You are currently browsing the archives for the debt category.

Should I Pay Off Debt or Invest?

August 5th, 2009

Which should you do, pay down debt or invest? You can find different arguments for or against, but I generally say that you should pay down debt, assuming you have a minimal amount of savings ($1000) to cover emergencies. A good list of reasons for paying down debt is provided in this post at I’ve Paid for This Twice Already.

However, my biggest reason is the risk factor. I think Dave Ramsey sums it up best when he says, “I’ve done extensive research and found that 100% of home foreclosures occur on homes that have a mortgage.” Sometimes he might substitute “home foreclosures” with “car repossessions,” but it’s the same idea: If you have debt, you have risk. And don’t get me started on the issue of people willing to incur debt-related risk where they’re sure to lose money but are afraid of investment risk where they have a good chance of making money.

Ultimately it’s up to you to decide how much risk you are willing to take; my main recommendation is that you at least make it a conscious choice.

Related Posts:

SNL: Don’t Buy Stuff…

June 17th, 2009

This is one of my favorites. Aside from addressing a relevant topic, and in spite of Steve Martin’s poor acting, you can’t beat the common sense or the line, “Yeah, we can put it on our credit card.”

Related Posts:

Debt Elimination Calculators

May 13th, 2009

While preparing for a presentation on debt elimination, I discovered two great calculators: one online and the other an Excel template. They are both well worth checking out.

The online debt elimination calculator is found at the Provident Living site among a list of other very useful calculators. You can enter all your debts and calculate the accelerated payoff by focusing on the highest interest rate or the shortest time left for the debt. You can also enter a savings interest rate, and the calculator will show how your your money can grow by saving and investing the money once the debts are paid.

The Excel template is buried on a site about personal finance, provided by BYU’s Marriot School of Business. This template essentially provides the same information as the online calculator, except it’s not nearly as pretty. It can even appear a little overwhelming at first, but it’s not that bad. There are two things I like about it:

  1. You can save it locally to your computer, so you don’t have to re-enter the info each time you use it.
  2. On any given month, you can enter custom amounts to be applied toward the principal (the same reason why I like Excel’s loan amortization calculator).

Either one of these will give you great information. However, if this is your first time trying out the debt snowball method (debt elmination acceleration), I recommend starting with the online calculator. It’s more visually interesting, and seeing what your invested money can grow to is exciting.

As odd as it may sound these calculators are fun and motivating. One person who attended the presentation said afterward, “I don’t have any debt, but I’m thinking maybe I should get some so I can play with these fun tools.” We had a good laugh.

So check them out and get going on your debt snowball!

Related Posts:

Book Review: The Four Laws

May 6th, 2009

A friend lent me the book, The Four Laws of Debt Free Prosperity, which I read in my sparse spare time this last week. Fortunately, it’s a quick short read.

The book’s strength is that it keeps the principles simple and condensed to four main points, which is a great way to go to keep from overwhelming the reader—especially considering that the readers who most need this material are likely already feeling overwhelmed by their financial situation. The four main points or laws are:

  1. Track your spending so you know what you are doing with your money,
  2. Target or set financial goals,
  3. Trim your spending so that you spend less than you earn,
  4. Train yourself in financial matters so that you spend and invest well.

The book further explains and illustrates these points. I liked the chapter on debt-elimination the best. It has some good examples of how to accelerate debt-elimination and can help you not only feel like getting out of debt is possible but motivate you to do it.

The Four Laws was produced by or for Chequemate International (I don’t know the company). This book appears to be part of a system they sell to help you get out of debt and get ahead with your money. Not knowing the company or the rest of their products, I really can’t say anything about them. However, I think this book would be helpful to those who are not sure why they should have a budget or who want to eliminate their debt. It’s one of those books that has a storyline, and the principles being taught are overtly woven into the story—or rather the story is woven into the principles. While these kinds of books do not make for great literature, using the story format makes for a more entertaining read. Plus, this story is a good motivational read for those wanting to get out of debt.

That’s my take on it anyway. If any of you have read it and want to share your two bits, feel free.

Related Posts:

AIG Bailout and Bonuses

March 23rd, 2009

I don’t think AIG execs should be the scapegoats that Congress has turned them into. Of course, I also strongly disagree with how AIG has handled the bonuses. It doesn’t make sense to me that you would give people bonuses, when those people have not saved the company from bankruptcy; that’s where the company would be, if it weren’t for the bailout. And I think that’s where it should be. Our economy was in a credit bubble that collapsed. Why are we trying to sustain a bubble? Doesn’t that make for a very shaky foundation?

One of my biggest concerns with this situation is how riled up people have been about $1.65 million dollars worth of bonuses, which amount to about 1% of the total that the government (representing we the people) gave to AIG. Do we really think this is the only misuse and waste of taxpayer dollars that this and other bailout companies will cause? I think there’s a bit of blame that could be shared with our elected officials for so hastily passing such massive debt spending, without spelling out the stipulations. Interestingly there was some language about using the bailout money for bonuses, but that was removed before passing the bill.

Also, I don’t like the idea of coming up with ways to retroactively punish the company and its employees. I particularly don’t like that the House passed a bill trying to impose a tax on those employees. A lot of people will say, “But we can’t have them stealing our money.” I’m quite irritated by that as well; however, I’m quite concerned when I see our elected officials rousing the people into a mob-like fury against a small group of people.  The laws of our lands should be equitable for all. If we target this group this time, it sets a bad precedent. Then the next time somebody is doing something we don’t like, we just rile up the people and impose taxes or other forms of punishment on that group.

Rather than being so quick to punish these people who were not acting illegally (Irresponsibly? Yes, but not illegally), and implementing taxes that we would find extremely unfair if aimed at ourselves or other minority groups, we should make a ruckus and simply clarify how bailout money is to be handled going forward.

What’s interesting is that we are stuck with this company. In normal conditions, our disgust could be demonstrated by not buying the company’s product, causing it to fail or severely stumble. That would be a strong lesson to the company and other company leaders, helping them to avoid such poor decisions. However, in this case with AIG, because we have bailed them out and won’t allow them to fail, it will only cost us more as the government has to pump more money—our money— into the company to make up for people not wanting to do business with them. That means we end up paying twice for a product we don’t want.

There are problems all around with this AIG case specifically and plenty of blame to be shared, but my biggest concern is that we allow ourselves to become so focused on this one instance that we lose sight of the bigger long-term implications. Wouldn’t we be in much better shape, if we, including our representative government, behaved more responsibly with our money and kept in mind the defense of our fellow citizens, recognizing that allowing one group to be targeted makes defending another group more difficult?

All that being said, two good pieces of news are emerging: 1) at least a third of the bonus money is being returned, and 2) the tax bill that passed the House last week seems to be losing steam and likely won’t make it past the Senate.

I’ll readily admit that while I have followed this pretty closely I may have missed some important details and am open to additional insights others may have. Please share your two bits, so that we can learn and potentially avoid making such huge mistakes at the federal, state, and personal financial levels.

——-

After publishing this post, I ran across a post on the  Weakonomics blog that covered this same topic, with some additional interesting points. “AIG Bonuses Have You Pointing the Finger in the Wrong Direction.”

Related Posts: