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Debt Is Dumb

Mar 17 '07 113 Last Comment
RqTecT
Mar 17, 07 12:05 am

Every Architect I know has this problem. Debt
So I am going to start a new blog called DebtisDumb.com
This will be my First blog about how to get out of DEBT.

Sample:

Step 1 Budget Budget Budget

Step 2 Emergency fund to $500.00 for every $10,000.00 you make.

Step 3 Pay off smallest loan-largest loan.
Everything except the House.

Step 4 Raise Emergency fund to $5000.00 for every $10,000.00 you make.

Step 5 Now Save 10% of your pay in 401k

Step 6 If you are Under 50 $4,000 into Roth IRA. $5000 if your are over 50.

Step 7 Start to Fund Your Childs School.

Step 8 Pay $1000 more for every $10,000.00 you make on the house. Pay off the House.

Step 9 Ok now Save Save Save

Step 10 Give it Back. The Money is not yours anyway it's Gods.
So give give give.

DebtisDumb.com © Copyright 2007.

 

Sir Arthur Braagadocio
Mar 17, 07 10:26 am

debt is what keeps the US economy going and if you're smart you will stay in debt all your life to save money on taxes...

the question is what kind of debt and how you use it to your advantage.

mdler
Mar 17, 07 11:46 am

i agree with meta..I owe money to various people (am in debt). However, the money that I owe (student loans, car loans, even credit card loans) is at a lower interest rate than investment accounts that I have. Therefore, I actually am making money by being in debt.

Also, God aint gettin any of MDLERS $$$

vado retro
Mar 17, 07 11:56 am

every architect? how about every american. but this raises the question that i have become obsessed with lately, which is the forced attendance of graduate school on the road to becoming an architect.

Formerlyunknown
Mar 17, 07 12:59 pm

On Step 3: you should pay your loans (and credit cards) in the order of largest to smallest interest rates. Size of the loan is not as important.
The exception to this is if your primary goal is to raise you FICO score. In that case you should pay down your credit cards - or possibly move the balances around if you can find balance transfer offers without huge fees - such that no one card has a balance of more than 30% of its limit.

On Steps 1 and 4: your emergency fund should be a minimum of 3 months of expenses - and preefrerably 6 months or more. It's better to look at it that way than to pick an arbitrary percentage of your salary (especially since an entry-level intern with a lot of debt may actually have monthly expenses that exceed his income.)

wurdan freo
Mar 17, 07 1:02 pm

Debt is dumb. Make money... don't earn it.

silverlake
Mar 17, 07 2:33 pm

Debt is dumb. Any debt means you gotta pay interest. Paying interest = losing money...

Sir Arthur Braagadocio
Mar 17, 07 2:58 pm

inflation is moving faster than my student loans....

so look at this way, $50 a month on a student loan in 10 years will like donating a gallon of milk a month to pay off student loans...


the rich are just as much in debt as they have money.

to pay off your debt and then not get a loan to make money is pure STUPIDITY!! you should remain middle class if you aren't smart enough to expand...

e
Mar 17, 07 3:01 pm

i have a mortgage, but shed all of my credit card debt years ago.

Jonas77
Mar 17, 07 4:04 pm

watch the movie 'Money as Debt' (sic)

It's imaginary and how much can the environment take? I think a tipping point was reached a week ago on allot of 'peak' levels.

Orhan AyyüceOrhan Ayyüce
Mar 17, 07 4:06 pm


206 million dollars as found in an apartment in mexico city.

RqTecT
Mar 17, 07 4:41 pm
Debt is Dumb

Formerly Thank you great question.

Step 3 To pay of the highest interest rate first is trying to solve Debt with math. Debt is more than a math problem. To Really win at Debt you have to overcome it. So if you pay off the smallest loan first you will fell like your are winning the game. Take that money pay off the next biggest loan.

Example:

1. Credit Card #1 balance is $550.00 18% intrest
2, Credit Card #2 balance is $9650.00 22% intrest
3, Car Loan #1 balance is $10,650.00 6.5% intrest
4, Car Loan #2 balance is $22,650.00 9.0% intrest
5, Student loans balance is $50,000.00 5.5% interest

As soon as you pay of the small loan, roll that onto the next size loan so on. If you tried to pay of your Credit Card #2 $9650.00
You would most likely give up and quit.

I do not care about My FICO Score. Because I do not borrow money.

