Consolidating credit card debt

Debt to purchase a home = OK, but get a 15 year loan and pay it off ASAP.
Debt that produces income, like rental property or a business loan = potentially good.
Debt against a rapidly depreciating asset like a car or furniture = bad.
Debt to pay for things that evaporate instantly, like a vacation or dinner = you'll be poor forever.
 
I own a rental property which used to be my primary residence. It has a note. I have positive cash flow vs the mortgage taking into account, property management, repairs and upkeep. I could not have paid this property in cash. I had take a mortgage to purchase it. When I moved out I could have sold it and if I was following Ramsey's advice I would have. I would have made some cash as the time but not a ton. Instead I kept the debt and have rented the house. I refinanced it to a 15 year mortgage at a historically low rate and it will be paid off in less than 7 years. Paying it down faster would greatly reduce the tax break I receive. Along the way it has generated income and a tax break. In 7 years I will own it outright and I will not have paid for the majority of it. My tenants have. By holding on to the asset and its debt I will have an income generating property in excess of $20,000 a year plus the asset which can be sold for a profit at anytime. By not eliminating this debt I used someone else'e money to create wealth.

I own a rental property, it sucks balls, just can’t produce positive cash flow even with no mortgage on it. Really really like the idea of rental property, but I’m missing some key ingredient. Probably a topic for a new thread, maybe after the new year.
 
I think the advice above to avoid taking on secured debt, such as a HELOC to lay unsecured debt is a bad move. If you fall on terrible times, the CC companies may scream bloody murder at you but there is little else they can do. At those dollar amounts it would even cost them to sue you for a default abs up your in NC a judgement isn't worth the paper it's printed on.

As others have said, apply as much as you can to one debt while paying the minimum on the others and then when it's gone apply the combined totals to the next.

Your thought of consolidating to a lower / no interest account is good and if your scores are decent I would look for a low / no interest CC instead.
 
I'm not here to change anyone's mind, but I would like to offer a different perspective.

Before I was old enough to drive, my dad would pick me up after practice and we would listen to the Dave Ramsey show on the radio, discussing each call during the commercial breaks. This was probably 2003/2004. Fast forward a few years and I cash flowed a bachelor's degree with the help of a few grants and scholarships. I started a full time job in 2011, and went back to school and cash flowed a Master's. Lived in a few rental houses along the way, driving paid for cars, and continued to work part time waiting tables. In 2016, 3 days after turning 28, I closed on my house. The down payment was on the smaller side, but as of right now I should be a year ahead on my orginal amortization schedule due to addition principal payments. I say all this not to say it is the only was to do it, but it can be done if being debt free is a priority. In my opinion people over complicate things, especially finances.

Ramsey's plan is simple and effective, and there is more to it than getting out of debt. I have read one of his books, and I am currently reading another one. I didn't follow his plan to the letter either, for example. I used a credit card for about 10 years, paying it off in full every month, getting a piddly amount of cash back. I have been CC free for a year now, and do not miss it. Plus it is one less thing to keep up with. No tax break or cash back reward system is as valuable as the freedom of financial independence. Now I just have to get the house paid for!
 
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@wvsig , here's my thoughts on those 2% offers.

Ignore for a moment the steep depreciation curve of new vehicles.
Ignore for a moment that your post-tax income is several points lower than your raw rate of return.
Ignore for a moment that your interest expense is on post-tax money and thus, more than 2% of your net.

When you take a 2% loan, the car company pays the loan originator the difference between that 2% and the market rate, say around $1,000 per loan. That way, the dealership can sell you on the idea that it costs nothing to buy it now. And where do they get that $1,000? It's included in the price of the truck. That's why many of those offers say "2% financing or $1000 cash back". When you took that 2% you likely forfeited that $1000, and you need to consider that in your calculations.

Sure, you made out OK in recent years. We all have. But what if you had done this in 2008? You'd be left with a big debt and half the principal. Ultimately, if professional money people thought they could consistently get a better return in the stock market, they wouldn't be loaning it to you.
 
I'm not here to change anyone's mind, but I would like to offer a different perspective.

