Being free of debt is the most liberating feeling I have ever had. At this point in my life, I cannot imagine going back into debt. So many people I know continue to to accumulate more debt even into retirement.
Thia is exactly why we are so determined to pay off our student loans by the ends of the year. We want to have the freedom to make spontaneous life decisions and do what we want when we want. We backpacked Europe for 4.5 months and probably would have stayed longer if we didn't have to get back to our debt.... gross! Great video. Definitely going to share this!
The wife and I were in about $93,000 dollars in consumer debt back in 2011 (not counting the mortgage loan). We sold our house (and 2 hour per day commutes) and spent the next 3 years paying off all the debt. This change allowed us to go from 19% to a 75% a year saving rate. We now pay towards our future and not our creditors' futures. Consumer debt: $43,000 student loans $40,000 cars loans $10,000 construction loan Mortgage loan: $189,000 (of a $204,000 loan) Total debt in 2011 over $282,000 USD total debt in October 2014 $0 USD
One comment about debt consolidation. The fundamental premise behind debt consolidation is that you collect a number of small, higher interest debts into a larger single debt with a lower interest rate. In Canada, one example is consolidating government student loans at prime + 2.5% into a private bank unsecured line of credit at prime. Mathematically, this saves interest charges if the debt is paid down equally aggressively. The issue is not one of mathematics but rather one of the 'behaviour gap'. A lower monthly payment and longer term defuse the sense of urgency, as your video correctly mentions. However, for those people paying down debt as fast as possible in either scenario, debt consolidation does indeed reduce the overall cost of the loan assuming one overcomes the 'behaviour gap' I mentioned earlier.
Shahrukh Bakar However, many debt consolidation companies are not really there to "help" they're there to profit. They lower the interest rate and monthly payment, but extend the term of the loan so that your payoff is 5 years instead of 3. People don't realize it and mathematically pay much more. Then they add origination, annual, and early termination fees. If you were to consolidate with something like a home equity loan or bank loan without using a debt consolidation "company," that can make sense. But now you've possibly secured debt that was once unsecured. It's definitely possible to save a little money, but you have to be very careful.
Mike and Lauren I guess I should have clarified that this assumes no fees and collecting higher-interest unsecured debts into a larger lower-interest debt that is still unsecured. Otherwise, as you mention, all bets are off.
+Mike and Lauren Hello, I agree with everything you guys are saying and most debt consolidation companies are just looking for more money. However, I will say that there are some newer companies out there which can offer lower interest rates at the same or even shorter terms with no fees. Obviously this is on a case by case basis and they determine this by doing a more thorough check than just looking at your credit score. From first hand experience, I was able to consolidate two student loans with high interest rates (both about 10%) down to just under 6% with a flexible term which I got to choose. I could pick a longer term and cut down my monthly payment or pick a shorter term which is the way I went. It is possible that being a newer company, they are offering better rates and pricing until they gain enough interest and customers at which point they'll then change their policies to generate more profit. But for now I do think consolidation may be an option for some as long as they do their research and know how it will impact the overall loan.
Nice video please keep making them. I personally am about to cross an important financial threshold where my emergency fund plus my taxable investments could pay off all my debt (my mortgage and car loan). I know you guys don’t like the car loan and I don’t either but it’s at 1.99%. I’m have the money to pay it off today but in dividends alone I get more than the interest I’m paying. I know most people can’t do this and every extra dollar I make that would pay off my car loan goes to my investments not additional spending. As for my mortgage in my area I couldn’t rent a one bedroom apartment for what I’m paying for mortgage, taxes, and insurance. Plus based on my income I do get to deduct the the interest. Therefore I will reluctantly continue to carry the debt and contribute to my investments as opposed to paying it down but you guys still have good advice. Wish I could find friends with your money mindsets not easy to do these days.
P Evans Yea, if you can make the math work for you, there's no "one size fits all" advice. But for people who can't be bothered to do the math, no car payments is just easier to understand.
Mike and Lauren As you said in your video you either feel debt or you don't. When the math makes sense and your still saving >60% of your income well you just don't feel it so much. Will admit curious to see if your emergency fund amount is more or less than my own.
Student loans or student debt, we will prevent our daughters to gather a loan to pay for their studies by saving up for them the coming 4 years. It is one of the new current bubbles in US, Canada, Asia(?) and some countries in EU. There is a solution for the new generation not to fall for the same trap and teach them about how the currency system works and teach them at very young age that they can spend the coins from their piggy bag only once, empty? Start saving again to fill it up! The best lesson of a life time.... Only 1 question with regard to your savings: what if your government undertakes a currency reform? Do you have a save haven for your nest egg?
4711Express Live below your means and most people would do just fine. As far currency reform, I'm not too worried about it. If it were to ever happen we'd just have to figure out how to make the best of it, like everything else.
Being free of debt is the most liberating feeling I have ever had. At this point in my life, I cannot imagine going back into debt. So many people I know continue to to accumulate more debt even into retirement.
Thia is exactly why we are so determined to pay off our student loans by the ends of the year. We want to have the freedom to make spontaneous life decisions and do what we want when we want. We backpacked Europe for 4.5 months and probably would have stayed longer if we didn't have to get back to our debt.... gross!