I don't want to wake up on My Debt Bed and say God I wish I had charged more.


Formerlyunknown
Mar 17, 07 6:11 pm

Well, to each his own.

I paid off my student loans and a lot of credit card debt that was associated with paying my own way through college and grad school and a couple of years with negative income-to-expense relationships when I was starting out, and I know that had I done it following your example above I would have paid considerably more in the long run, and it would have taken as much as 9 years longer.
I understand your theory about getting discouraged, but there are plenty of online calculator tools that you can plug your amounts and interest rates into and get suggestions on the best payment strategies. When I used one of those to analyze different orders and payment amounts it made it easy to stick with the quickest and least expensive course.

In your example above, if you don't attack the 22% credit card first you're going to pay thousands in interest each year.
On those cards your best bet - if you have a decent credit score - is to combine and move the balances to a different card with a low promotional rate for the life of the balance. A person with a decent credit score should be able to find a card with a promotional rate under 5%. Even it there's a 3% transfer fee you'll be way ahead. Just don't add any charges to that card, because they'll be charged at the regular, non-promotional rate and will accumulate interest until you pay off all the promotional debts!

The biggest reason I cared about my FICO score was in order to get a good rate on my mortgage. That being the largest debt I'm likely to incur in my life it made a lot of sense to me to get the best terms. A few points on your FICO score can be the difference of tens of thousands of dollars in that situation.

binary
Mar 17, 07 7:37 pm

i avoid credit cards........ alot of people i know are in debt at least 4gs with CC......

i had a homedepot card but for materials during jobs...... but most of my jobs i get a retainer that pays for materials and part labor...

the system wants to keep you in debt..thats why there are some many rates/etc that go up and down...... the longer they keep you in debt, the more money they make

Sir Arthur Braagadocio
Mar 18, 07 1:12 am

cryzko there is no they
they is the economy and the longer the economy keeps us in debt the longer we work, the longer we produce, and ultimately keep ourselves at world power level...

as admittely fucked up as that sounds, c'est la vie.

Jonas77
Mar 18, 07 1:17 am

well if your not making debt your not helping the economy heh

now get to work and manufacture some want ;)

binary
Mar 18, 07 1:28 am

consumers make the world go round......... not debt........ you buy buy buy... tax tax tax......... spend spend spend.......

joshcookie
Mar 18, 07 2:27 am

Why should I pay for my kids schooling? I paid for mine, they can pay for theirs. Making that decision just moved up retirement by 5-10 years, yipee!
j

RqTecT
Mar 18, 07 11:09 pm

Debt Does Not Help The Economy.
Debt is the House of Cards, it is just a matter of time.
1929 to 1934 Were not good years to have alot of Debt.
But if you had no Debt and alot of Cash.
Thus the phrase 'Cash Is King" was coined.

Architects have had it really good for awhile.
But does anyone remember 1975-1981.






holz.box
Mar 19, 07 3:15 am

i thought it was important to pay off debt in order of highest APR...

anyway, paid off the balance of my school loans last month... so apparently corporate firms are good for one thing. now i just need to stop buying uber expensive swiss + german architecture books.

and the retirement issue is interesting.
i worked part time for an architect before school, a real "old fogey", who only took on a few projects a year (he was "retired"). he never had any notions of leaving architecture completely. he also took ran off to france for 3 months in the late summer/fall.
i'd prefer something along those lines, i think.

4arch
Mar 19, 07 9:39 am

"I do not care about My FICO Score. Because I do not borrow money."

That's great if home ownership is not one of your priorities, but for most Americans it is a major priority. I would assume that desire is even greater among architects since so many of us want to use our homes as testing grounds for our ideas.

sabbo
Mar 19, 07 2:06 pm
kakacabeza
Mar 19, 07 3:41 pm

For whoever said they don't care about their FICO score, If you don't care about your FICO score, then stop paying on your credit cards. Sure you'll have to dodge a lot of phone calls for a while, but after 7 years, the money will be magically erased from your credit history!

architect21
Mar 19, 07 4:52 pm

I'm on step 8 Debt free but the house.
It is suck a relief to pay everything off I agree
Debt is Dumb.

aquapura
Mar 19, 07 5:12 pm
debt is what keeps the US economy going and if you're smart you will stay in debt all your life to save money on taxes...