Before I was old enough to drive, my dad would pick me up after practice and we would listen to the Dave Ramsey show on the radio, discussing each call during the commercial breaks. This was probably 2003/2004. Fast forward a few years and I cash flowed a bachelor's degree with the help of a few grants and scholarships. I started a full time job in 2011, and went back to school and cash flowed a Master's. Lived in a few rental houses along the way, driving paid for cars, and continued to work part time waiting tables. In 2016, 3 days after turning 28, I closed on my house. The down payment was on the smaller side, but as of right now I should be a year ahead on my orginal amortization schedule due to addition principal payments. I say all this not to say it is the only was to do it, but it can be done if being debt free is a priority. In my opinion people over complicate things, especially finances.

Ramsey's plan is simple and effective, and there is more to it than getting out of debt. I have read one of his books, and I am currently reading another one. I didn't follow his plan to the letter either, for example. I used a credit card for about 10 years, paying it off in full every month, getting a piddly amount of cash back. I have been CC free for a year now, and do not miss it. Plus it is one less thing to keep up with. No tax break or cash back reward system is as valuable as the freedom of financial independence. Now I just have to get the house paid for!
You’re right about where I was at your age. I stayed on that path for about another decade, I call those the wasted years. Then I started a business. Frankly my investments have always performed poorly...I think that have lazy money.
 
@wvsig , here's my thoughts on those 2% offers.

Ignore for a moment the steep depreciation curve of new vehicles.
Ignore for a moment that your post-tax income is several points lower than your raw rate of return.
Ignore for a moment that your interest expense is on post-tax money and thus, more than 2% of your net.

When you take a 2% loan, the car company pays the loan originator the difference between that 2% and the market rate, say around $1,000 per loan. That way, the dealership can sell you on the idea that it costs nothing to buy it now. And where do they get that $1,000? It's included in the price of the truck. That's why many of those offers say "2% financing or $1000 cash back". When you took that 2% you likely forfeited that $1000, and you need to consider that in your calculations.

Sure, you made out OK in recent years. We all have. But what if you had done this in 2008? You'd be left with a big debt and half the principal. Ultimately, if professional money people thought they could consistently get a better return in the stock market, they wouldn't be loaning it to you.

See the thing is I did the loan independent of the dealer. Straight from USAA. Ford gave me $3500 incentive off the truck because I was basically paying cash. With other discounts I did ok. Got a new truck for about what I would have paid for a certified used. Never take the dealer financing unless there is a cash incentive on top of the lower interest rate. On my truck Ford basically paid the interest on the entire loan.

Also cash went into tax free Roth IRAs or traditional IRAs so it grew tax free. It will continue to do so until retirement age. Roth $$$ comes out tax free and the traditional IRA will be taxed at a lower bracket than I am currently in or was in at the time. I understand basic finance and as I said I used to have Securities lics and understand the basic paths to financial stability.

If I had done this in 2008 I would still be ok because all my losses in 2008 were on paper. I stayed in the market. I did not panic or move the money out of the market after the crash or during. I did not lock in my paper losses I knew that the market would return. In fact during the Bear market I bought as much as I could. I bought mainly blue chips and index funds. At that time those stocks were greatly undervalued. If you have the cash to invest Bear markets are a great time to invest. All that lost $$ returned. Even with the recent hiccups in the market I am well ahead of any fixed return asset.

I held security licenses and people would always tell me they lost money in the market and would never invest again. Every single one of them bought during a Bull market and sold in a Bear. If you are disciplined, dollar cost avg you can improve your position in a Bear or Bull market. Again it comes down to discipline.

People also let emotion drive their decisions instead of data. IMHO
 
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I'm not here to change anyone's mind, but I would like to offer a different perspective.

Before I was old enough to drive, my dad would pick me up after practice and we would listen to the Dave Ramsey show on the radio, discussing each call during the commercial breaks. This was probably 2003/2004. Fast forward a few years and I cash flowed a bachelor's degree with the help of a few grants and scholarships. I started a full time job in 2011, and went back to school and cash flowed a Master's. Lived in a few rental houses along the way, driving paid for cars, and continued to work part time waiting tables. In 2016, 3 days after turning 28, I closed on my house. The down payment was on the smaller side, but as of right now I should be a year ahead on my orginal amortization schedule due to addition principal payments. I say all this not to say it is the only was to do it, but it can be done if being debt free is a priority. In my opinion people over complicate things, especially finances.

Ramsey's plan is simple and effective, and there is more to it than getting out of debt. I have read one of his books, and I am currently reading another one. I didn't follow his plan to the letter either, for example. I used a credit card for about 10 years, paying it off in full every month, getting a piddly amount of cash back. I have been CC free for a year now, and do not miss it. Plus it is one less thing to keep up with. No tax break or cash back reward system is as valuable as the freedom of financial independence. Now I just have to get the house paid for!

