Since I been on the Dave Ramsey Plan I have taken on a new found approach to finances which has caused me to do a 360 on the way I view certain debt. Now I will make a quick disclaimer I USED TO HAVE the same ideologies as every one else when it came to this list i am about to create. But I have tried to EDUMACKATE myself and slash all the myths about good debt and bad debt and proceed to take heed. Feel free to correct me if the math just doesn’t add up.
1. Student loans – Well I listed this first because its easy. When you go to finance your home and you have $50,000 in student loan debt the bank says “its ok”. They over look student loans, because it is considered an investment towards your future earnings. However, they do include the potential payment amount (once you are no longer in school) when factoring how much to give you on a home loan. 1 or 2% interest on your student loan is great, but don’t let it hang around for life just pay it and be done unless of course you like Sallie Mae hanging out in your spare guest room.
2. Credit cards - Studies have shown that people spend more when they use credit. I used my debt card and I know how fast $4 dollars turns in to $10 at McDonalds simply because I can “CHARGE IT”. Paying cash creates a bit of an “ouch factor” which in turn allows to pay attention to what you spend. Credit cards are a never ending money pit. Even the 0% interest ones, sure you pay it off at the end of the month but God forbid you make a late payment, or go over your limit. You will be hit with fee’s up the WAHZOO. Also Credit card companies now have what the call a universal default provision plan. What this means is on any day they feel, they can pull your credit report and decided your at risk, suddenly your rate goes from 0% to 18% in a split second. Now how you gonna pay it off?
3. Tax deduction on the house – This was the biggest because i am not the best person to be doing calculations. I borrowed the example from a source with the intent to understand and explain this if need be.
If you have a $200,000 at 5% interest rate, you would pay about $10,000 in interest. If you made $70,000 and wrote off $10,000, you’d pay taxes on $60,000. If you made $70,000, you’d be in a 25% (and when you make $60,000) tax bracket. If you didn’t have the write-off, you’d pay $2,500 extra in taxes on that. That means you sent the bank $10,000 to keep from sending the government $2,500.
You can save on taxes by giving to a charitable organization or paying your tithes (if you have Christian religion) and still feel good, I dunno about you but I would rather give the money to my church vs the bank. I also did the same calculations on my current home just to see if I was saving money like the example suggest, turns out I send the bank 4,200 a year to keep from sending the government $1,000. I am thinking if paid off my house and never made a penny more, I would have something around 3,000 saved a year. Sounds like a good reason to pay off my house to me!!! If you are unsure about your tax bracket visit the IRS.GOV website.
I realize that people like to play with numbers n such but at this day and age can you really afford to? So change your thinking do some math and let’s learn to build wealth and become a stronger community.
Fighting debt on a daily basis!
Credit Cards kill for sure have been saying this from day one!
lol Hadassah I hear you girlfriend!!!!! But some folk think they can beat the system, but again people spend 12-14% more when using a card, so imagine how much people can save by just using cash.
I have one card that I don’t use but have just in case of an emergency. I pay for everything with cash/debit. It feels good to know that my purchase (good or service) is paid for clear and not have to worry about a bill the next month. I’ve been there and done that and didn’t like. I got myself out of debt twice. The first time I got out of debt, I didn’t learn my lesson and got right back into it…but after the 2nd time, I’ve been on the straight and narrow every since.
Don’t get me wrong, temptation can set in at any time; but if I don’t have the cash for it, I let the temptation die down.
I don’t feel like I’m missing anything when I don’t get something.
Shelia thats great 1 down 50 to go lol (all my friends)
I have been learning whats called the baby steps (so i don’t ever have to depend on a cc again)
1. 1,000 in the bank cash always (incase of emergencies) mine is more like 1,300 for a little extra comfort and cushion while i get out of debt, so far i haven’t used the money except for now which is just a 150 car repair. Its nice to have that cash in my account.
2. debt snowball-paying off all debts not including the house, which at the rate im going i will be out of debt by this time next year.
3. 3-6 months of expenses saved in the bank/money market account which is pretty easy to access ( I plan to pad mine with 5-7k)
4. 15% contribution to retirement (which is 5,000 a year for me pre taxed dollars)
5. college funding for kids/home purchases /down payments or what ever the case may be if you don’t need a house or kids lol.
6. pay off the house ( my goal sits at 2013 to pay of a 60k mortgage, may go faster if my income goes up in the mean time.
7. give and live like no one else, which i think i got some of the giving part down its the living I can’t wait for!!! lol.
I think student loans are so over looked also because they get spread out for damn near 30 years and have so many options of deferrment.
As a cushion I need about 6-8 months of emergency cash fund to feel comfortable. I;m working on a year. But dammit i add shyt to it like, my shoe fund, my starbuck fund…I need a year of my lifestyle. Needless to say this time next year, I’ll probbaly still be working on ti LOL.
lol @ your shoe fund, starbuck fund, you so silly 1 year thats a lotta starbucks lol
I didn’t go through the real analysis of everything … but with #3 … the tax exemption, I can’t help but notice you don’t mention the fact you would have to pay rent if you didn’t own the house. It still won’t work out in all cases, but its really the added cost of ownership over renting vs. the tax deduction that comes into account.
And in your case where you are renting out your house, the tax deduction is all “profit” … right?
SBM you would still have to pay rent, but atleast your not obligated to anything once the lease is up, vs a house you have to find a renter and or sale it hopefully for profit.
and your right my renter pays the bills now, but still its risky since something can happen and then i am once again stuck with the mortgage payment. I plan to pay it off still by 2013. No real reason to keep the mortgage if i can afford to pay it off.
