Credit Cards...

[Delaware Valley Tackle]

Advice, pass on credit cards and keep a savings for emergencies. FICO scores are hype, this all comes from the media convincing working people can't make it these days without a FICO score, BULL!

save your own working money for purchases.

Credit is for running a buisness not life.

X2 Couldn't agree more. Even using a debit card has a different psychological effect than handing over the cash. You will spend more when you don't see the cash.

[SirSnookalot]

Tyrius is right on the money and well said, articulated the point much better than I did.

tyrius, please explain how having my house paid off is a waste of money?

The funds are not liquid and if there is a major emergency or wanting to start a business venture or whatever the need, where does the money come from?  A mortgage...that's a loan , putting yourself in the same position that you are against.  Without a good credit score one may not be able to qualfy in times of tight money, especially if ones working days are over and have a smaller income.

Withdraw a major portion from your investment net egg, now you are house poor, with much less cash on hand.

Another option is to sell your home, in many regions of the country this is not an easy task and takes time.  Also in most areas the market value has suffered, so a home once believed to worth 500k may be worth much less.

A fico score does not represent debt, it represents your payment history and how much credit is available to you.  All things being equal a person that owes a 100k has no different a fico score than a person that has 100k debt free, assets don't matter. 

Used wisely and to further a career credit is your friend, not your enemy.

[Catt]

tyrius, Let me understand this you would rather pay on a student loan plus 3% instead of taking what your are paying out and investing it on you own? To me it's an easy decision...I'd rather be paying me!

You never answered how can having 100% equity in my house not be the best financial decision?

Root beer people like myself, Jack (fishfordollars) and others got to where we are by starting at Hookem age.

To accumulate wealth is not a mystery, it simply takes time and patience, to the extent possible put time on your side and let it work for you.

[Catt]

SirSnookalot, the money value of a property is the amount in excess of claims or liens against it or equity. If my house is valued at $500,000 and is free of debt then it has equity capital worth $500,000.

Back to the point of paying the house off early, the amount I used to pay the mortgage does not disappear, instead it stay in my household budget to do with what I wish.

[tyrius.]

tyrius, Let me understand this you would rather pay on a student loan plus 3% instead of taking what your are paying out and investing it on you own? To me it's an easy decision...I'd rather be paying me!

If I could borrow money at the same rate as I did for my student loan then I would.  3% interest is basically free money.  I could come fairly close to matching that rate with a 3 year CD and CD rates are very low right now.  In the future CD rates would almost certainly be higher than 3% meaning that I am making income on the difference.  If I could buy a 30 year T-Bill I'd make 4% and be positive on my investment with neglible risk.  As those rates rise the amount of income would rise too.  This is what they define as "making your money work for you".

I get that you follow Ramsey's advice, but it is not always the best advice.

You never answered how can having 100% equity in my house not be the best financial decision?

I did on this too.  I'll explain it differently this time.  Let's say I have $50,000 left to pay on my mortgage and the rate is 5%.  I have $50,000 in the bank earning 2.5% (this could EASILY be higher dependent upon the investment chosen).  So, I can easily pay off that $50,000.  Before doing so, one must compare interest cost vs interest income.  After taxes you're looking at a difference of roughly 2%.  Is that difference worth not having access to the $50,000?  If I pay off my mortgage then my liquid cash goes from $50,000 to zero.  Is that reduction worth the interest difference.

Now, let's fast forward a bit until savings rates go back to a more "normal" level and I can get 6% or higher in a long term CD.  If I use my $50,000 to pay off my mortgage then I'm giving up about 1.5% in interest income that I would get if I kept my money in the bank and paid off the mortgage with minimum payments.  I'm also losing access to that money again.  So, it's doubly bad to pay it off early.

[SPEEDBEAD.]

SirSnookalot, the money value of a property is the amount in excess of claims or liens against it or equity. If my house is valued at $500,000 and is free of debt then it has equity capital worth $500,000.

Back to the point of paying the house off early, the amount I used to pay the mortgage does not disappear, instead it stay in my household budget to do with what I wish.

Your house isn't worth anything until you sell it.

Am I wrong?

[FishingBuds]

tyrius, Let me understand this you would rather pay on a student loan plus 3% instead of taking what your are paying out and investing it on you own? To me it's an easy decision...I'd rather be paying me!

If I could borrow money at the same rate as I did for my student loan then I would. 3% interest is basically free money. I could come fairly close to matching that rate with a 3 year CD and CD rates are very low right now. In the future CD rates would almost certainly be higher than 3% meaning that I am making income on the difference. If I could buy a 30 year T-Bill I'd make 4% and be positive on my investment with neglible risk. As those rates rise the amount of income would rise too. This is what they define as "making your money work for you".

I get that you follow Ramsey's advice, but it is not always the best advice.

You never answered how can having 100% equity in my house not be the best financial decision?