Having some amount of debt or credit available does not mean you are not financially independenant. Just like having no debt equals doesn’t necessarily mean financial independence. That is why speaking in extremes or absolutes doesn’t make sense to me.

Anyway there are many ways to skin the same cat. There are lots of ways to reach financial stability and freedom. Each person has to determine the best route for them.
 
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Having some amount of debt or credit available does not mean you are not financially independenant. Just like having no debt equals doesn’t necessarily mean financial independence. That is why speaking in extremes or absolutes doesn’t make sense to me.

Anyway there are many ways to skin the same cat. There are lots of ways to reach financial stability and freedom. Each person has to determine the best route for them.

And you are not wrong. I would submit that you could do whatever you wanted to without using debt. Why mess with it?
 
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And you are not wrong. I would submit that you could do whatever you wanted to without using debt. Why mess with it?

I submit that you cannot do whatever you wanted without debt. Try running a small business without credit and debt. You cannot do it. In order to grow a business there will be times that you need to take on debt. The same is true of personal finances. There are times you need to take on debt to grow your asset allocation, skills or simply to free up cash to invest in a manner that brings a greater yield then you are paying in interest. I would ask if you can responsibility manage debt why not use it to your advantage?

PS this has been a great discussion.
 
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Debt is a tool; it is what you use it for. To @wvsig point, businesses wouldn't exist without debt. But not debt is equal; a business taking on debt to grow is different than predatory debt with an E1 making $10K a year getting a 2019 Mustang at 21%.

I abhor consumer debt: we own both vehicles, our mortgage is paid off (took 7 years to pay a 30-year mortgage). We do have a HLOC because we had an addition built on our house; we double pay it every month.
 
I submit that you cannot do whatever you wanted without debt. Try running a small business without credit and debt. You cannot do it. In order to grow a business there will be times that you need to take on debt. The same is true of personal finances. There are times you need to take on debt to grow your asset allocation, skills or simply to free up cash to invest in a manner that brings a greater yield then you are paying in interest. I would ask if you can responsibility manage debt why not use it to your advantage?

PS this has been a great discussion.

@wvsig it has definitely been a great discussion, and I appreciate your perspective. To be clear I am not telling anyone what to do, and that their way doesn't work. I fully understand debt has been normalized and is extremely common.

It was a poor choice of words on my part when I said "whatever you want." I should have said "whatever you need."

We could probably agree a majority of consumers are not investing with debt or at least putting into things that hold value. It's steak dinners, clothes and flat screens on the CC. It's his and her car payments (complete with GAP insurance) on the had-to-have vehicles they will quickly be underwater on, only to roll the negative equity into the next trade in. And the list goes on...

I have never had a student loan, a car payment or anything of that nature, and I have been able to do what I have needed to. My house was first payment, and as I mentioned, I am chipping away at it monthly with extra principal payments. I have had an interest in financial matters since I was young (opened a Roth IRA at 19.) Debt free is my choice after years of study/discussion/practice/reflection, and I have yet to find a better way, but I am open to input!
 
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Debt free is my choice
I'm with you. I will make payments on things that have 0 interest for a set time and then pay them off well before the time runs out. I always check to make sure the price isn't lower if I just pay it off to start with. We of the agrarian South were taught that once your home was paid for you had arrived. True or not math wise it was a comforting feeling. It still is.
 
@wvsig it has definitely been a great discussion, and I appreciate your perspective. To be clear I am not telling anyone what to do, and that their way doesn't work. I fully understand debt has been normalized and is extremely common.

It was a poor choice of words on my part when I said "whatever you want." I should have said "whatever you need."

We could probably agree a majority of consumers are not investing with debt or at least putting into things that hold value. It's steak dinners, clothes and flat screens on the CC. It's his and her car payments (complete with GAP insurance) on the had-to-have vehicles they will quickly be underwater on, only to roll the negative equity into the next trade in. And the list goes on...

I have never had a student loan, a car payment or anything of that nature, and I have been able to do what I have needed to. My house was first payment, and as I mentioned, I am chipping away at it monthly with extra principal payments. I have had an interest in financial matters since I was young (opened a Roth IRA at 19.) Debt free is my choice after years of study/discussion/practice/reflection, and I have yet to find a better way, but I am open to input!

