keep a decent cash balance all the time but will pay it off pretty quick. Camaro is two years old and paid off
I use credit for airline miles and the wife has hers for cash back $$. Pay them off twice a month most of the time and have an automatic payment scheduled to pay the balance and ensure I never slip up. So not trying to manipulate or gauge anything on a score, but a lot of great info you've provided in this thread.
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Old 03-13-2021, 03:10 PM   #34
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My point is, while debt free is awesome, unless you magically got/have money to get started you have some form of debt. Or possibly just lucky outside of the norm.

So if you are saying get started with minimal debt to move forward in life while trying to get it to "0", then I agree. But to come out from under your parents you are going to take on debt.
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Old 03-13-2021, 03:32 PM   #35
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Pyroguy... I meant the bank makes the insurance payments for you out of escrow so that is one less thing you have to deal with.

You are winning. Great job.

Fran... living debt free is a goal, not something most people can automatically do. But if you buy into the idea that it is attainable and put in the work and sacrifice toward it you can do it. It is no different than any other achievement that people accomplish.
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Old 03-13-2021, 04:05 PM   #36
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KenKat, you mentioned that you thought some debt is good, but then you contradicted yourself on some items. For example, the mortgage debt you thought was fine with the low interest rate, but then said that without the deduction it wasn’t worth it. Even when the deduction was available it still wasn’t worth it. For the “average” American making $50k a year, if they had a $200k mortgage at 5% interest (I know high by today’s standards, but not uncommon a few years ago and it makes for easy math), they would pay approximately $10k in interest in a year. The deduction based on a 25% income tax would allow them to get $2,000 back from the government. So they would spend $10k to get $2k back at the end of the year.

As for the HELOC for your Camaro, that’s not a good way to go either. What you did was take a depreciating asset and put it up against your home. If you got to where you couldn’t pay your bill for your car this way you have now risked your home. A repossession on a car isn’t great, but a foreclosure is worse.

As for your statement of earning 7% in an IRA to have debt, if you had a paid for house, would you go out and take a mortgage just so you could invest? That 7% isn’t guaranteed and if invested poorly you could lose all of the money. Then you’re stuck with a mortgage and no money where before you would have no mortgage and could invest your mortgage payment. You’ll get MUCH further along that way. Your best wealth building tool is your income. Don’t let someone else make their money off of your income.
My rate of return on my investments since I started tracking the detail in 1999 is 7.8% per year. My 3.39% mortgage was an effective rate of around 2.5% when it was deductible. Now that interest rates have cratered and it’s no longer deductible, maybe I just pay it off with some excess cash I have accumulated.

But yes, I will defer taxes on income and invest it at 7.8%, also tax deferred, rather than pay tax on that income to pay off a 3.39% mortgage.

Same thing on the Camaro - save tax deferred and invest at 7.8%, pay interest at 2.25% (less than that when I could deduct it). I could have paid cash, but why tie up capital in an asset with no return?

I’ve heard the “would you take out a mortgage to invest it?” argument. I view a home as a consumption item, not an investment - the mortgage funded that consumption while I put that money to better use. The income from a job funded the payments on the mortgage. Now that I am approaching retirement age, the income will go down some but the mortgage will be paid off. I don’t need to borrow against the house now because all that money I didn’t put into the house has grown much faster than the value of the house.

Over the very long run, houses are typically not an asset with good return on investment. They keep up with inflation, maybe another 1% on top of that. Paying cash for a house ties up capital in an asset with a low expected return.
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Old 03-13-2021, 04:08 PM   #37
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I haven't lived with my parents for 40 years. I bought a small house, fixed it up and sold it. Bought a little bigger house, fixed it up and sold it. Rinse, repeat over and over. On top of that, I haven't paid a penny in Capital Gains taxes.


People buy too much house, finance it for 30 years and are house poor. Nobody needs a McMansion.

Paying cash for a home is not always the right strategy. If you use all of your available cash to payoff a home so that you have no payment and you have no available cash for emergency or repairs where do you get money? Because your home equity is not liquid. So you get a home equity loan? get a credit card? or raid your retirement fund? Also a home loan interest is tax deductible, you do not have that write off as well. A fully paid for home is non liquid and non tax deductible.
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Old 03-13-2021, 04:11 PM   #38
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My rate of return on my investments since I started tracking the detail in 1999 is 7.8% per year. My 3.39% mortgage was an effective rate of around 2.5% when it was deductible. Now that interest rates have cratered and it’s no longer deductible, maybe I just pay it off with some excess cash I have accumulated.

But yes, I will defer taxes on income and invest it at 7.8%, also tax deferred, rather than pay tax on that income to pay off a 3.39% mortgage.

Same thing on the Camaro - save tax deferred and invest at 7.8%, pay interest at 2.25% (less than that when I could deduct it). I could have paid cash, but why tie up capital in an asset with no return?

I’ve heard the “would you take out a mortgage to invest it?” argument. I view a home as a consumption item, not an investment - the mortgage funded that consumption while I put that money to better use. The income from a job funded the payments on the mortgage. Now that I am approaching retirement age, the income will go down some but the mortgage will be paid off. I don’t need to borrow against the house now because all that money I didn’t put into the house has grown much faster than the value of the house.

Over the very long run, houses are typically not an asset with good return on investment. They keep up with inflation, maybe another 1% on top of that. Paying cash for a house ties up capital in an asset with a low expected return.

If you are going to borrow against the house or refinance for the lower rate is is better to do it before you retire. Loans are based on income so with a lower income you may not qualify for a loan at all or it will be for a smaller amount.
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Old 03-13-2021, 04:26 PM   #39
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If you are going to borrow against the house or refinance for the lower rate is is better to do it before you retire. Loans are based on income so with a lower income you may not qualify for a loan at all or it will be for a smaller amount.
My plan is to pay off the mortgage before I retire. The HELOC is already set up so I have that if I want to use it in the future.
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Old 03-13-2021, 04:57 PM   #40
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Fran... living debt free is a goal, not something most people can automatically do. But if you buy into the idea that it is attainable and put in the work and sacrifice toward it you can do it. It is no different than any other achievement that people accomplish.
Very well said...
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Old 03-13-2021, 05:02 PM   #41
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My plan is to pay off the mortgage before I retire. The HELOC is already set up so I have that if I want to use it in the future.

That is a good idea. But what about 10 years after the loan origination when the borrow window expires? What would your next move be?
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Old 03-13-2021, 05:03 PM   #42
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Vegas Bound, I’m sorry to hear about your 820+ score. You probably spent well over $100k on a card to get that status.

I spend that each year on my card. Like I said, I like my miles. First Class to Japan yearly takes a lot of miles.
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