Mik…you are smart chick…I think Dave should have you as a guest host on his fox show. I caught him yesterday. on like channel 900. but he’s there. Go girl.
awww comeback thank you, is there something in your starbucks coffee perhaps??? lol, you don’t normally agree with me about finances.
*Feels her forehead*
I would love to be on Dave’s show, can you work on that for me?? lol
“lol, you don’t normally agree with me about finances.”
Well NOT really….there are a couple of things I STILL don;t like about the man.
I think he’s debt free platform could use a little “law of attraction”…he was giving me too much “this is gonna be hard”, when you start the program “all sorts of bad things will happen..transmission will go out etc etc”
oh and the one I really detest…when people call in and ask him how he’s doing he goes : ” better than I should be”…
?????
Ok so there is humility and there is annoying…God is good. Give him the praise. I believe he wants us to live fiscally responsible and happy lives.
but other than that…I love the man…he’s doing good work. And most times he makes Lots of sense.
i’m gettin’ to like the man more & more ea. week ~ last night was week4. dave’s a pretty dang good motivational speaker – smart, funny, not ugly & i respect (though i’m saved) how he doesn’t try & squeeze God into every dvd dession. he just naturally brings up the Bible or God when it applies to a particular point. i love that!
so starbucks, huh?! oh yeah, me too. that’s all austin really has. lil secret:to cut back on strbux expenses, i us’ly only order w/a gift card (from my enabling mom) & if not, then i’ll get no more than 1 of these a week: it’s an americano w/room for extra cream. they have an extra shot for ‘free’. dr.it up w/cocoa & splenda or cinn. & the added free cream tricks me into thinking it’s a latte’.
– also, u can buy a giftcard, & at starbucks.com/card, you can register it (for free syrups & milk upgrades) & reload it w/a spec. amount (ie:$12 gets me 5 of these drinks for the mo.) & when the card runs out, oh well! wait til the 1st & re-load.
God bless y’all!
Thank you chelan for your starbucks (words of wisdom) lol. That was great!!
SBM, you are also NOT taking into consideration the fact that just because you’d be paying rent anyway that you should go out and buy a house. Even if you find a house with a mortgage at the same price as the rent that doesn’t mean that you are paying the same. Property taxes, fix up costs, and if you have a renter you are taking a HUGE risk because someone else is not going to take care of your property as good as you would. We used to think the same way and that is why we did have two houses. We went through three renters and all three trashed it to the point of costing us money. If we would have been ONLY renting then we would of just had the cost of rent and that is it. My point is that a tax deduction is NOT a SMART reason to keep a house as Mikki’s example suggests. Great Job Mikki!!
Comeback Girl. The phrase “better than I deserve” is a humble saying that is biblical in nature. It isn’t meant to be obnoxious. Being that we are a fallen people none of us deserve all of the great things we have. There is nothing wrong in admitting that because of your sin, you truly have more than you really deserve. I know that after all of the things I have done in my life I am certainly better than I deserve. I have so much compared to so many other people which makes me feel blessed. So many people take offense to that saying and I for the life of me can’t understand why. And as far as Dave’s matter of fact responses I think that is what people need instead of a sugar coated version of how things are gonna be. The truth is that to be responsible with your money and clean up your mess it is going to hurt a little. After all the fun part has already taken place as the debt climbed. People like to have fun with no consequences so thy need to hear the truth. Let me just say this to you comeback girl, the pain and sacrifice is WELL worth it!! We are so much happier since our paradigm shift took place. We do not view happiness the same! Good luck!
Brad thanks for speaking on comebacks comments, you are a good man for it lol.
Comeback, when Dave talks about “Murphy” moving in, I believe it to be true, and I know you read my story “blessings” you remember back when I started on the program I actually got uprooted from my apartment! that was “Murphy “at its friggin best! Had I not saved up I would have never been able to make the transition as smoothly as I did. The old me would not have had two pennies to rub together.
I think also its much like when you first give your life to Christ (not comparable but sorta) That when you start to get on fire for God, all sorts of obsticals and temptations hits you and you start to question heck “why am I doing this?” Its the same with money, when you get right, things start to change for the better, thats truth right there from a person who has experienced it first hand!!
*steps off soapbox*
It is my pleasure mikki. I think DR is highly misunderstood. He is SOOOOOO weird!! LOL I’m glad to know him. BTW, my preview went really well tonight. I have 15 families signed up. there are a few that may be added at the last minute so it may jump to 20. Woo Hoo!
I would love it if you sent me an email that I could pass out to my class on August 3rd. Explain how FPU has helped you and say a little something about the accountability process. I think at first it is hard for people to feel comfortable with the accountability part. Of all my accountability buddies you are the only one left! We have helped each other along the way for sure and I am glad to have you in my corner!!!
15!!! Brad you are on fire!!!! thats a lot man way to go!!
I will get working on an email, I would love to talk about accountability thats really what a lot of it is about.
I am super excited you have to update me on every class session!! and how is the weight loss going???
That is great Mikki! You are a great inspiration and have such a wonderful story. Just to be clear I am not so interested in you building me up for the class but more on how we have helped each other along the way. Believe me I love all the nice things you have to say about me, but I just didn’t want you to think it was about me. (I know you didn’t, just wanted to be sure)
I will sure keep you updated on how everything goes!! Girl, you know I will!
Overall the weight loss thing is going well. I had a little trouble this past weekend right before my weigh in so I showed a gain of one pound but I did a lot of exercise last week and when I ate bad it was a lot of salty food, so I am sure the number will go back down for sure. Just like the Dave plan it is going to take time. I didn’t gain weight overnight and I won’t change my habits over night either. I will keep you posted.