Reasons for being debt-free.

[tiqa]

OK, I am totally on board with being debt-free. But I'm finding it hard to figure out exactly, um, why. (We will be debt free this January, and unless something goes terribly wrong with the new baby, should be staying that way.)

See, here's the thing. We already have a mortgage at a super rate, and we will probably pay it off early. We don't need a car loan and will probably pay cash next time we buy (hopefully not for another few years). We aren't going to be applying for jobs. We aren't going to be looking for an apartment. We're not looking to secure new credit. Our interest rates, insurance rates, etc. are pretty good.

Other than feeling good about being "disciplined" and of course the whole not-having-debt-hanging-over-your-head thing... What would a good credit score do in our situation? (Or not even credit score, really, but specifically, being debt free.) TIA!

[katelove]

Not having to pay interest on purchases would save you money. And you could put money (or extra money, if you're already doing it) into retirement, school, big holiday, house renovation etc savings.

Is that the sort of thing you mean?

[ilovemygirl]

Being debt free means you owe no one. Everything you have is yours. Of course, the big thing is ... NO interest. Every dollar you owe will cost you something. Sometimes you may need something enough that it's worth it but it sure sucks knowing that money is going out the door just for the privelege of using a credit card. Rates are pretty high these days. I hate owing MORE money just because I owe some money. Hope that makes sense. 

Also, while it's wonderful for you that you have such a great situation now, that doesn't mean unforseen things can't happen. People unexpectedly get sick or lose their jobs all the time. It's so much better to go into a situation like that without debt hanging over your head. 

[tiqa]

"Thankfully" there is no immediate possibility of losing any jobs or getting ill - mostly because we're already living off of disability benefits from the military and otherwise.  (No, that's not exactly fun...  but right now that's what has to happen.)  So it's a fixed income.  OTOH that also means there are no raises and no bonuses, and no possibility of getting a higher-paying job... I think that's encouraged us to live within our means.

I do think that not paying interest is a good thing.  I mean, yes, obviously, that's just losing money for sure.  Then again, we never had a really high interest rate on our cards (I've had mine for... umm.... since the start of college).  I do want to keep the cards open in case there's an emergency.  But we have a pretty decent emergency savings going now too (that we are now going to be adding to, what we used to pay in credit card payments).

I guess the reason I'm concerned is that now that we've reached this goal of "debt free, whoo" - DH is already starting to talk about, "well, we might as well buy me a new computer and that elliptical" - immediately putting us back in debt.  I'm trying to figure out ways to convince him that we reached this goal, so let's not go right back into the cycle of it.

I can't use the goal of college or retirement savings.  College is taken care of already (if the kids want to go) and the benefits are lifelong, so there's no retirement.  And DH is mostly housebound so there really is no vacation fund to speak of...  Our house is pretty much perfect, we just moved to a low-COL area where we got a pretty much ideal house and there's no one place I can say, "hey look, DH, we should save up to do xyz in renovations."  And yes, I can use "saving up for a computer" as a goal but he grew up poor and never got the idea of saving for anything.  Even being debt-free will be a new experience for him.  (Well, that one for both of us, although I am much more of a saver.)

I think I'm just grasping at tangible reasons to convince him to STAY debt-free.

[katelove]

Maybe use an online calculator to work out how much the new computer and elliptical machine will *actually* cost if you buy them with the credit card rather than saving up for them.

[EmsMom]

Well, for many people, I am not sure that the completely debt free thing makes perfect sense.  If you have a very low interest rate on a mortgage, for example, it might be more prudent to invest.  However there is a risk with investment and a guaranteed return on a mortgage pay off of say, 5% or whatever.  However, in a case like yours where there is zero chance of a future increase in income (well, I assume you get some cost of living increases occasionally), I would be even more inclined to become debt free.  Debt costs money that could get you into trouble later on.  Let's say you bought that computer on credit, and then you had some kind of emergency, even a small one like needing a new water heater. Then you couldn't pay off the credit card for months and some of them charge up to 30% interest.  So a $400 computer would cost you an extra $120 EACH MONTH which is then added to the debt and then you pay interest on that as well.  Not pretty.  The $400 computer (that you can probably get for closer to $300 if you wait and shop around) could end up costing you twice that if not more.  I think that a good case can be made for many people to not pay off a mortgage early, but credit card debt is crazy expensive and just not worth it.  It may seem that in your case your credit score may not matter all that much.  But going back to the hypothetical water heater, or potentially a more expensive repair -- a good credit score might mean that you could finance that emergency (if you had to) at a much lower interest rate, maybe even a 0% card.  Great credit scores will save you money all kinds of ways.

