Why Don't People Pay Off Their Debt?

[Radiance]

how they were raised and taught about money.

THis is key for me, I have a little one and I plan to teach him everything I know about personal finances as it becomes age appropiate.

I didn't really benefit from whatever knowledge my parents had nor did I learned from their mistakes.

I want to balance my checkbook while he does homework.
I want to explain him why do I do grocery shopping this way and not that way
He will know what is a credit score before he can drive
When I make a mistake I'll share the situation in age appropiate ways so he understands mistakes will be made and how to bounce back.
He will see me saving to FINALLY buy this or that.

[ActYourWage]

He will know what is a credit score before he can drive

Just remember a Credit Score is a "I love debt score". Learn to save early and often and let him pay cash for a car, college, etc. Now is the best time to start...when they are so young.

[maat55]

Being debtfree is a state of mind and lifestyle. I used to run my small business on a credit line and was always in debt paying interest.

Finally, I converted the line to a note and payed it off, then built my own retained earnings(Business form of EF). You have to want to be debtfree.

[Snodog]

Just remember a Credit Score is a "I love debt score"

Not true.

The only "debt" showing on my credit report is 2 credit cards that get paid in full every month and my credit scores are all over 800.

[disneysteve]

debt is only good for those who are clearly incurring debt in order to build up their credit rating.

I don't agree with that at all. Debt can be a very useful tool when properly employed and managed. Without debt, I wouldn't have my college or graduate school degrees. Without debt, I wouldn't have my home. Without debt, I wouldn't have my current car (which has been paid off for nearly 8 years). Without credit, I'd be stuck paying cash for every thing I purchase. Instead, I use a credit card (which some would define as short-term debt) which is far safer and more convenient and earns me hundreds each year in rewards.

think she needs to re-marry someone like DisneySteve here. She would be very happy with men like that

Sorry, I'm taken.

Just remember a Credit Score is a "I love debt score".

Sorry, but that is one of many Dave Ramsey statements that is just simply untrue. See what I said above. Debt isn't inherently bad. If you borrow responsibly and put that money to good use to improve your life overall, I think that is a good thing.

The only debt we have is our mortgage and our scores are around 800.

[nmboone]

This topic is sort of jarring to me because I have what Suze Orman calls "baglady syndrome", which basically means I fear having no money and living on the street. Even though this most likely won't ever happen (but you never know). For instance I have money in the bank, both checking and savings, and a credit card I owe nothing on in case I absolutely had to use it, however I won't put a lot down on the debt I owe for my car and student loan! It's getting kind of rediculous. I will happily put a 1/4 of my paycheck in savings, but not put it towards my debt just so I'll have a bloated savings account.

I know it's a problem. And I'm working on it. If anyone's wondering where this comes from, I think it's partially from my parents consistently not having money while I grew up, and partially the time when in one week in 2001 I bounced three checks in a row on accident and was very broke for a while. Sorry to dump on everyone.

What's sad is that it's so bad that I always maintain more money in my checking than my savings!! But from here on out, I am absolutely not putting any more money away for savings since I have a $1400 EF. I need a personal mentor.

[mrpaseo]

I put a guy on a budget once, showed him how to snowball his debt and after I was done he said, "Well, I'm always going to have debt so I'm not worried about paying that off, what I need to know is where to invest...". That was our last session.

My aunt trades out her lease ever 2-3 years... Constantly has a car payment... she has been doing this for like 20 years that I know of... Same concept, she feels she will always have a car payment.

[Fizgig]

Reluctantly, I made the decision not to accelerate payment on my debts for the next year. Right now I owe $1800 on my student loan, $15,000 on a piggy back mortgage, and have about $20k on the bank.

I would LOVE to wipe both of those debts off tomorrow, but my employer is on shaky ground and I may be subject to a layoff over the next year. Even though right now I have enough to carry myself for ten months and there would probably be ~$25k in severance if I were laid off, I just feel better piling up all the cash I possibly can.

So, I guess that's why I'm not prioritizing paying off my debt right now. Just a feeling of insecurity. If/when things stabilize next year, I will gleefully write the checks to eliminate all that debt.