I am really enjoying the conversation. @Scott88 I am also just throwing ideas out there. Most of what I am talking about has worked for me personally and is based on what I have seen during my time running a small business, working as a banker and being in sales for more than 15 years. I personally think people would be better off financially speaking if people had more discussions like this on a regular basis.

I agree that credit and debt is often abused or misused by people. They are only thinking short term not long term about their finances. I have been investing since I was a kid. My mother bought me some GE stock when I was about 8 or 9. I used to look in the paper with her once a month and track its price. I reinvested the dividends and when it split I simply added to my shares. I used it to help me go to college, pay medical bills when my son was born and as part of the down payment on my home. It taught me the valve of investing and compounding interest at and early age. I also learned that money put in the right investments makes more money. I also started to build my credit when I was in college. I had a card and paid for my books and classes with it and would pay it off as soon as I got the bill. I never paid for anything I could not pay off at the end of the month. No bar bills, restaurants or spending sprees.

This gave me payment history and allowed me to build a solid credit rating which has saved me money in so many ways. The cost of bad credit vs excellent credit over your lifetime is about $200,000. The cost of good credit vs excellent credit is about $60,000. This isn't just loans its things like insurance, employment screening etc.... So at some point you have to establish credit use credit and show good credit habits in order to get the best rates and some of the best jobs. If you never have any debit you cannot establish credit. Not having any credit history can be as negative as having bad credit.

I always buy my cars on loans. All but 2 of them have over my life time have been used. I have never paid higher than 6% interest on a car loan and that was on my first car loan at 22. All other loans have been in the 1.99 -3% range. All got paid off and the car was driven payment free for years beyond the final payment. I have never had to roll negative equity into another loan but I understand people do it all the time. Most of that is because people do not want to settle. They want everything to be new and shiny which I understand but it can't always be that way. Sometimes you have to drive it until the tires are ready to fall off. My current truck and my wifes BMW are the only new cars I have ever bought.

I did not have to take loans for college. My wife used tuition reimbursement through work to finish her undergrad. We however had to take loans for her grad school. She still worked full time but we had a mortgage and living in northern VA was not cheap. I made a good living but could not carry all the weight. So we took loans. All said it just under $90,000. We will be paying off the final loan in early 2019. It was the best investment that we ever made. She got a degree in healthcare administration from one of the best schools in the country. Without the degree she would never be in the position she is in now. If we had not taken on the student loan debt we would not be where we are today. Again for me/us this is another example of a calculated use of credit that had a high rate of return. It was the personal equivalent of taking out a business loan. Over her lifetime the interested she paid on that money in the 7 years it took her to pay it off is dwarfed by the increase in earning potential. If I ran the numbers the increases in salary she gained from the degree have already paid for the interest on the loan by a factor of 20. Again without credit and taking a loan it would never have happened.

For me prudent use of credit and debt have helped me build a solid financial foundation. Even taking into account the few loans that we have my household balance sheet is positive. I also owned a small business and I know that without credit we would have never survived and that is a whole different can of worms but even there prudent choices allowed me to run a profitable business and not ever go bankrupt or have to shutter the doors. Credit is a tool in the tool box. It should not be the only tool that one employs but it also should not be ignored IMHO.

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I'm with you. I will make payments on things that have 0 interest for a set time and then pay them off well before the time runs out. I always check to make sure the price isn't lower if I just pay it off to start with. We of the agrarian South were taught that once your home was paid for you had arrived. True or not math wise it was a comforting feeling. It still is.

I like free money! I have also learned that when using credit properly you can get free money. I sold TVs at Montgomery Wards for a year back in the day. There were two types of customers who shopped at Wards. Those who needed to because that was the only place they had credit or where they could afford things or they were using Ward's Credit to get free loans. The smart people came in and got 0% interest on their appliances and their TVs, computers etc... They took the free money for a year and made 12 equal payments. Their cash stayed in the bank or was used to make more money. They were playing the game. I have done the same with furniture, electronics, guns etc.... over the years. I paid for a new roof once using an 18 month 0% on new purchases offer on a Discover card. It cost me nothing and allowed me some flexibility in the budget. Price for the roof was the same if I paid cash or CC so I took the free money! All of these things were done with a fair amount of restraint and self control so they were paid offer before accruing any interest. Over the years when I made less I played that game and it allowed me to fund my 401K early in my career which is now really paying off. Spreading a payment over a year or 18 months at 0 cost allowed me to keep an emergency fund and dollar cost avg my 401K. It allowed me to lower my effective tax rate and save for the future in a tax deferred manner. That was more productive than paying for those things in cash. If you stay disciplined and understand how to play the game you can make credit work for you not against you. Not everyone can do that but it can be done.
 