Great video. Definitely going to share this!
Ashley M Thanks Ashley! Sounds like you share a similar definition of "bad debt."
The wife and I were in about $93,000 dollars in consumer debt back in 2011 (not counting the mortgage loan). We sold our house (and 2 hour per day commutes) and spent the next 3 years paying off all the debt. This change allowed us to go from 19% to a 75% a year saving rate. We now pay towards our future and not our creditors' futures.
Consumer debt:
$43,000 student loans
$40,000 cars loans
$10,000 construction loan
Mortgage loan:
$189,000 (of a $204,000 loan)
Total debt in 2011 over $282,000 USD total debt in October 2014 $0 USD
Binbale Bardac That's INSANE! Congrats to both of you! Your future is certainly bright!
Awesome video as always!
Jessica Landa Thanks!
One comment about debt consolidation. The fundamental premise behind debt consolidation is that you collect a number of small, higher interest debts into a larger single debt with a lower interest rate. In Canada, one example is consolidating government student loans at prime + 2.5% into a private bank unsecured line of credit at prime. Mathematically, this saves interest charges if the debt is paid down equally aggressively. The issue is not one of mathematics but rather one of the 'behaviour gap'. A lower monthly payment and longer term defuse the sense of urgency, as your video correctly mentions. However, for those people paying down debt as fast as possible in either scenario, debt consolidation does indeed reduce the overall cost of the loan assuming one overcomes the 'behaviour gap' I mentioned earlier.
Shahrukh Bakar However, many debt consolidation companies are not really there to "help" they're there to profit. They lower the interest rate and monthly payment, but extend the term of the loan so that your payoff is 5 years instead of 3. People don't realize it and mathematically pay much more. Then they add origination, annual, and early termination fees.
If you were to consolidate with something like a home equity loan or bank loan without using a debt consolidation "company," that can make sense. But now you've possibly secured debt that was once unsecured.
It's definitely possible to save a little money, but you have to be very careful.
Mike and Lauren I guess I should have clarified that this assumes no fees and collecting higher-interest unsecured debts into a larger lower-interest debt that is still unsecured. Otherwise, as you mention, all bets are off.
+Mike and Lauren Hello, I agree with everything you guys are saying and most debt consolidation companies are just looking for more money. However, I will say that there are some newer companies out there which can offer lower interest rates at the same or even shorter terms with no fees. Obviously this is on a case by case basis and they determine this by doing a more thorough check than just looking at your credit score. From first hand experience, I was able to consolidate two student loans with high interest rates (both about 10%) down to just under 6% with a flexible term which I got to choose. I could pick a longer term and cut down my monthly payment or pick a shorter term which is the way I went. It is possible that being a newer company, they are offering better rates and pricing until they gain enough interest and customers at which point they'll then change their policies to generate more profit. But for now I do think consolidation may be an option for some as long as they do their research and know how it will impact the overall loan.
Agreed - all debt is bad debt!
great video guys, we are saving for a house and so money is tight so any info for the future is well received, thanks
***** You're welcome! Good luck on the future house purchase.
Just discovered your channel & love it. Have you considered explaining this concept to the Federal Government? ;)
hodgecooter Haha, they don't seem to be getting my letters :)
Nice video please keep making them. I personally am about to cross an important financial threshold where my emergency fund plus my taxable investments could pay off all my debt (my mortgage and car loan). I know you guys don’t like the car loan and I don’t either but it’s at 1.99%. I’m have the money to pay it off today but in dividends alone I get more than the interest I’m paying. I know most people can’t do this and every extra dollar I make that would pay off my car loan goes to my investments not additional spending.
As for my mortgage in my area I couldn’t rent a one bedroom apartment for what I’m paying for mortgage, taxes, and insurance. Plus based on my income I do get to deduct the the interest. Therefore I will reluctantly continue to carry the debt and contribute to my investments as opposed to paying it down but you guys still have good advice.
Wish I could find friends with your money mindsets not easy to do these days.
P Evans Yea, if you can make the math work for you, there's no "one size fits all" advice. But for people who can't be bothered to do the math, no car payments is just easier to understand.
Mike and Lauren As you said in your video you either feel debt or you don't. When the math makes sense and your still saving >60% of your income well you just don't feel it so much.
Will admit curious to see if your emergency fund amount is more or less than my own.
Student loans or student debt, we will prevent our daughters to gather a loan to pay for their studies by saving up for them the coming 4 years. It is one of the new current bubbles in US, Canada, Asia(?) and some countries in EU. There is a solution for the new generation not to fall for the same trap and teach them about how the currency system works and teach them at very young age that they can spend the coins from their piggy bag only once, empty? Start saving again to fill it up! The best lesson of a life time.... Only 1 question with regard to your savings: what if your government undertakes a currency reform? Do you have a save haven for your nest egg?
4711Express Live below your means and most people would do just fine. As far currency reform, I'm not too worried about it. If it were to ever happen we'd just have to figure out how to make the best of it, like everything else.