Hi – this is Mr Credit Card from www.askmrcreditcard.com. This blog has done a great job (IMO) of encouraging folks to take action and get out of debt (pizza delivery anyone?). Today, I’m going to share my views on how one could possibly avoid debt altogether, especially on stuff which we as a society considers debt to be OK. Hope you enjoy it. And BTW, if you are looking for a credit card, please check out my best credit cards recommendations. (only if you pay in full!)
A good place to start in the war against debt, is finding ways to not get into debt in the first place or rather choosing alternative solutions instead of choosing debt. When you think of it, a lot of our habits are either grandfathered down to us (meaning this is how it’s always been done) or are acquired through simply not knowing any better. There are some things which society accepts as OK to get into debt. However, there are other options and here are a few to take into consideration. I would like to explore these now.
Student Loans – Going to college and acquiring student loans is a slippery slope in which most of us feel don’t really have a choice (or do we). Either take the loans and get an education which leads to a legitimate place in society or don’t go to school at all. Perhaps for many folks, there is no choice because their parents have not saved enough to fully fund their college education. But there are many alternatives to either not incur any student debt or at the very least, minimize it and ensure you have the best chance of repaying it in the future. Here are some things you can do:
- Research scholarship opportunities and apply for as many as you can – this one is pretty obvious but requires lots of time and effort.
- Make sure you get any grant money that is available – same point as above. Research, research and research.
- Work part time in school and keep expenses down as much as possible – Hey if you study music, teach music part time. Do anything to bring in some money in college.
- Consider working and saving up for college – Not many folks take this path. But you could work for a few years and try to save up for college. Heck, if you become wildly successful, you may not even want to go!
- Figure out career opportunities of what you are studying – Nothing is more demoralizing than getting into a ton of debt and graduating, but discovering that there is not a lot of demand for the area of expertise which you have studied. Or if the pay in that particular career is very low. The debt load of a medical student may be high, but the chances of them landing a job is pretty good. And if they move into the right area, it could be very lucrative as well and the student loans become manageable. But a graduate in psychology may not fair as well. It is so important to consider the opportunities in your field of study before you take out a student loan.
Do You Need a Mortgage? – Mortgages have for years seemed to be part of life. If you want to buy a home you have to have a mortgage – or so says conventional wisdom. We have always been told to save for a 20% downpayment and take out a 30 year fixed mortgage. But why not save up to pay for a house in cash? But we cannot afford any house if we save for the whole amount? That is simply not true. But to achieve this, you need to consider the following:
Back until the early twentieth century, most folks do not have mortgage. Those who can afford it own their homes and become landlords. The rest just rent. I urge you to consider changing your mindset that you need to take a mortgage to buy a house. If you decide you want to save and pay cash for your home, you would approach you life and career very differently.
Cars – Buy your car and don’t take out a loan. Cars depreciate and will likely never be worth what you have paid for it, and a large monthly car payment can put a significant amount of debt on your shoulders. When you sell it, you will never get what you paid for it. Save your cash first and buy something reasonable. Best is to get a second hand car. Better yet, there can be some good bargains to be found in repossession auctions (cars which are repossessed because of folks who missed their monthly payments).
Credit Cards – Too many folks fall into this trap. Always pay in full your balances every month. I once heard Suze Orman tell folks that perhaps it is OK to take on some “good debt” – like putting some working clothes expenses on your credit card if you cannot afford it and just make sure you put it on a low interest rate credit card! I have a serious problem with that. If you know you need to have some working clothes after you graduate, then save up for it. It is little things like that which could potentially start a nasty habit of always carrying a balance.
Never use your credit cards as an emergency credit line. Rely on your emergency fund. Instead, if you use your cards responsibly, you could save money by using cash back rewards credit cards or gas rewards credit cards and save money by earning rebates (and paying in full off course).
Other stuff like furniture, plasma TVs etc – I think almost everyone would agree that it is suicidal to buy stuff like furniture, plasma TVs on credit. Many folks in the good old heyday used their home equity lines of credit for vacations! Never ever do that. That is an almost insane thing to do – getting into debt for pleasure and not for the purchase of a productive asset!
Emergency Fund – keys to not dipping into credit – I feel the key to not having to resort to debt is to build up an emergency fund to use. That way, you’ll avoid having to charge an emergency on a credit card. This fund can be used on those expenses that a lot of people without emergency funds have to use credit cards for. Car repairs, medical bills and anything else that is just not an expected expense. An emergency fund will help a great deal in keeping you out of debt.
Having Adequate Insurance – Make sure you always have adequate insurance and medical insurance. This means for your car, your house and anything else that could be damaged and end up costing you an arm and a leg. Don’t go into debt over medical bills and things that can be avoided.