I'll forgive this type of comment as this is a forum of architects and not economists. What is keeping the US economy going is investment from foreign countries that have a keen interest in keeping the American consumer spending money they don't have on stuff they don't need to keep the economies of foreign countries humming along.

Since the good old USofA is the only net importer nation on this planet every export nation out there has an invested interest in the health of this economy. So much so that they keep loaning us more and more and more.

Debt makes one vulnerable, it's the burden of the American middle class, is contribuiting to more economic disparity between classes and will be the downfall of the American economy.

Investment on the other hand drives economies. A bank needs someone to deposit money before they can loan it out. Without investment there are no business loans, no venture capital to create new technologies, stagnat growth. Right now we rely on foreigners for that investment. Well, when they come in short one month guess what, the gov't just goes and prints more money = uncontrolled inflation. Yes, debt is dumb.

4arch
Mar 19, 07 5:32 pm

sabbo,

please inform us of the alternatives to home ownership that would provide housing for the middle class without requiring them to incur debt?

let's examine some of the classical alternatives:

-renting

renting is basically you entering into an agreement to pay whatever debts and expenses your landlord may have incurred to own and maintain the property plus a usually hefty premium on top of it all. while you do have certain protections as a tenant, you are still living largely at the whim of your landlord. you could pay rent steadily for 30 years and have no guarantee that the landlord wouldn't sell the property out from under you or decide to suddenly triple the rent. i'd rather be paying my own debt for 30 years and at least have something to show for it than paying my landlord's debt for the same period and having absolutely nothing to show but check stubs.

-super cheap houses (mobile, shipping container, prefab, etc.) on super cheap land

nice idea, but it's hard to find a job in most places where this can be accomplished.

-housing provided by the government

we saw how well this worked in the USSR.

-housing provided by your company

didn't work too well in the early 20th century. became a way to control workers rather than a benefit.

-living in parents' basement

gets old after a while.

-camping/being a nomad/being homeless

not most people's cup of tea.

architect21
Mar 19, 07 7:41 pm

Sorry, such not suck.
Anyway great topic.

holz.box
Mar 19, 07 7:59 pm

recently saw that china and japan are owed almost a trillion dollars in debt...

how's this for vulnerable?
if they were to cut US holdings (the debt is held in T-bonds) that'd drive interest rates through the roof... and the cool down we're seeing now would be nothing

timothy sadler®
Mar 19, 07 8:54 pm

Who said:

A dollar borrowed is a dollar earned.
A dollar paid back is gone forever...

There's good debt and bad debt.
Good debt is debt on appreciating assets, e.g. real estate.
You pay the bank 6% for something that appreciates at 12%.
You're borrowing other people's money to make money for free.
Smart.

Bad debt is debt on depreciating assets, e.g. cars, credit cards, etc.
You pay the bank 18% for something that depreciates at 25% or more.
You're paying a premium in your money for something that loses money.
Dumb.

Sir Arthur Braagadocio
Mar 19, 07 9:49 pm

aquapura you an economist?

look you don't need money to make money, only Americans understand that concept...

and when and who and where will this ever vulnerable debt be paid, that gets bigger and bigger but apparently really doesn't matter.

Sir Arthur Braagadocio
Mar 19, 07 9:53 pm

no wait, i a saw credit cards become a hit a while back in europe, i take that back...

then there's holz.box's point...on china's and japanese debt, wait are those guys keeping our economy going, no its the Saudi's right...

economists barely understand economy, so there is really no point in debating this...

but like i said, if you're smart you'll save on taxes by having debt, and it goes without saying you have investments, duh!

biggz
Mar 20, 07 1:39 am

debt can be smart.
take student loans for example.
if you lock in a low rate and then use an interest only payment for the first few years that even lowers your payments at first, then you're spending money you really need for more important things , like 401k or investing. Rather than throwing all you available money at paying off debt (unless it is at a high % rate) invest it in a average stock return of 10% annually. Use that profit to pay off your very low rate debt.
and extend it over 30 years if you can, ..people think the sooner you pay it off the better , but if you carry that debt at that low percentage the money you make on other investments that you saved by not paying off your loans all at once will just work for you, and in 15-20 years that loan payment, adjusted for inflation will seem negligeble.

ofcourse if you have a few 22% credit cards then you are screwed, refinance/transfer balances immediately and pay it down.