I did on this too. I'll explain it differently this time. Let's say I have $50,000 left to pay on my mortgage and the rate is 5%. I have $50,000 in the bank earning 2.5% (this could EASILY be higher dependent upon the investment chosen). So, I can easily pay off that $50,000. Before doing so, one must compare interest cost vs interest income. After taxes you're looking at a difference of roughly 2%. Is that difference worth not having access to the $50,000? If I pay off my mortgage then my liquid cash goes from $50,000 to zero. Is that reduction worth the interest difference.

Now, let's fast forward a bit until savings rates go back to a more "normal" level and I can get 6% or higher in a long term CD. If I use my $50,000 to pay off my mortgage then I'm giving up about 1.5% in interest income that I would get if I kept my money in the bank and paid off the mortgage with minimum payments. I'm also losing access to that money again. So, it's doubly bad to pay it off early.

:-? say again? you lost me here, i get what your point was but serious, you lost me here.

Keep in mind the source of money you are receiving to pay off said dept, and if you take $50K to pay off and your out of money, don't you still have a income coming in to replace the $50K even faster if you have no mortgage?

[SirSnookalot]

SirSnookalot, the money value of a property is the amount in excess of claims or liens against it or equity. If my house is valued at $500,000 and is free of debt then it has equity capital worth $500,000.

Back to the point of paying the house off early, the amount I used to pay the mortgage does not disappear, instead it stay in my household budget to do with what I wish.

Your house isn't worth anything until you sell it.

Am I wrong?

You are absolutely correct! However the home has a loan value based on comparable properties that have been sold in the area. The appraisal does not mean your home is worth x amount of dollars, it only means how much money the bank is willing to lend, generally LTV ( loan to value) is 80%,which avoids paying mortgage insurance.

In defense of Catt, there is a good feeling of security being debt free with a paid off home.  But for me being a business person I wanted my cash for investments and to buy other businesses

( financing is not 100% ).  I used my credit to buy equipment needed to run my operation, in my case a scrap yard which requires lots of equipment.

[tyrius.]

:-? say again? you lost me here, i get what your point was but serious, you lost me here.

It's doubly bad because 1) you lose access to the 50,000.  It goes from a liquid investment (cash in the bank) to an illiquid investment (your house).  2) because you can earn a higher return on your money by leaving it in an investment account so you lose the income difference.  If you can get 6% on that 50,000 then you're giving up the 1% difference between what you can earn (6%) and what you have to pay (5%).

Keep in mind the source of money you are receiving to pay off said dept, and if you take $50K to pay off and your out of money, don't you still have a income coming in to replace the $50K even faster if you have no mortgage?

Yes, you can rebuild the 50k, but that first 50k is still no longer a liquid investment.  Also, even if your mortgage payment (not including taxes and insurance) was $2,000 a month it would take you more than 2 years to rebuild it assuming that you made savings deposits equal to your mortgage payment.  And if you're forced to do that then you're monthly budget is no better off for that period of time and you're mortgage would've been paid off in the next month anyways.  So, you would've saved only 1 month's mortgage payment while forgoing all interest income on the initial $50,000 (which would've made up for most of that last payment). 

Doesn't sound like a good financial decision to me.

Sorry to keep rambling about this, but advice to ignore credit at all costs is NOT good advice for most people.  It's also not even the point of hookemdown's request for advice, which is answered simply by getting at least one credit card, using it (without increasing monthly spending), and paying off the balance each month.

[FishingBuds]

:-? say again? you lost me here, i get what your point was but serious, you lost me here.

It's doubly bad because 1) you lose access to the 50,000. It goes from a liquid investment (cash in the bank) to an illiquid investment (your house). 2) because you can earn a higher return on your money by leaving it in an investment account so you lose the income difference. If you can get 6% on that 50,000 then you're giving up the 1% difference between what you can earn (6%) and what you have to pay (5%).

Keep in mind the source of money you are receiving to pay off said dept, and if you take $50K to pay off and your out of money, don't you still have a income coming in to replace the $50K even faster if you have no mortgage?

Yes, you can rebuild the 50k, but that first 50k is still no longer a liquid investment. Also, even if your mortgage payment (not including taxes and insurance) was $2,000 a month it would take you more than 2 years to rebuild it assuming that you made savings deposits equal to your mortgage payment. And if you're forced to do that then you're monthly budget is no better off for that period of time and you're mortgage would've been paid off in the next month anyways. So, you would've saved only 1 month's mortgage payment while forgoing all interest income on the initial $50,000 (which would've made up for most of that last payment).

Doesn't sound like a good financial decision to me.

Sorry to keep rambling about this, but advice to ignore credit at all costs is NOT good advice for most people. It's also not even the point of hookemdown's request for advice, which is answered simply by getting at least one credit card, using it (without increasing monthly spending), and paying off the balance each month.

Well you started it 

;D

Well I still say NO CREDIT CARDS! Credit is for running businesses

[Hookemdown.]

For the record: I would consider preparing for and starting a dental practice a business. There is no legal way I could go to school without credit. Its just not gonna happen.  Thanks for the advice guys. It is much appriciated.

[Root beer]

\

Root beer people like myself, Jack (fishfordollars) and others got to where we are by starting at Hookem age.

To accumulate wealth is not a mystery, it simply takes time and patience, to the extent possible put time on your side and let it work for you.

