How did you get into debt?

[jenn_jenn]

I carried a $5k credit card balance at 0% interest for about 6 months to pay for part of my tuition. I was waiting for employer tuition reimbursement. That was the only time I’ve had debt other than our mortgage.

I have always been terrified of debt and even that 5 months made me very uneasy.

[srblanco7]

Student loan debt, mortgages, car loans, and a HELOC (which was used on a temp basis to transition between houses). Never carried credit card debt. Car loans were always what bothered me the most - absolutely hated them and, as such, in all cases were paid off early. As we became a bit savvier with our finances, we stopped buying new cars and the last 3 vehicle purchases have been 1-3 year old cars with cash.

[Snicks]

We both had student loans starting our marriage. And, we did finance cars, then a home. However we were always very careful with any other types of credit. We always paid our CC's off in full every month when we used them. And never took out store CCs. For awhile "rent to own furniture" was a thing, we didn't do that. And when we did buy furniture, we bought what we could pay in full for, never on credit. We worked very hard to pay our home off early and did. We did buy some cars for cash but found that a bit pointless so we still finance cars at low interest. Prefer to keep that money in our accounts earning interest than laying it all out on a depreciating car. So, the only debt we have is our cars. Mine will be paid off in full in a month or two and I will continue to drive it for several years

[LivingAlmostLarge]

lots of people with student loan debts and car loans

[srblanco7]

We did buy some cars for cash but found that a bit pointless so we still finance cars at low interest. Prefer to keep that money in our accounts earning interest than laying it all out on a depreciating car. So, the only debt we have is our cars. Mine will be paid off in full in a month or two and I will continue to drive it for several years

Without intention to challenge on your personal choices, I wonder how paying cash vs. financing might impact how much many people would spend on their vehicles? I have good friends who currently have 3 or 4 financed vehicles and though they can afford the monthly payment (I shudder at how much it must be) I wonder how their choices may have been different if they chose to pay cash in lieu of financing.

[disneysteve]

I wonder how paying cash vs. financing might impact how much many people would spend on their vehicles?

Great question. There is a reason the rule of thumb is not to finance a car for more than 3 years with a payment not more than 10% of your monthly income. The problem is that fewer and fewer people pay any attention to that rule. Today everyone is taking out 60, 72, and 84-month loans to "afford" the car they want.

[LivingAlmostLarge]

Without intention to challenge on your personal choices, I wonder how paying cash vs. financing might impact how much many people would spend on their vehicles? I have good friends who currently have 3 or 4 financed vehicles and though they can afford the monthly payment (I shudder at how much it must be) I wonder how their choices may have been different if they chose to pay cash in lieu of financing.

I can answer this it's really painful to whip out the checkbook or credit card (usually they only take $5k ) and write a check for $30k or i shudder to imagine $80k for a tesla. Personally most of our "social circle" drive much nicer cars than us. And I don't know anyone who actually has a paid for car. Most talk about their loans and deals from leasing. Why? Because honestly it would be seriously painful to write a check for $60k on average. A friend just leased her BMW 5 SUV. I am guessing $55k to buy but less to lease? Or an Audi SUV. It's painful to write that check. It was painful for me to write a check for $20k, I can't imagine writing 3x - 5x that amount.

[Snicks]

Without intention to challenge on your personal choices, I wonder how paying cash vs. financing might impact how much many people would spend on their vehicles? I have good friends who currently have 3 or 4 financed vehicles and though they can afford the monthly payment (I shudder at how much it must be) I wonder how their choices may have been different if they chose to pay cash in lieu of financing.

I would agree that paying cash versus financing may indeed may influence one to make a different decision. There definitely is psychology to cash versus credit.

[srblanco7]

Great question. There is a reason the rule of thumb is not to finance a car for more than 3 years with a payment not more than 10% of your monthly income. The problem is that fewer and fewer people pay any attention to that rule. Today everyone is taking out 60, 72, and 84-month loans to "afford" the car they want.

It's been a long time since we financed a vehicle - but I do recollect not wanting to finance it beyond a 3 year term (though I'm not sure I knew the 10% rule of thumb). At that time, that was also a typical car warranty period. And while I believe that the quality of vehicles has improved and warranty periods are longer, I'd consider the concept of a six or seven year car loan to be lunacy.

[bjl584]

I financed my truck for 5 years, but I ended up paying it off in about 3.
I initially did it for cash flow reasons, but I always planned to pay it off sooner than the term of the loan

[disneysteve]

I financed my truck for 5 years, but I ended up paying it off in about 3.
I initially did it for cash flow reasons, but I always planned to pay it off sooner than the term of the loan

I financed my last car for 6 years. They never even asked; neither did I. It was the best rate. I paid it off in 12 months.

[rennigade]

It's been a long time since we financed a vehicle - but I do recollect not wanting to finance it beyond a 3 year term (though I'm not sure I knew the 10% rule of thumb). At that time, that was also a typical car warranty period. And while I believe that the quality of vehicles has improved and warranty periods are longer, I'd consider the concept of a six or seven year car loan to be lunacy.

If a dealership wanted to give me a 0% loan for 7 years, I would take it in a heartbeat. I wouldnt have any interest in purchasing a more expensive vehicle just because payments would be lower. My next vehicle will be another commuter car, so probably another corolla. They're around $20k. Ill take the 84 month loan at 0%, no questions asked. Of course, I doubt they give 84 month loans on corollas, lol.

[LivingAlmostLarge]

I would agree that paying cash versus financing may indeed may influence one to make a different decision. There definitely is psychology to cash versus credit.

I don't find it to be true that paying card versus cash makes a difference. I watch my credit card right now like a hawk. Every penny I charge I'm thinking about my balance and paying it off. I ask myself if I need it and I'm trying to cut costs. Would cash be any different? Actually cash is worse for me because I have no idea where $40 just went I spent and I couldn't tell you.

That being said credit for a car is certainly easier than watching a $60k car check vanish when you have "payments" you can afford.