Nick SowersNick Sowers
Mar 20, 07 2:04 am

numbers shmumbers plastic shmastic

it feels so much better to pay for stuff with cash

but even cash is vaporous.

holz.box
Mar 20, 07 2:07 am

gold standard anyone?

Nick SowersNick Sowers
Mar 20, 07 2:18 am

biggz

on paper that might look good. but debt has a psychological effect too. Extending a student loan over 30 years sounds terribly depressing to me.

Do you really wanna be turning 55 and saying "ah yep, just paid off the ol' student loan"

Sir Arthur Braagadocio
Mar 20, 07 7:40 am

neat, get over it, thats kind of the point.

if you are smart you will get over this debt is dumb phase.

Gabe Bergeron
Mar 20, 07 11:20 am

seems to me that the biggest negative consequence of living in debt is the associated tether to a regular income.

If you've gotta make regular payments, it pushes you towards holding down a regular job. Which corresponds with higher aversion to striking out and taking the big risks.

Debt's cost to society: fewer people taking risks, venturing, adventuring, inventing, etc. Too much water kills the creative yeast.

Then again, I'm sure an inventive person can find ways to use debt to their benefit.

e
Mar 20, 07 11:47 am

as it has been said many times here, the issue is not so black and white. sure, i'd love to have no debt. i currently only have a mortgage for my house. i am fine with this debt. without it, i could not own a home. i have a 30yr fixed at a very low interest rate. i wish i could do a 15yr, but i can't.

i used to have student loan debt. without that debt, i would not have been able to get a college education thus severely limiting what i could do with my life and probably limiting how much i could make. to me, if you need to borrow to make this happen, this is another example of smart debt.

credit card debt is dumb. i have none. learn to live within your means. i know it's tough when you are in school. i wasn't able to do it. i took out a credit card just to get through my thesis semester. i had a good amount of credit card debt when i got out of school. i'm glad i don't have it anymore.

debt can be dumb and debt can be smart.

Sir Arthur Braagadocio
Mar 20, 07 1:33 pm

gabe

actually i think getting a small business loan leads to more people taking risks...

CREDIT CARDS ARE DUMB! unless of course you manage to keep an APR of 3% or less without fees (yeah right!)

i think we can all agree on that one.

e
Mar 20, 07 1:45 pm

from bruce mau's an incomplete manifesto for growth:

31. don't borrow money. once again frank gerhy's advice. by maintaining financial control, we maintain creative control. it's not exactly rocket science, but it's surprising how hard it is to maintain this discipline, and how many have failed.

Ms Beary
Mar 20, 07 3:04 pm

Now that it is time to buy a house, I am finding my FICO score is not as high as I think it should be. Having never taken out student loans, and having only paid cash for a used car, and paying off my credit cards every month, fully funding IRA's since 22, and holding modest savings in money market accounts --- I haven't incurred ENOUGH debt to make my credit credible, but looking at my history, I just chose to do things debt free thinking it was smart, now I pay for it. What a funny world.

By the way, real estate is not an automatic 12%. I think it is more like 6%. The last few years have been like 25% in some locales, but this is not typical. Plus you have expenses incurred to maintain that investment.

aquapura
Mar 20, 07 3:21 pm

BObby, how bad is your FICO? Much like you I didn't have a traditional loan history when I bought my house. Then again, my FICO certianly didn't keep me from borrowing money at the best possible rates. Remember the biggest part of that score is based on you making payments on-time, all the time. A credit card will get you that history. Also, how much credit line do you have on your plastic? The next biggest chunk of the score is how much you have charged vs. how much credit you have. If your cards have $500 limits you need to get more of a credit line. Go for $20,000+ to show you can handle revolving credit. Lenght of credit history counts. Have you had a credit card since age 18 or did you wait until mid-20's? Then, right down at the bottom of how they factor your FICO is the type of credit used and how recently your credit has been obtained. So, long story short, you don't need to get a traditional loan to build an impressive credit history - FICO score.

Ms Beary
Mar 20, 07 3:33 pm

aqua, it's not bad at all, it's good by most standards, but it could be higher. and I am getting quotes for good rates, but I want the lowest rate possible, not 'a very low rate'. for example 5.25 vs 5.675. I drive a hard bargain.

