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07-11-2009, 08:07 AM #61
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07-11-2009, 11:46 AM #62
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Gah I hate it when people reply *inside* quote tags. It makes it a real pita to reply to the replies...
0.1: Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house. (may not be practical when buying a car--otherwise, okay, I agree. And "possibly" a house? Who in this day and age can buy a house without borrowing?)
Cars lose value over time. Why compound the loss by paying interest to lose money?
3.1 Start car replacement fund (when does this end? how does one determine when to move on in steps? after using it to replace a car?)
3.3 Start furniture or other non-essential stuff replacement fund (same as 3.1: when does this end? how does one determine when to move on in steps?)
Stuff breaks. This is called "budgeting for it".
(one of our cars is 11 yrs old and about to die...we'll be buying "new to us", and there's no way we'll be able to pay cash for it--not the same as moving up when one already has a car, but I'm not going to buy a beater car and then save until I have enough money to buy a car outright. It's just not practical IMO--not for us anyway.)
07-11-2009, 12:54 PM #63
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Greebo, slow down, take a deeeep breath. This battle has been fought (by you) a long time ago. Go to page 2.
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07-11-2009, 10:26 PM #64
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07-12-2009, 04:35 PM #65
But I'm confused. I thought that the reason debt was 'bad' was (mostly) because of the risk it entails if you can't pay it. If that risk doesn't exist, surely the only 'bad' thing about the debt is that you will end up paying more than paying up front - and surely that is a judgement call based on whether you think having the item sooner will SAVE you money? (i.e., I can get a better job after finishing University, rather than working for less, without a degree, while saving).
07-13-2009, 09:11 AM #66
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You are posting on a Dave Ramsey thread. His view is basic. "The borrower is slave to the lender". While I may have been wrong in stating that he might accept some small student loans if needed. (I couldn't find the quote), I do understand the principle.
Whoever you owe money to, owns a small piece of your soul until that debt is gone. Actually, at times that piece can be pretty huge. And if you don't have things under control, they will own all of it. You will always have in the back of your mind, "I owe money to people, I can't take this job, take this time off to figure out my life, etc, because these debts must be paid"
Of course,if you don't want to pay the debts, then it becomes a whole new ball of wax and your moral view is in question....
Last edited by kita; 07-13-2009 at 09:11 AM.
07-13-2009, 09:47 AM #67
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If that risk doesn't exist,
In risk management training we learned an important lesson about what constitutes risk - if you KNOW it will happen, or you KNOW it won't happen, then it isn't a risk, it's a certainty. Otherwise, the odds are between 1 and 99% that it will happen *to you/your project/your life*.
The thing with risk is that by definition, we CANNOT know for certain if it will or will not happen. Statistically, 50% of would be college graduates don't, (54% in the US as of 2005 in fact). In the UK, its a drop out rate of 7.2% on average after 1 year. Couldn't find full term rates for the UK..but that's nearly a 1 in 10 chance after 1 year that "life will happen".
That's what risk is - playing the odds.
surely the only 'bad' thing about the debt is that you will end up paying more than paying up front - and surely that is a judgement call based on whether you think having the item sooner will SAVE you money? (i.e., I can get a better job after finishing University, rather than working for less, without a degree, while saving).
Debt is a limiter. When you have debt, and you make money, your options are limited, because you have to pay the debt. If you don't make much money, it's even more limiting. Its the great liquidator when risk raises its head and becomes certainty. The financial times right now are *littered* with the corpses (figuratively speaking) of investors who took "good debt" for a "low risk" investment like, oh, buying houses (that NEVER go down in value) or the market (which won't ever go down like it did in the great depression AGAIN), etc.
BUT - you mentioned the math. You mentioned making more because you go into debt vs. doing it for cash.
Ok - lets play. Lets see how it does - perhaps you're right, after all - I haven't run these numbers for myself yet. I *have* been known to be wrong about these numbers before. Of course, it has been a while. Last time I was wrong was when I tried to prove that it made more sense to pay down a low interest house loan before the high interest credit card...
Assumptions: 4 year school at $20,000 a year which covers books, room, and board.
Student 1, finances it all, finishes in 4 years, comes out owing $80,000. Stafford loans, in school, 6.8%, out of school, 6.8%, based on recent rates from bankrate.com. 10 year repayment (standard).
Student 2 works summers and nights, minimum wage ($6.55/hr). Full time + part time (60 hrs) in the summer, part time during school, and works time and a half a semester when he can't pay cash. Call a semester 4 months, and summer 4 months, so he earns $6,812 in 4 months when working time and a half, and $2271 when working part time.
Summer + year 1 + next summer, work
2 semesters of school
Work summer and fall
Spring + summer semester (year 2)
Work 2 semesters
and Attend 2
So that takes him 6 years, and he works that last year, so he graduates with cash on hand of $6,288.
Student 1 graduates 2 years earlier with cash on hand of -$80,000. Oh, no, that's not right, because see that student loan, it's accumulating interest from DAY 1. SO - you start off paying for Semester 1 with a loan of 10k and 4 months later add another 10k then 8 months later repeat.
By the end of 4 years, Student 1 owes $103,727.51 total, and hasn't made a single payment. Student 2 graduates 2 years later with $6,288 in his pocket, cash.
Student 1 has to borrow money to get the downpayment for an apartment. Student 2 has it on hand, plus his original security deposit for wherever he lived in college.