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Sorry to the OP for the thread drift...
 
I submit that you cannot do whatever you wanted without debt. Try running a small business without credit and debt. You cannot do it. In order to grow a business there will be times that you need to take on debt. The same is true of personal finances. There are times you need to take on debt to grow your asset allocation, skills or simply to free up cash to invest in a manner that brings a greater yield then you are paying in interest. I would ask if you can responsibility manage debt why not use it to your advantage?

PS this has been a great discussion.


That isn't true. For 18yrs I worked at a very busy, medium sized gun shop, the busiest and most successful in the area. The owners ran it 100% debt free. They owned the property free and clear, and every order or piece of inventory that came through that door, and there was several million dollars in inventory, came in COD and was paid for on arrival. He didn't owe anyone anything.
I live almost debt free, the only thing I owe on is my car, but I'm paying that off at the end of this month. I also have a truck and 4 motorcycles, all paid for, no mortgage, and this afternoon I'm going boat shopping, and paying cash if I find the right one. Anyone want to buy my old boat???? I'll finance you @ 15%.
 
That isn't true. For 18yrs I worked at a very busy, medium sized gun shop, the busiest and most successful in the area. The owners ran it 100% debt free. They owned the property free and clear, and every order or piece of inventory that came through that door, and there was several million dollars in inventory, came in COD and was paid for on arrival. He didn't owe anyone anything.
I live almost debt free, the only thing I owe on is my car, but I'm paying that off at the end of this month. I also have a truck and 4 motorcycles, all paid for, no mortgage, and this afternoon I'm going boat shopping, and paying cash if I find the right one. Anyone want to buy my old boat???? I'll finance you @ 15%.

All poodles are dogs not all dogs are poodles. When did you work at the gun shop? I would be willing to bet it was wasn't in the 2000s. You certainly could not do that starting from scratch on todays gun industry margins. What worked in the past does not necessarily translate into today. I should amend my statement to "almost impossible" when it comes to running a small business with no debt. Unless you start off with a ton of capital which 99% of small businesses don't have. Also one has to wonder how they paid for the building and how they got to the point where they could pay COD. I would imagine there is more to that story.
 
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All poodles are dogs not all dogs are poodles. When did you work at the gun shop? I would be willing to bet it was wasn't in the 2000s. You certainly could not do that starting from scratch on todays gun industry margins. What worked in the past does not necessarily translate into today. I should amend my statement to "almost impossible" when it comes to running a small business with no debt. Unless you start off with a ton of capital which 99% of small businesses don't have. Also one has to wonder how they paid for the building and how they got to the point where they could pay COD. I would imagine there is more to that story.

I worked there from 1993-2010. They ran the business that way the whole time I was there. There really isn't more to the story. I'm sure when they started the business it was probably different business strategies until they got established. But they just didn't want to owe anyone anything, every piece of inventory that came through the door belonged to the store, not to the bank.
 
I've used a HELOC in the past to wipe out CC debt but 1) I already had the credit line in place and 2) I stopped using the cards - period.

It lowered my interest rate by 2/3 and made it tax deductible. Those advantages are moot if you don't have the discipline to stop borrowing more.

And today with Amazon and pay-by-app being so convenient it's getting harder and harder to stop using the cards...
 
we use a credit for a lot of things and pay it all when the bill comes.

household philophsy here: if you can pay for it when the bill is due you can charge it.

i've been there, just pay off the best way you can and don't do it again.

jim
 
Sorry to the OP for the thread drift...

We did this one up good! :D

You definitely seem to be using debt in a different manner than most. Keep slaying it!

And speaking of GE stock, I should have sold mine a long time ago. Last time I looked it was $7 something per share.
 
We did this one up good! :D

You definitely seem to be using debt in a different manner than most. Keep slaying it!

And speaking of GE stock, I should have sold mine a long time ago. Last time I looked it was $7 something per share.

They were never the same after Jack Welsh left.
 
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