[ilovemygirl]

If I understand this you have no debt or payments other than mortgage and are not funding into college and retirement. Even on your fixed income does that leave you a lot over each month? If it's a good amount then just put that towards buying these things in the next few months. If it's not then that shows that paying it off on a card that is going to charge you more is not a good plan. 

Quite frankly, it's miracle if you have an amazing rate on your credit card. I have had one of my cards for close to twenty years. Both dh and I have good credit, we have never bankrupted or defaulted on anything ever in our lives, we don't even make late payments and they have still crept my rate up since 2008. Everyone I know has had the same thing happen to them. I think the lowest we have is 11% which is pretty damn high, imo. We have tried to negotiate a better rate and no one is budging. 

Also, while you may not need renovations right now, houses are a lot to upkeep in general. I can't tell you how much my supposedly move in ready house has cost me in the last year. There's always things. I have a friend who bought new construction with that idea. Well ... something happened with the plumbing and it cost a fortune when they had to cut into all the ceilings on her first floor to fix it all. 

[tiqa]

Unbelievably, we are actually pretty comfortable right now.  Mostly because right now I'm getting paid as a full time caregiver for my husband.  This is a pilot program and in theory it could go away in the future, so we're not counting on that forever, but for now it's an extra chunk in savings every month.  That's our long-term savings (for house repairs, car replacement, etc) and we put a decent amount into short term savings (for property taxes, insurance premiums, meat, etc. that sort of thing).  Thankfully insurance is also taken care of so outside of dental/vision we don't have a lot of medical expenses.  Our bills are really low, btw... we don't do cable, we keep our food budget as low as possible by eating simple foods, keep our electricity bills low, don't use disposable anything really, we have only one tiny car, little driving, don't shop for fun... stuff like that.

Edited by tiqa - 12/7/12 at 5:38pm

[monkeyscience]

I hope this doesn't offend you, but I find that a really weird question. Why would you WANT to have debt? To me, debt-free is the default. ITA with the poster who said being debt-free is freedom. It means no one can come and take away your stuff or kick you out of your home. It also means no one can tell you you have to keep your car or stay in your house (if you pay off the house, anyway), if you decide you're done with the car or the house. You may not think that's likely, but life can change in crazy ways. I guess part of it, too, is the philosophy that if you buy with cash, you always know you can afford something. There's no chance that next month you will not be able to afford the payments, because you paid it all up front.

[tiqa]

I mean, that doesn't offend me... I just think I explained that in my view, of course being debt-free is ideal.  Where did you get the idea that I want to have debt?  I was trying to find tangible reasons to convince my husband that it's really the way to go, even in our situation where credit score doesn't *appear*, at first glance, to have a huge effect.  I was wondering if there was something I was unaware of.  I don't think he wants to have debt either, but to a lot of people charging a bit to the credit card is perfectly reasonable, and being debt-free isn't the default.  To you and me, maybe, but not to a lot of people (including the DH).

[eirual]

Have you ever read Dave Ramsey? Getting to be debt-free is only half-way through his plan. His babysteps go on to build a 3-6 month emergency fund, save for house repairs, furniture replacement, and vehicle replacement so when you need a new roof or furnace or whatever it's not the end of you. After that you save 15% of your income for retirement, you can then save for college for your children, pay off your home early, then get down right wealthy!

With that being said, we do periodically go into "debt" (i.e. put something on the credit card....even though technically we have the cash in our savings). But that's the exception, not the rule. If you truly have control of your finances are living within your means, I don't think the odd tiny purchase put onto a credit card is really an issue. Sure, it's not the smartest of moves, but as long as you pay it off that month and aren't carrying a balance, I don't think the Debt-Free Police will come after you.
 

[eirual]

I guess it comes down to: there are better ways to use your  money than making payments for something you bought  a while back (and may or may not be obsolete by now).

With a DH, you can take the approach of "security" ...I need a cushion to feel secure and know that we're provided for should something happen. I need to know we can handle a repair or expense should something happen. That cushion is more important than short-term "stuff" purchases.

[crunchy_mommy]

It's just a totally different mind-set. I'm not sure there's much you can do to convince your DH it's worth it -- he'll need to come up with his own reasons that are meaningful to him, and live without debt for a while, to understand... I'd suggest locking the credit cards in a fire safe so that the "for emergencies only" becomes very tangible, if you don't want to cancel them altogether.