Conclusion – Debt doesn’t have to be a normal part of life, if we make sure that we look into even unconventional methods of paying for and living. If we avoid it from the beginning, we don’t have to waste time later wondering how to get out of it. But avoiding debt of any kind requires a change in mindset from society’s expectations. While society realizes it is good not to have credit card debt, most look upon student loans and mortgages as necessities. But I would challenge everyone to question that assumption. Because if you do, you may find that you may choose to live differently and certainly look at your life differently as well.
I am interested to hear what you folks think about paying cash for your house instead of taking a mortgage.
{ 11 comments… read them below or add one }
I have $40k of debt tied up in my debt management plan now. I pay approx $200 a month and it will currently take 18 years to pay off….. I plan to get this cleared much earlier with lump sums in a few years…. Once that is gone I plan to NEVER get in debt again. If I want a house, I want to save up for it, same for school… anything…. I plan to NEVER go into debt again
if I had to do it all over again, we would have paid cash for my house..or at least delay the purchase until I have saved enough.
I agree with most of your points with the exception of buying a home without a mortgage. This is possible in many parts of the country, but would be prohibitive for most people in high-cost areas (like San Diego). Even a 1-bedroom condo would be close to $200K.
Bucksome, here is the thing. If you make up your mind that you do not want to have a mortgage but would rather save and pay cash for a home, it will force you to seriously think about things like where you should live (obviously lower cost areas) and what career can you feasibly have in those areas.
I really like you ideas. Too many people think they are impossible but they are it just takes some patience and perseverance. The problem with so many people is that we live in a I gotta have it now society. Unfortunately our government isn’t any better. Hopefully with sites like this one it will set the example for people to follow.
Being as student loans consume my personal debt ATM, I particularly liked that portion. I have a personal example:
My internship my senior was for SEVEN credits, and paid $10 an hour for 30 hours a week. I did a good job, got experience and a great reference, and received an A for the course, that’s an A for seven credits, nice little GPA boost (not that I needed it… I kid, I really needed it lol)…
Also something I think more and more people are doing now is starting at community colleges and then transferring to a larger university their Sophomore or Junior yrs.. I would have saved a LOT of money if I would have done that
Great points!
Nice job on the internship. All the kids I work with at the pizza joint are going to community college first. I think it’s a great move.
It took me 10 years to finish college, but I did it with zero student loans. My grades were not good enough to get into the 4 year program I wanted so I choose the enroll in their 2 year associates degree program in hopes of transferring later. I ended up having a job in my field after my freshman year. I finished my associates degree and went to work. I ended up at another company that paid for the rest of my degree at a private college. Yeah it took 10 years but I had ten years experience to match the degree and no debt. Too bad I didn’t remain debt free in the rest of my life haha!!
10 years, no debt, I’ll take that!!! My expected payoff on some of my loans is 2019!! Well, I will obviously be paying those off MUCH sooner. My point is that the fact that you have no student loans is HUGE! Just about every PF blog out there has student loans as a central item. Also your company paying for school sounds like such a blessing! If only I could get the Navy to pay for more of mine!
The company paying sure was a blessing. We still have one student loan left for my wife though. Her’s will be paid off later this year after our 2nd mortgage is paid for. The Navy eh? I have quite a few co-workers that used the Navy to help fund their school.
I bet that is going to be an amazing feeling, paying off the last of your wife’s student loans AFTER paying off your 2nd mortgage! Sounds like this is going to be a GREAT year for you! Two big debts paid off!
Unfortunately many years ago my recruiter left out some really great information about tuition repayment, tuition assistance, etc. Now I get is the Reserve G.I. bill, which is essentially gas money, not even.
I can tell you from experience…. that the $$ grow much faster in your account when there is no debt – Hubby and I have had a mortgage or two, because of necessity at earlier times in our lives – but we made a plan to pay them off (15yr fixed in 5 for example and we were able to do it in 3 because it was a priority). Once we had the first house debt free, we loved the “freedom” and would never chose to go back. We bought the house we currently live in for cash (380K) from the money we saved in the 15 years we lived in the house paid off above. And then we still had the paid off house to sell to put back into our savings. We have never had a credit card balance and get free trips, gas, and hotels from the cards we do have, we use coupons, and other things to cut our costs wisely. We save up for something if it’s a large purchase. We even paid cash for our cars (2005 350Z, 2002 Lexus 430LS). Additionally, in 1985, we started a business and made it a “rule” that we would have no debt, and after 25 years in business, we still have no debt. It can be done. You do give up a few things here and there, you settle occassionally, you watch what you spend and when – you watch interest rates, and go for the free checking, etc. but there is peace in not owing anyone in my eyes.
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