Wouldn’t income tax rates going up make the tax-deduction for mortgages more appealing?

Then I heard Dave Ramsey talk about how after adjusting your rates for risk, it is unlikely that you can come out ahead with this kind of rate play. So four years ago when we bought a new house, we paid cash and became totally debt free.

He advocates you to pay all debt EXCEPT the house, fully stock your emergency fund, then fully fund (15%+) any retirement plan, take care of your childen’s college, THEN pay off the house.

In fact, a fixed rate mortgage is the ONLY type of debt Dave allows in his plan.

And when you think about it, debt for anything else is not fiscally responsible considering how much money you should be able to SAVE by not being in debt in the first place.

You would not barrow from your house at 6% to invest would you?

By keeping the mortgage and investing, you are effectively doing the same thing. Plus tons of security come along with a paid off house.

However, I do take exception to those that are in that position attempting to push it on other people. Not using debt is sub-optimal. There are plenty of times and opportunities where debt is superior. A recent example for me was when I went car shopping. I had the cash to buy the car in my account – but in the end, the best option for me was to take a car with 0% financing. And so, that’s what I did. The cash now sits in my investment account.

This is the difference in attitudes – I didn’t have debt because (as per #3) I couldn’t afford it, but because it was optimal. Those that are unable to save the money in the first place shouldn’t take on the debt, yes; those that can, should be willing to.

It is similar with buying a home. If you value having your own home, you’d have to wait a very long time to save the money, simply due to the rent-mortgage gap being low. As mentioned before, there is a limited amount of time. More to the point, over a good 30 years, you’ll end up ahead (so far, all the time) by borrowing.

Likewise, in the States (and with some trickery in Canada), you are better having a mortgage and an investment portfolio than no mortgage. This assumes you have income already, mind you, although if you have an investment portfolio the same size as your mortgage (or larger), I believe you can deduct income that way… (?)

Work out what your real goals are, and then how best to get there. That may well involve being debt free soon, and will almost certainly require being debt free eventually, but life isn’t only about the money.

But they can’t. The bank is as much bound by the mortgage contract as I am, which means that as long as I keep up the promised payments, insurance, and property integrity, they can’t take the property or ask for their money back. Even if they’d really like to (for instance, if interest rates go a lot higher than they were when I locked in a fixed rate).

Sure, there are imaginable scenarios where I could no longer keep up the payments. But if I have a decent savings cushion (which I can build up if I don’t think I have to put every spare dollar into extra debt payments), I can keep up payments for millions of heartbeats to come even if I lose all other income, which gives me breathing room to find a solution to a financial crisis. I do carry a risk, but it’s not as bad as the quote above makes it out to be.

Moreover, it’s not as if my alternatives are risk-free either. Evictions, property tax increases, natural disasters, eminent domain, economic collapse, neighborhood or environmental deterioration, or even my own health problems could cause me to lose my home, whether I rent it, own it with a mortgage, or own it lien-free.

It can make a lot of sense to avoid or minimize debt in many situations. But believing that it’s *always* a mistake to contract debt is letting your fears, rather than your reason, make your decisions for you.

I would double check your statements

“Also it is unsecured debt, so the lender can never take anything away from us as opposed to a house loan or car loan. Example: If my spouse or me were to die one or the other of the debts would go unpaid and the CC company would be told to get stuffed.”

If you don’t pay your CC bill, they will sue you and will get a judgement against you that you WILL have to pay which could result in either wage garnishment or you selling an asset (such as your car or home). Of course, you may be able to declare bankruptcy to avoid that but I don’t think you are advocating that route.

Also, if you or your spouse dies, the respective estate would be liable to repay the CC balance. Perhaps you have low enough assets that there would nothing left there but just because the person dies does not mean the debts are automatically erased.

its an unsecured debt because the lender does not have a lien on a specific asset to protect their interest. It doesn’t mean they have no recourse to get repaid which some folks may gather from your post.

Personally, I think you are playing with fire. Too many things outside of your control could happen — what if your CC company decides to unilaterally raise your interest rate to 18% or higher (BofA has done this)? Unlike a home loan, I suspect if you read the fine print on those agreements, there are ways for the bnak to change the rate or terms on you (universal default clauses,etc).

So we are going purchase a larger home next spring/summer that will hopefully be the home we stay in for a long time. I have a “flexible goal” to pay off that house by the time I’m 45, or about 11 years into the mortgage. But we won’t sacrifice retirement savings or other interim goals to get there. It truly is a balance and a constant struggle to find it.

Trent – your farm idea sounds fantastic by the way. My wife and I have talked about that lifestyle also, but I think both of us are more “city” people and would miss being able to walk to our favorite coffee shop or restaurant.

However, there are experiences and opportunities in life that you may not or simply can’t get more than one crack at sometimes.

What if you’re child has a natural athletic or scholastic ability for something they really love? Is extending your years of debt for coaching, traveling teams, accelerated programs, etc. good for supporting that?

What if an ailing parent needs support? Is adding an addition to your home or shifting to work part time and going into debt good for that?

What if you have a relative or friend cross country or in another country and you know this may be your last chance to see them? Is it worth it then?

There are plenty of ways of achieving goals similar to the above without paupering yourself and it would be great if you had an emergency or vacation or other fund category that could cover all of your goals. But sometimes, if you’re only focus is eliminating debt at all costs, these other dreams and goals will never see the light of day, because the window of opportunity has passed by the time you’ve saved enough to pay for them.

On the other hand, if you rent a place and put all your money into savings, there is a risk that inflation will drive the value of your savings down.

Diversification is the key–which is hard to understand for people who like to pick on thing (being debt free, having a lot of money set aside for retirement, etc.) and just stick with that.

You’re both forgetting that there are some goals which are so time-constraining, that debt may be the only option and I find Sean’s comment of “If the other goals don’t happen . . . Everything else is gravy . . .” somewhat childish. Staying out of debt is not even in the top seven of my lifetime goals. (Of course, neither is going into debt).

No — ‘other things’ are not all gravy. My father died a few years ago — I took several months off work so he could spend that time with me and his only grandchild. THAT was worth going into debt. And it certainly could not have been put off until I was debt-free. I spend a lot of time with my son (I’m a single mom) when I could be earning overtime. Giving up those experiences is not worth paying off my evil debts any earlier.

Debt is, as mentioned before, a tool. Some people shouldn’t go into debt, but that is not because debt has any inherent qualities which make it evil; it only makes it a very dangerous tool.

Even though I now make my income from investment properties, I’m still in debt, but that’s deliberate. I chose to put my money into investment properties. Some are fully paid off but many still have mortgages. Because I was able to get a good interest rate, and because of tax implications it’s worth my while to keep the mortgages going rather than pay them off as soon as possible.

Occasionally (and I do stress occasionally) complete debt freedom can give people tunnel vision. They don’t see the opportunities for investment and they don’t always see the opportunities for leaving a job they hate. I have friends who are so determined to pay off debts that they are staying in jobs they hate in order to do it. Their reasoning is that once their personal debts and mortgage are paid off, then they can get on with their lives. However this will take until they are 45-50 by which time they will have developed no other skills and have missed many opportunities along the way.

Take time to evaluate all areas of your life (something Trent and his wife obviously have done) and not get fixated on only debt repayment to the detriment of everything else.