Being debt-free means that compared to everyone around you, you may have to make big sacrifices. In reality, not getting an elliptical isn't exactly a "sacrifice" since it's a want, not a need, but when you see everyone around you getting what they want when they want it, delaying gratification can become even harder. So I guess I can see why it might be hard for your DH to wrap his head around it!

One thing I would suggest is not putting every last penny into long-term/emergency savings. That can work great when both partners are on board but can backfire big time if you're not on the same page. It sounds like your DH would benefit from having a "fun" savings account. Maybe if he can see that $X/month is going into that account and in Y months he can buy the computer (or elliptical or whatever else he wants) then he would be more on board with the debt-free thing.

Anyway, we have a mortgage, but no other debts, and I have to say I wouldn't consider myself 'debt-free' until the mortgage is paid off. We struggle to pay our mortgage because of some unexpected events, so I can see the effect retaining that debt is having on us. We cannot get up & move & start fresh (well, at least not without foreclosure or bankruptcy!) We can't find a cheaper place to live to match our current financial needs & wants. Having debt -- any kind of debt -- kind of holds you hostage to your current financial situation, removes some of your ability to work your way to something better. So I guess for me the advantage of being debt-free would be flexibility -- financial, geographical, lifestyle, etc. You can make choices based on what works for you, what you want/need, not what your debts dictate. You have freedom & security. You have the emotional peace of knowing you don't owe anyone anything -- there's nothing hanging over your head.

[mnnice]

I think you are mixing a couple of issue together.  A good credit score and debt-free are two different things.  DH and I have been debt free since 2007.  We still have credit cards that we use and we still are on the grid and have utilities and cell phones so we continue to have a credit score and credit record.  Anyway in my experience you do not need to owe others money to have a good credit score (although it becomes increasingly irrelevant).  I have found good credit useful for car, homeowner's, renters insurance.

I find being debt free is mentally very freeing. For DH and I the commitment to be debt free add a layer of accountability. It give us more choices.  When we no longer wanted to live in a community we could move and not worry about having a mortgage in the old location. In this case we still had the hassle of selling a house.

I know it's not part of your question, but I would strongly disagree that you do not need to save for retirement.  DH is disabled not you and you could easily live another sixty years. You should qualify for an IRA of some sort. You should check you might even qualify for the Saver's Credit.

[Basylica]

For me it's a sense of security now.

Before all this and the kids even, I got caught in the dot com bubble and for around 2-3 yrs i'd work at a job for 6-8 weeks, be let go, take me 4-6m to find another job...6-8 weeks and let go...etc.

Then I worked for verizon dsl *customer service* (I'm in IT) for several months and was let go because they were closing the call center, and then I finally got a job at a lawfirm when I was 5m PG with DS#1. the firm "manager" would scream "you are too effing fat to fit behind the effing desk" and "you are too effing stupid to fix the effing computers" etc. every day, all day....and he did this sort of thing to everyone not just me.

They also paid me 23K a year for the abuse and worked me 80hrs a week. I sent out resumes like a mad man, and still got no callbacks for 3 years!

I started working at my previous job when I was 6m preg with #2, and a year later I was going through a messy divorce. I had a 99 kia that was in desperate need of major work however the KBB value of my car in excellent condition was barely more than a set of new tires. we had around 8K in debt that quickly went to around 16K with me taking cash advance (I had to ask how!) for my lawyer and ex running up a bunch too. I got stuck with the house since ex couldn't afford it on his salary (1600/mth takehome, ordered to pay 500/mth in CS) and still live there.

I also coughed up around 30K in legal stuffs for the divorce in the course of 18~ months.

I started taking on more and more and more work, accepting anything and everything they asked me to do, working 20hrs a day most days, all weekend, traveling to portland and missing out on time with the kids...etc. all because I was scared i'd lose my job and be SOL. I have no family here and nowhere to go. my ex would have jumped at the chance to bury me (and tried to, obviously based on legal drama. the 30K was all me just responding to his filings against me!) and take the kids.

Now I have a brand new car (well, a year I think? it's a 2012 tho) and I only have a car payment because i'm trying to rebuild credit. I have NO credit card debt. I have around 45K in savings/investments right now.

I've done the math and between unemployment and child support - if I lost my job TODAY I could easily make it 2yrs, and probably 3+ years without working if I was frugal.

I'm currently putting away about half my salary every month. and i've been splurging lately and bought a upright freezer and a dyson...lol.

I (for once in my life) feel like I can say NO when projects come up that I otherwise might have volunteered to do, or work all weekend or all night to accomplish. and by NO I mean "um, how about we schedule this in 3 weeks when I can do it during normal hours?" not a flat out no. LOL.

and i'm not constantly on edge worrying about losing my job or not being able to feed my kids.