[Radiance]

Fizgig,

Your fears are undestandable, however there are things you can do in the mean time, maybe some of these you already do:
Ensure you dont get into any additional debt, stay within budget (including debt payments)
Find if you can cut off other expenses so you can assign those funds to pay off debt while you keep your EF. Groceries, Entertainment?
Learn how much is each debt costing you each month, it is a good motivator to get out of it as soon as posible and within your means. I am not talking about the monthly payment, but the financial monthly fees.

[m3racer]

This topic is sort of jarring to me because I have what Suze Orman calls "baglady syndrome", which basically means I fear having no money and living on the street. Even though this most likely won't ever happen (but you never know). For instance I have money in the bank, both checking and savings, and a credit card I owe nothing on in case I absolutely had to use it, however I won't put a lot down on the debt I owe for my car and student loan! It's getting kind of rediculous. I will happily put a 1/4 of my paycheck in savings, but not put it towards my debt just so I'll have a bloated savings account.

I know it's a problem. And I'm working on it. If anyone's wondering where this comes from, I think it's partially from my parents consistently not having money while I grew up, and partially the time when in one week in 2001 I bounced three checks in a row on accident and was very broke for a while. Sorry to dump on everyone.

What's sad is that it's so bad that I always maintain more money in my checking than my savings!! But from here on out, I am absolutely not putting any more money away for savings since I have a $1400 EF. I need a personal mentor.

I think your thought process is logical. There's nothing wrong with paying off your debt AND saving/investing at the time time if it makes sense.

[Justice44]

RE: Why Don't People Pay Off Their Debt

I don't agree with that at all. Debt can be a very useful tool when properly employed and managed. Without debt, I wouldn't have my college or graduate school degrees. Without debt, I wouldn't have my home. Without debt, I wouldn't have my current car (which has been paid off for nearly 8 years). Without credit, I'd be stuck paying cash for every thing I purchase. Instead, I use a credit card (which some would define as short-term debt) which is far safer and more convenient and earns me hundreds each year in rewards.

I understand your point. However, I would think it would be better to have the financial capacity to pay for your tuition and home in full. This is why people need to explore other ways to generate income in order to fund these things. If they fail to, they will have their degrees and nice homes but often hundreds of thousands of dollars of debt as well. I agree if you have no other choice you should explore loan options for college, but why do teach our young kids to accept this as the ideal? Society should be teaching our young kids to make money outside of a wage/hour job which funds new cars, homes and tuition.

[Joan.of.the.Arch]

Society should be teaching our young kids to make money outside of a wage/hour job which funds new cars, homes and tuition.

Why? Maybe we just need to teach that you do what you need to do. But the way you phrased that makes it sound like you accept that a job of at least 40 hours a week (and many USAmericans, salaried or wage earners, spend more than time than that at their jobs) is not going to be enough to live off of. It's true that some people don't make enough to live off of, but should we really be teaching that you ought to spend ever more time working?

Are you saying that cars, tuition, and homes should not be purchased until they can be purchased with cash?

[disneysteve]

However, I would think it would be better to have the financial capacity to pay for your tuition and home in full.

Of course that would be better, but how do you propose to make that happen? Where is an 18-year-old supposed to get tens of thousands of dollars to pay for college in cash? I can't think of any legal job that would generate that kind of income and still leave time to attend school.

I'll agree with you on car purchases. Most people spend way more than they need to on their cars. You can buy a brand new car in this country for under 10K. You can buy a very good quality used car for under 5K. Most people don't, though. They spend 20K and more, going into a bunch of debt in the process. Lots of people who finance their cars could afford to pay cash for a much cheaper car.

[buildmybudget]

I agree with most of what has been discussed here. Like DisneySteve said, debt isn't inherently bad and can be quite helpful if used responsibly--and is only a form of leverage to the individual who really understands their financial position. I think that my customer suffers from a lack of financial education, lack of a financially savvy support group, and lack of focus to take over the situation. He good news is that once we built a budget she could see that things would be ok and that she can pay off these debts and start building a financial foundation. Hopefully it's just a matter of time until she pulls the trigger.

[eileen1]

I also think when we use a credit card to pay for things, it doesn't feel like "real" money - then subsequently the credit amount owed seems rather imaginary as well. If she switched to paying all cash for everything for a month or two, that might help with changing her mindset.