Grrr.. you are still not getting across the point, you are saying something totally different. Hookem and I cannot pay for graduate school in full cash. In two years I'll be in graduate school, even if I can get a part-time job working in fast food or something I still couldn't pay for it in full..It not possible without a loan. I could survive paying rents on my apartment without a loan. My scholarship contract expires when I graduate with a bachelor. It is unknown if I'll get a graduate scholarship. I cannot bet that I'm get a full-ride or tuition paid scholarship in graduate school. I must be prepare for every scenario. What the best way to get a cheap loan? Good credit score. How do we do that? Exactly what been mention in many previous posts..Specifically buying small crap and paying it in full and what not..

So, now do you understand? I have a brokerage account and I'm currently building wealth, but I still need a reliable line of credit and a good credit score as a last ditch effort.

[Catt]

On the conversation of equity what is being missed is that if you have a $500,000 home that you owe $375,000 to a financial institution and you sell the home for $500,000 the amount of money you pocket is $125,000 the other $375,000 goes to the financial institution.

On the other hand I have a $500,000 home that I owe nothing to any financial institution so when I sell it for $500,000 I pocket $500,000.

#2: Lets say that my mortgage payments to the financial institution were $2,500 per month, so now instead of having a debit taken out of my budget I have $2,500 per month of working capital. Its my money so I want as much of as possible working for me.

Current assets minus current liabilities equals working capital (liquid assets)

[tyrius.]

On the conversation of equity what is being missed

Nothing that you brought up is being missed.  Equity in your home is not real money.  You can't go to the store and buy something and pay someone in equity (unless you borrow against it).  Equity does not equal cash.

Current assets minus current liabilities equals working capital (liquid assets)

Yep, and your home is NOT a current asset so paying off your mortgage faster than required decreases your working capital.

[Catt]

On the conversation of equity what is being missed

Nothing that you brought up is being missed. Equity in your home is not real money. You can't go to the store and buy something and pay someone in equity (unless you borrow against it). Equity does not equal cash.

Current assets minus current liabilities equals working capital (liquid assets)

Yep, and your home is NOT a current asset so paying off your mortgage faster than required decreases your working capital.

Current assets minus current liabilities equals working capital (liquid assets), what part of minus liabilities (debt) don't you get?

Current assets by difination: assets of a short-term nature that are readily convertible to cash, my home.

Today's US News & World Report: 5 Ways to Quickly Boost Your Credit Score

#2 Pay Off Debt.

If you've already tried to make the denominator bigger, it's time to focus on making the top number smaller. Paying off debt is the best way to do that because you lower your total balance owed, you lower the total amount of interest you pay, and you improve your credit score at the same time! It isn't as simple as it sounds, however, because you probably wouldn't be carrying all that debt if you could pay it off, right?

http://money.usnews.com/money/blogs/my-money/2010/07/30/5-ways-to-quickly-boost-your-credit-score

[Root beer]

Your house would be classify as plant asset. Current asset is define as anything converted into cash within a year such as: Inventory, Marketable Security, Account Receivable, and errr I think that it. That what I was taught. Your house wouldn't qualify as current asset. It cannot always be liquid fast...See today's market...The house next door to my parents took 9 months to sale only for it to be sold to another investor who trying to sell the house for a profit...The house has been empty for a year.

I keep my personal finance same as if it was a business. Much easier to comprehend.

Edit: Whoops, I forgot to add Cash to my list of current assets above. hehe.  ;D

[tyrius.]

Current assets minus current liabilities equals working capital (liquid assets), what part of minus liabilities (debt) don't you get?

Current assets by difination: assets of a short-term nature that are readily convertible to cash, my home.

You can keep on believing that you're right, but you're not.  I'm done going over the same points and just getting the same replies.  Posting defintions from a dictionary is not proving your point.

Cash in the bank or in short term investments is current assets.  Your house should not be considered a current asset.  You may not be able to sell it quickly enough, you may not be able to get a line of credit, it may drastically fall in value, in order to sell it quickly you may have to sell it for signficantly lower than it's actual value etc, etc, etc.

Feel free to have the last word.

[Root beer]

Current assets minus current liabilities equals working capital (liquid assets), what part of minus liabilities (debt) don't you get?

Current assets by difination: assets of a short-term nature that are readily convertible to cash, my home.

You can keep on believing that you're right, but you're not. I'm done going over the same points and just getting the same replies. Posting defintions from a dictionary is not proving your point.

Cash in the bank or in short term investments is current assets. Your house should not be considered a current asset. You may not be able to sell it quickly enough, you may not be able to get a line of credit, it may drastically fall in value, in order to sell it quickly you may have to sell it for signficantly lower than it's actual value etc, etc, etc.

Feel free to have the last word.

;D To be fair, accounting definition can be very misleading for someone who is new or doesn't have any previous experience in the subject.  ;D I got misled once or twice on a quiz, but I got similar questions right on the test. It takes patience.

[Catt]

When you go to pay your house & car note plus interest, soak on this a while, I'm pocketing $2,950 per month or $35,400 per year.