I still live on what I USED to make (45K a year, roughly) and put everything else aside, and daycare is STILL my biggest expense at 700/mth....but used to be 1300 before both kids started school. if I was unemployed obviously that expense would disappear.

It makes me feel good I have a buffer rather than a black hole, and that if I did lose my job I could live on considerably less with ease. I actually kept my ex and I in food on under 30K a year while paying 900/mth for apartment and 280/mth for his car payment.

I was pretty close to homeless a few times and grew up poor and hungry. Having kids makes it even scarier and we were pretty broke up until the divorce when life did a full 180 for me. Once all the drama was over anyway.....but I was scared ALL THE TIME worried about where i'd come up with money for lawyer AND food.

I'm SOOOO much more relaxed now. I feel like whatever happens, I have us covered and most importantly I have my boys covered. And I don't have to KILL myself trying to keep us safe and fed and sheltered anymore.

[trekkingirl]

I was thinking that this sounded a little bit like a "troll" style thread but then I couldn't help thinking how the OP sounds a lot like my sister. Maybe just a young couple with a 2012 mind set and not a troll at all?

[Sharlla]

we want to be debt free because paying interest is like throwing money in the trash.  the credit score doesnt mean a whole lot, dh's score is over 810 so it's already pretty near perfect. 

[tiqa]

Originally Posted by trekkingirl 

I was thinking that this sounded a little bit like a "troll" style thread but then I couldn't help thinking how the OP sounds a lot like my sister. Maybe just a young couple with a 2012 mind set and not a troll at all?

The wha?  I'm a TROLL now??  That is a new one.

DH and I are in our early 30's and have been together since 2004, living together since 2005; we have two kids (5 and 6) and a third on the way.  So, um, not really all THAT young, although I guess it's all relative.  As far as a "2012 mindset"... whatever that is... we're not.  I thought I explained that we have worked very hard in the past couple of years to work down any debt we had (which was from medical bills and the fact that we were raising kids on 1470 a month with no gov't aid... and then our recent moving costs) so it's not like we were out getting clothes and smartphones and TV's and eating out every night.  I've been frequenting this board since about 2007 (under a different profile, obviously) - we buy almost exclusively secondhand, cook from scratch, cut corners wherever we can...  Drive a paid-off used Civic that is fuel efficient despite having to get three carseats in a row in the back seat when we could technically afford an upgrade, but want to be frugal about it.  So again, not sure that's a 2012 mentality.   I can't even remember the last time I bought a new outfit (probably about 4 years ago) or gotten my hair done - probably back in college, circa 2001.  We are essentially suburban homesteaders who save money whenever we can - but now that we are doing better than ever, financially, I needed to brainstorm ideas on how to keep DH on track with it.

But seriously, why did you think I was trolling?  I don't get it.  And yeah, I'm a little offended, but hey.  Life goes on.

Edited by tiqa - 12/18/12 at 4:39am

[tiqa]

Also fwiw I'm not sure I mentioned this, but we did have more than enough in our savings to cover whatever purchases would have needed to be made.  That said... I am very strict about savings accounts and they're for true long-term emergencies etc.  If we need to pay taxes, insurance, etc we have that covered without having to scrimp - even if for some reason all of our benefits stopped overnight we would have enough to cover taxes etc.  As far as emergency repairs on the house, or if the car breaks down etc we would have enough in savings to cover those items without having to put them on a card.  The card is really for... I dunno, convenience, I guess.  We always have paid off more than we put on there in any given month (minus the aforementioned debt we had from earlier) but there was always still a balance.  Now we have the balance paid off, and it's hard (for DH) to resist the idea of saying, well, our credit limit is 19K on it, why not have a low balance on there?  But yeah, thanks for all the posts.  It does help to read your perspectives.  :)

[crunchy_mommy]

Uh yeah... I don't know why anyone thought you were a troll LOL. But anyway... I think if all of your savings are for emergencies only, that doesn't really leave you any room for fun or wants or things that may not be emergencies but still are needed. A treadmill might count in that category, if there are health reasons for it, for example. So I'd really consider starting another savings account for those kind of things. Another way to do it, if you don't want multiple accounts & you need to motivate your DH to save, is to build in rewards when you reach certain savings goals. Something like, after saving $X, you can spend 5% (or even 10%) of the savings on something fun. Then keep moving the mark up. After $100 you can spend $5. After $1000 you can spend $50. When your savings account reaches $10K, you can spend $500 and get the treadmill. Etc.