Taking Debt to Your Grave Now Acceptable?

I'm noticing more and more that in order to live the good life (ie keep up with the Jones's), most Americans at least, are left with two choices - 

- get a good paying career in an area with low cost of living area, hold minimal debt

- get an average paying job in an increasing more expensive metro area, and hold lots of debt. 
 

Almost everyone I know has a pretty high debt to income ratio - either from car loans, school loans, or home loans.

This phenomenon isn't just limited to wage earners, either. Seems like it's increasing a lot more common in business - leveraging assets for more cash flow even if you hold considerable debt.

Is debt now acceptable? Unavoidable?

But they told us to go to college and get a career...

So weird. I'm looking to buy some acreage, and realized with a 30 year mortgage I'd be almost dead 77+ before it was paid off. I feel like property values are propped up by super low rates and the idea that we will pay over.... forever. Owning a house is more like a subscription.  

If I waited to save enough money to buy a house, I'd be lucky to live in it 2 years before I died. If I was lucky.

I've long since learned to live within my means, enjoy my money in small enough doses, and not give 2 E36 M3s about the Jones.

Debt is acceptable to me if you can manage it well. I'm no expert in finance and it hasn't ruined me. If I can manage, anyone can.

yupididit said:

But they told us to go to college and get a career...

An in-state, 4 year degree from a major school (the ones they tell you to go to) is an easy 100k in debt, in Michigan. Part of that is a different debate, but depending on financing sources it wouldn't be hard to believe a lot of that 100k would be at 7-8% or higher. Monthly payment minimums at ~$1000/month. If you fall behind, you can't pay principle until you've paid off accrued interest. If you're fighting off interest you never touch the loan. How can you save for a house if you're paying 1k/month plus in student loans? Rent is much more than a mortgage... Some job fields are worth it, and will pay you back quickly. Some aren't.

(Fortunately not my situation, but we see it with people we know..)

Took me a while to lay off student loans plus mba plus wife's two masters degrees.  Now I'm saving for my kids run at school. Ugh. 
 

data science is paying idiotic salary's.  If you are good at it. It's. Fast way to VP.  A lady I hired 10 years ago out of grad school is a vp at big bank right now.  She wasn't even that great. 
 

I still believe the us is a pyramid scheme right now. Be the top or die. 

I'm retirement age and  have friends that are retiring with debt that have no intention to slow their spending, and no prospect of ever of paying it off.

One of them recently told me how he was so looking forward to retirement and traveling several times a year. But during his latest trip, a gift from his kids, he realized that they can't afford to pay their bills, let alone travel. His wife also decided to retire from a gravy government job and took a part time job at a trendy food store part time. He was a teacher and between them they were making a minimum of $150k a year.

I hope he wasn't a math teacher.

Debt is part of a salesman's life.  Since a big chunk of your income is commission which is paid once a month and varies tremendously  especially with regard to construction. 
     It's worse if your expenses are paid  at the same time  as the commission.    Your commissions aren't paid when something is sold either, but only once it's paid for. 
   Since a lot of the equipment I sold  on a rental purchase agreement (RPA ).  It could be months or even more than a year until that buyer  had enough equity to convert the rental agreement into a lease.  ( and I get paid) 
    I would often have $250,000 or more on my pipeline , which would provide a nice commission when converted.   But typically not enough to live on just my Draw. 
   The commission check first paid any credit card up.   If it was big enough furniture or other  major expenses were purchased.  
The rare vacation  was  typically on the credit card.  Coordinating  time off for 2 workers and kids was difficult and would never occur if we waited for cash to  be in the bank.  
     New cars were a requirement.  I put 65,-85,000 miles a year on them.  However they were paid for with expense money.  It was rare that a given car wasn't paid off in a couple of years. Most were paid for within a year and 1/2. 
    Then handed down  to family members. 
 Buying the right home can help generate wealth.  So far my house has appreciated over  $35,000 a year since I bought it.  Yes it went down in value from 2009 until it recovered  about 2011 or so.  No that's not linear. Just the 38 years I've owned it divided by 38. 
  The trick is to make your  purchase as soon as you can.  I did a step to this house. Started at $27,800 sold it for $99,000 and bought this place for $107,000 

Debt is a great way to leverage yourself to the "top" or bottom. 

I'm amazed at the truck drivers and warehouse workers in my area that are able to pull in low six figure incomes with little to no training. The people who are willing to "work hard" are going to college and avoiding these jobs because we look down on them as a society because they aren't educated.   

unfortunately, the days of single income families living in middle class homes just doesn't exist anymore. The cost of housing has spiraled out of control and at least in the IT world where I live, a lot of the salaries haven't increased to compensate. 

pheller said:

 

 

- get a good paying career in an area with low cost of living area, hold minimal debt

- get an average paying job in an increasing more expensive metro area, and hold lots of debt. 

Just want to point out that it's very possible that the first person is getting something like $100k/year while the second person could be closer to $200k/year.  Salary average is very dependent on where you live.

And this was an issue 20 years ago, too- although the school part of debt was different.