I do charge most everything I buy, usually about $3,000 a month, and pay it off. I have a friend who is a mortgage broker and he was telling me all sorts of reasons my credit score isn't as high as his for example. One thing he said was that I hadn't handled enough debt thru car and student loans. Another thing he said was that if I continuously put money on my credit cards and charge over half my limit every month, which I do, that it was a bad thing, even though I pay it off. Who knows. Maybe it doesn't matter. Those express/macy's/banana republic/target... cards I applied for over the years probably don't help.

RqTecT
Mar 21, 07 1:44 am


Your FICO score only tells you how much you love Debt.
I do not worry about My FICO score because I Don't Borrow money ever, Period. How? I save till I can afford to Buy. Now that's a cool concept. I can save because I am not broke.

If you never borrow money you have a better chance of never being broke.


debt is dumb

Sir Arthur Braagadocio
Mar 21, 07 2:11 am

i've heard rumors that Gehry's company went bankrupt twice.
Nouvel went bankrupt once.
and we all know from watching "my architect" Kahn was broke.

but here is some real proof for you guys who still don't get it....

qouting W.A. Lewis' "Development with Unlimited Supplies of Labor"

"If, therefore, the capitalists begin to finance capital formation out of credit, they lower the real incomes of the other only temporarily. Wages would then be chasing prices continously but for the fact that, since output is growing all the time, profits are growing all the time. Hence the part of the investment which is financed out of credit is diminishing all the time, until equilibrium is reached. For example, suppos that an investment of $100 a year yields $20 a year profit, of which $10 a year is saved. Then, if capitalists invest an extra $100 a year, all of which in the first year is financed out of credit, by the eleventh year of profits will be $200 a year greater, savings will be $100 a year greater and there will be no further monetary pressure on prices. All that will remain from the episode is that ther will b $1,000 more useful productive capital at work than ther would have if the credit creation had not taken place/"

for all you babbling anit-debt guys who think debt makes you vulnerable and assumed that is not what makes the Western economies tick, how you like them apples beoch!

Sir Arthur Braagadocio
Mar 21, 07 2:11 am

i've heard rumors that Gehry's company went bankrupt twice.
Nouvel went bankrupt once.
and we all know from watching "my architect" Kahn was broke.

but here is some real proof for you guys who still don't get it....

qouting W.A. Lewis' "Development with Unlimited Supplies of Labor"

"If, therefore, the capitalists begin to finance capital formation out of credit, they lower the real incomes of the other only temporarily. Wages would then be chasing prices continously but for the fact that, since output is growing all the time, profits are growing all the time. Hence the part of the investment which is financed out of credit is diminishing all the time, until equilibrium is reached. For example, suppos that an investment of $100 a year yields $20 a year profit, of which $10 a year is saved. Then, if capitalists invest an extra $100 a year, all of which in the first year is financed out of credit, by the eleventh year of profits will be $200 a year greater, savings will be $100 a year greater and there will be no further monetary pressure on prices. All that will remain from the episode is that ther will b $1,000 more useful productive capital at work than ther would have if the credit creation had not taken place/"

for all you babbling anit-debt guys who think debt makes you vulnerable and assumed that is not what makes the Western economies tick, how you like them apples beoch!

Sir Arthur Braagadocio
Mar 21, 07 2:23 am

damn a double click and my 'e' key isn't working...

to put it more simply you have to spend money to make money, so if you don't have the money you have to borrow the money.

example:

I borrowed more than enough for school this year, invested in stocks and made more money then interest charged. the money has been sitting in stocks long enough to appear not as a loan anymore but an asset. so now i have money for a downpayment on a house, the only problem is I want to be self-employed when I graduate, and that will screw up the loan rates a bit.

4arch
Mar 21, 07 9:10 am

Shouldn't this thread be deleted since it's an advertisement for a website? I finally visited the "debt is dumb" site and found that it's just a placeholder page with a bunch of links to financial sites and the domain is for sale for a cool $5k. No wonder rqtect is acting so smug...if anyone's dumb enough to cough up $5k for this domin he'll be laughing all the way to the bank.

e
Mar 21, 07 11:28 am

meta, please fix that 'e' key for me.

architect21
Mar 21, 07 3:43 pm

Meta if you had any money you could go buy a new keyboard.
What the Hell, Charge it.

Sir Arthur Braagadocio
Mar 21, 07 8:23 pm

ha i love it
archinectors with a sense of humor, fucking unheard of

sorry e, nothing personal

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