Student 1, in the course of repaying that 103k over 10 years, will pay $1,193.70 per month to repay his student loans, and will pay a grand total of $39,516.44 interest over 10 years PLUS the $23,727.51 he earned in college for a grand total of $63,243.95 in interest. That's my *HOUSE* payment, by the way, that $1,193 per month.
So yeah, student 1 graduates 2 years earlier.
Student 2, however, is debt free, cash in pocket, and will be able to save $1,193/month towards buying a house that, in 5 years, he'll have $72,000~ saved up for, while student 1 will barely be halfway done paying for that education.
You've been lied to. You may be lying to yourself. The reality of the cold, hard, uncaring numbers is right there, speaking for themselves. I didn't make these numbers up - I did the legwork. I approximated, sure, but based on SOUND numbers for college costs, loan rates, and using calculators at bankrate.com.
Here is the cold, hard truth:
IT DOES NOT MAKE FINANCIAL SENSE TO FINANCE YOUR EDUCATION!
07-13-2009, 11:13 AM #68
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Nice piece of work there, Greebo. It does show a big difference in setups for life.
One thing you haven't mentioned, though, is that Student 2 won't have much of a life during those 6 years. But the blood, sweat and tears will pay nice dividends down the line.
Also, I do believe that if someone has to work so hard to finance college, the chances of him/her dropping out is reduced by quite a nifty margin.
07-13-2009, 11:26 AM #69
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07-13-2009, 01:18 PM #70
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There are also other things besides what you have mentioned in the "simple" examples you gave...
and perhaps the difficulty of going in and out of a "lock step" program like RN etc. or med school when it came to that..
10-14-2009, 09:01 PM #71
10-15-2009, 12:08 PM #72
We are planning on sending our daughter to a community college for the 1st 2 years and then transfer her credits to a 4-year college. It's easier(and requires smaller amounts) to save for comm. college for us. While she is in college, she can work and take care of the rest of her education herself. 1 question though. Would we be able to transfer "all" of the credits to a 4-year college? or is there a limit?
10-16-2009, 12:34 AM #73
10-16-2009, 09:36 AM #74
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The credit transfer question is a good one, but not really a Dave Ramsey related issue. You might get more input on your questions if you repost the question in the General Chat forum.
11-16-2009, 06:21 PM #75
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Holy cow!! All this amazing info!!! Greebo, you are AMAZING!!! I cannot wait to start DR (have to start my job first, lol!)!!!
0.1: Commit to NEVER borrow $$$ EVER for ANYTHING other than possibly a house. Okay!
0.2: Talk with spouse and get him/her on the same page as you concerning finances. Done!! We are ready!
0.3 Do a written budget Got it...
0.4 Temporarily stop all retirement contributions Don't have any..
0.5 Get current on all the basics (You MUST have Shelter, Food, Utilities, Basic clothing) Current, except for car insurance which is a week late. Will be paid next week when DH gets paid.
0.6 Amputate "toys" (bikes, boats, ATV's etc) if they will keep you from completing the snowball within 12 months Don't have any!
0.7 Cut lifestyle (Cut CATV, Cellphone, Regular phone "extra's", Internet, Eating out, etc) and/or take second job if $1000 EF will take more than 30-90 days. (depending on income) We have TV and internet. We are in a contract for it, but we only pay 1/2 the bill and my dad pays the other 1/2 because we live with him.
0.8 Get current on ALL bills Working on it.
1.0 Save $1000 In baby EF We definitely want to have a baby EF, but I would think a regular EF would come first, no?
1.1 Chop up CC's (You have an EF now, no NEED to keep those CC's !!) Don't have any!!!
1.2 Get Health insurance NOW (chances of getting sick w/ major medical bills are larger than that of death), especially if you have children. Working on it.
1.3 Get Life insurance NOW if you have considerable debt/your family couldn't make it financially if you died. Especially important if you have children !! Social Insecurity provides only a small amount of coverage if you have dependents. DH and I have never talked about life insurance. I am 21, and he is 26. Is this something that we should definitely get?
1.4 Amputate cars that you can't pay off within 24 months (You have an EF to fix the "bondo buggy" if something should happen) DH has a beater, I don't drive.
1.5 Consider raising insurance deductables to $500 or $1000 and dropping full coverage on paid for "bondo buggy" (You have an EF ya know) Will do some when the time comes...
2.0 Do debt snowball, paying all your debts from lowest BALANCE to highest. Going to start shortly!
2.1: You can take your first vacation since finding Dave if you can pay cash for it (no using the EF !!!) Ahh Vacation...
3.0 Save 3-6 months EXPENSES in EF Will do.
3.1 Start car replacement fund Will do. DH's beater is going to die soon, I am sure.
3.2 Save up 20% for home purchase OR pay down existing mortgage to the point you can drop PMI. Will do!
3.3 Start furniture or other non-essential stuff replacement fund Great idea!!
3.4 Move up in car if you still feel the need to (must pay cash for it) Will do!
4.0 Start contributing 15% of your paycheck to retirement. Will do!
5.0 Save for kids college fund Will save some, but not all.
6.0 Pay off house early Can't wait til the day!
7.0 Live like no one else since you have lived like no one else (investment ideas at this stage greatly appreciated, Dave doesn't go into too much detail on this stage) Woo hoo!!!
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