Lastly, the whole chase for the betterment of the Jones' is very relative.  Not everyone is chasing the mcmansion and trying to always buy up.  Our neighborhood is quite old, and in Ann Arbor is also quite reasonably priced.  There are quite a number of people who move here and never leave- meaning they start a mortgage early, and finish it while working.

I find that I learn new things with each passing decade. 10 years ago I thought you had to be debt free to enjoy retirement. Today I am not sure. I think it is debt type dependent. My parents retired ~12 years ago, a couple of years later they moved to NC from NY, took on debt by buying a house (not a huge one and within their means at their retirement income). Now ten years later that house is worth easily 2.5X what they bought it for so that debt is probably their best investment. 

If the question is should you still be paying college loans or credit card debt in retirement I think that is a different question. I don't know that I buy the "good debt, bad debt" philosophies but there is "acceptable debt" in my mind and housing is one fo them. 

Well the "middle class" can't pay for college, a home or hell even a brand new car with a warranty without debt. So, debt is inevitable. And wanting those things, or nice things, or wanting to travel isn't "keeping up with the Jones" its being a person who want things. Especially if you work your entire life just t to provide the basics. 

What Is Indentured Servitude?

Indentured servitude refers to a contract between two individuals, in which one person worked not for money but to repay an indenture, or loan, within a set time period. Indentured servitude was popular in the United States in the 1600s as individuals, mainly European immigrants, worked in exchange for the price of passage to America.

The 13th Amendment to the United States Constitution, which was passed after the Civil War, made indentured servitude illegal in the U.S. Today, it is banned in almost all countries.

But is it really banned? Loansharking also used to be a crime, but then the Credit Card industry came along...

Call me crazy, but practically speaking, not much has changed since Jan 1, 1863 except for the labor pool being expanded.

We're just following the example of our government.

yupididit said:

But they told us to go to college and get a career...

But that doesn't mean signing your life away before you even start.

Starting out owing your soul to the company store is not what was recommended.

This is education embracing marketing they don't care if the job won't exist as you know it in 10 years. If you can hold a pen, they have an education for you. You have to be smart enough to know when. Education should not be so specific, it's to show you the world and see where it leads you and proves that you are trainable. That diploma and debt is not very edible.

bentwrench said:

yupididit said:

But they told us to go to college and get a career...

But that doesn't mean signing your life away before you even start.

Starting out owing your soul to the company store is not what was reccomended.

...just buried in the fine print on page 4 of the Terms and Agreements that we were told was just boilerplate.

Welcome to American Economics 101

ALWAYS READ THE FINE PRINT!

A lot of people leave college with terrible debt, some unavoidable some not as much. There are a lot of people going to 4 years of private college to get degrees with little to no job prospects, how is that a responsible "adult" decision? You can go to community college for 2 years and transfer and cut your cost in half. You can work while you are in college and reduce your liability. No doubt it's expensive but there are more cost effective options that many people choose to ignore. 

bentwrench said:

yupididit said:

But they told us to go to college and get a career...

But that doesn't mean signing your life away before you even start.

Starting out owing your soul to the company store is not what was recommended.

This is education embracing marketing they don't care if the job won't exist as you know it in 10 years. If you can hold a pen, they have an education for you. You have to be smart enough to know when. Education should not be so specific, it's to show you the world and see where it leads you and proves that you are trainable. That diploma and debt is not very edible.

 

Damn, where was this noted in the  "American Dream"? Or in gradeschool where you learn how to pass test that are solely for getting you into college?

Is that something learned when you're not raised in poverty? 

A house is a different kind of debt than most. If you buy well it is worth more down the road and even if you still owe when you retire you have equity, and even low inflation means your payments are worth less over time. So the debt is just a detail that you sort out either when you retire and downsize, or when your heirs get rid of all your possessions. 

Of course if you are 95 per cent into your HELOC it may be a different story.

Carrying tons of debt can be fine when rates are <5% and stock market returns are strong.

It's going to be quite a bit less appealing when rates are >5% and stock market returns are weak.

The low interest rate environment of the last decade, contributed to and bolstered ballooning asset prices. But chickens always come home to roost, and you'll begin to see more and more people and businesses become more concerned about debt load or taking on new debt over the next couple of years. As always, those who can keep their overhead low are best equipped to weather any financial storms.

bentwrench said:

Welcome to American Economics 101

 

ALWAYS READ THE FINE PRINT!

bearmtnmartin (Forum Supporter) said:

A house is a different kind of debt than most. If you buy well it is worth more down the road and even if you still owe when you retire you have equity, and even low inflation means your payments are worth less over time. So the debt is just a detail that you sort out either when you retire and downsize, or when your heirs get rid of all your possessions. 

Of course if you are 95 per cent into your HELOC it may be a different story.

I think the house being worth more at a later date for no material reason is a large part of what got us into this mess...

I am glad that the only debt I have at 33 is the house note and the house is currently worth almost 2x what I owe. Will probably end up with a little bit of debt to finish the garage.

I am pretty good at staying debt free. I need to get better at investing though.