Attention: HOLD ONTO YOUR DEBT!

[scooter]

While I agree that you'll be making out like a bandit using the free money from debt that actually beats holding dollars in the bank, I also will admit that this is the reason we are in the turmoil we are in. People are too willing to hold debt just because the banking system makes it cheap for them to do so.

Put it this way. Debt is profitable for you in a period of high inflation and lowering rates. Cash is good for you in a period of lower inflation and rising rates.

Owning your assets outright is good at ALL times.

If you're already in debt on a car or house, don't freak out and blow your savings to pay them off. But be aggresive on your payments and don't increase your debt load beyond what it is now. If you are out of debt because you were fiscally conservative or because you are young and haven't needed a home/car yet, be smart and live beneath your means until you can afford these things outright or with very minimal debt. You will feel very good once you do own that home with no monthly payments.

 

[Jagwarr]

I agree to holding fixed rate mortgage debt, as long as you have the funds to pay it off. What I mean is if your mortgage is paid off do not go out and buy a more expensive home if you don't have the cash to pay in full. However if your moving to a less expensive house or have the money in the bank then holding a mortgage at under 5% fixed rate could really work out well.

It's not impossible to imagine that two years from now interest rates could return to Jimmy Carter rates of close to 20% or even more. That would mean it would not be difficult to find rates of 15% in money markets.

To make this easy let's say interest rates go to 25% and Money Markets offer 20%. If you were to borrow $100K today at 5% you would be able to pay off your entire mortgage with the interest on your $100K you have in the bank in 5 years.


If rates did not climb you could always pay off your mortgage in full with the money you have in the bank.

 

[legion]

You can have debt and not be living beyond your means. Debt is a tool.

 

[PatriotG]

Pay off all of your debts as quickly as you can. Don't buy stuff you can't afford.

This is sound advice!


Related article

http://news.bbc.co.uk/1/hi/business/7202121.stm


PatriotG

 

[jclay2]

Originally Posted by [email protected]
Pay off all of your debts as quickly as you can. Don't buy stuff you can't afford.

Like the poster above said, this is great advice. The advice of the OP is absolutely rediculous. The borrower is slave to the lender. Get out of debt as fast as you can and start building wealth. I would recomend Total Money Makeover by dave ramsey if you are trying to get out of debt. Anyway, if you are so sure in the inflation, you would rather invest in commodities and actually build wealth.

 

[Dark_Horse_Rider]

Yeah, but sometimes you got to trust your gut.

 

[AceNZ]

Holding a fixed-rate mortgage and paying it off with inflated dollars is a time-tested formula for building wealth (at the expense of America's poor and middle class, but no one seems to care about that part). Variable rate mortgages are, and always have been, a bad idea for borrowers.

What most Americans have not realized is that the game has changed:

1. House prices are going down, and are likely to continue to go down for the next 10 yrs or so. A lot of the equity you've built up in your house is likely to vanish as a result.
2. Your job is not as secure as you might think it is. Between the recession and continuing efforts toward globalization, the company you work for could either go out of business or move overseas on a moment's notice.
3. Your real income (purchasing power) is going down every year. Price inflation is running at around 12% per year. How much was your raise last year?
4. Food, gas and other basics are increasing in price at rates faster than the average. Imported goods are also going up quickly in price due to the crashing dollar. As your basic cost of living goes up, will you have enough left over to pay your mortgage?
5. There is a chance that the US will introduce a new currency at some point -- the Amero -- like what they did in Europe with the Euro. If it happens in the midst of other economic turmoil, you can bet that people holding debt are going to get screwed in one way or another, for the benefit of the big banks (reset interest rates, conversion of all fixed rate mortgages into variables, etc, all seem possible)

Suggestions:
1. Sell your house and move into a rental
2. Invest the equity from your house to preserve purchasing power in the face of inflation and the declining dollar (gold, foreign currencies, etc)
3. If you really, really don't want to sell, at least try to make sure that you have a fixed rate mortgage
4. If you have a moral objection to renting, then consider downsizing to a home with a much smaller mortgage (ideally zero, of course)

FWIW, I know that most Americans would consider advice like this to be heresy -- but just look at what's happened in the housing market over the last 2 yrs. It's only going to get worse.