On Debt

On Debt _ AnythingYouWantBlog.com

You may have noticed one important component of financial literacy that has been conspicuously absent from this blog thus far: debt. It isn’t included in my net worth, and you won’t find it in my budget.

The reason I haven’t talked about debt yet is very simple. On this blog, I write what I know, and debt is not something that I know very well. While I do have a mortgage (don’t worry, I’m well above water on it), I have never had consumer debt, student loan debt, car loan debt, or any other kind of debt.

So how did I manage to make it to 27 without debt? I’ll break it down into two key factors, which are really one factor that you’ve heard about before: my parents.

Raised on a debt-free diet

I grew up in a house where debt was just not a thing we discussed. This was not because it was a taboo subject, or because my parents were embarrassed to talk about it, it really just wasn’t even an option. In fact, it wasn’t until I was in college that I came to understand that you could use a credit card and NOT pay it off in full at the end of the month. You can accumulate a BALANCE and go into DEBT on a credit card!? Who knew?

My parents taught me and my younger brother early on that if you want something, you save your money until you can buy it. I got a small weekly allowance for completing certain chores, and if I wanted a new toy, I had to save my money and buy it myself. My parents did not extend credit and allow us to pay them back later. They did not buy us extraneous items (expect on holidays). So we learned to make do with what we had, save up and spend judiciously.

While I took these lessons to heart, my brother really got into the world of saving quite early on. One of my earliest childhood memories is of my brother, maybe 5 or 6 years old at the time, bragging about how he had saved $80 (probably from birthday money) and was “rich for a kid.” He didn’t go out and spend that money on a new toy. He opened a bank account, and deposited his money, because we were taught that when you have extra money you save it.

Not only did my parents teach us these lessons, but they modeled these behaviors themselves. My parents buy cars in cash and drive them into the ground. They live simply as compared to some of their friends, and certainly well below their means. They are conscious of the money they spend, acknowledging that even small purchases, such as buying a more expensive item at the grocery store, can have an impact on overall financial well-being.

So really, I was lucky to be raised in a way that taught me how to save, how to spend, and how to avoid debt. I can take no credit for this, although I did listen to my parents’ teachings and adopt their frugal ways. I have many friends whose parents never discussed money at all, yet lived extravagant lifestyles (dinner out several nights a week, new toys whenever they were desired), possibly supported by consumer debt. These friends were not given the advantage I was, of understanding how money works, even though as a child I was often jealous of their seemingly luxurious life.

No student loans

Education was a high priority in my house. My brother and I both did well in school and it was basically assumed that we would both go on to four year colleges. Sending two kids to college wasn’t cheap, but it was where my parents saw value and therefore they were happy to put their money into our education.

So how did they pay for our college educations? My parents consistently lived below their means. Both of my parents worked (which was not altogether common in the town I grew up in). My mom actually says that the reason she went back to work when my brother and I were young was to pay for college. We didn’t go on extravagant vacations. We shopped sales. We drove older cars. We ate dinner at home. It all sounds very simple, but it adds up.

Sometimes I think about what I would have done if my parents were not able to pay for college. Would I still have chosen to go to an expensive, private university? Would I still have picked a major that I loved but wouldn’t yield a lucrative job? I like to think I would have been smart enough to understand that tons of debt was not worth it, and found a way to get a great education for less, but who knows. These are big decisions for an 18 year old to make.

I was more conscious of the cost of higher education when it came time to pursue my graduate degree. I considered attending a full-time MBA program, which would have run me over $150k for two years (plus substantial lost income). Instead, I opted to attend a part-time MBA program, which cost substantially less. Again, I was spoiled when my parents agreed to contribute to my graduate schooling. That, together with tuition reimbursement from my work, allowed me to complete my MBA debt free.

What if I had debt?

I recognize that I have been extremely lucky and that it is mainly good fortune that has allowed me to get to this point in my life without debt. What would I do if I hadn’t been so lucky?

While I think it is pretty hard to make a case for taking on consumer debt, I think there are often good reasons to take on student loan debt. If I had student loan debt, I would pay it off as quickly as I could. I would prioritize debt repayment over savings (once I had an emergency fund) because interest rates on loans are almost always higher than the return on savings. I would focus on the debt with the highest interest rate first, being careful to make minimum payments on all loans so as not to jeopardize my credit. I would live as frugally as possible until my debt was gone.

I guess it is easy for me to say this since it is all hypothetical, and I am sure that it is harder to do. I know the feeling of frustration when you seem to be working hard but getting nowhere, and I can imagine that debt repayment must often feel this way. I can only hope that, in the end, the hard work feels worth it for whatever benefit was derived.

Do you have debt? What for? Was it worth it? If you don’t have debt, how did you avoid it?


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28 thoughts on “On Debt

  1. My parents were the same way, if I wanted something, I had to save up for it. For debt now, I have my mortgage and a student loan from grad school. I was debt free in undergrad and then paid my way through the first year of my Master’s. For the second year, I wasn’t comfortable paying my way again because it would have been very tight. So I took a loan out to ensure I could focus on my education. I got a job in my field in January and intend to pay it off by the end of the year. I have only 33% of the loan left after less than a year of taking it on.

    Other than that, just my mortgage. I really don’t like debt. The concept of you paying someone X amount of dollars to have a number that you owe them is silly to me. Pay it off!

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    • That is awesome that you’ve been able to pay down your grad school loan so quickly. I can absolutely see how taking on some debt for a grad degree could make sense, especially if you’re able to pay it off so quickly upon graduation.

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      • I think that some debt is good in some cases. For me, I didn’t want to have to work full-time, go to school, and not be able to enjoy life with my friends and family since I would have been strapped for cash paying for school. Even now, I am still living like a college student even though my salary is great and my loans in deferment.

        I just hate looking at that interest expense rising. Even if it’s like $30 bucks a month in interest due to being in deferral, it’s just illogical to wait!

        Do you plan on paying your mortgage down or have you already taken steps to send extra cash towards it?

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      • I don’t plan to pay down my mortgage. I have a very low rate and it is fixed for 30 years, so at this point I am more focused on building up more liquid savings.

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  2. I’m really enjoying this blog because, unfortunately, money is not my lingo. My parents were not like yours at all. They were all about spending. I know it makes sense, but I never considered paying my student loan off before saving. Interest rates on loans exceeding returns on savings is a good tip. Thanks for the take-away!

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    • Great, glad you found the post helpful! I was very lucky to have parent who taught me about money, but its never to late to learn for yourself how to be smart with your money!

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  3. How wonderful that your parents gave you such an ingrained aversion to debt, and that you’ve stuck to that! I know my parents were trying to do the right thing, but they got me a credit card at age 16 so that I’d learn to use debt “responsibly.” The plus side was that I had an 800 credit score by age 22, but the negative was that I racked up massive debt in college, and even more in the first few years out, before I finally got things under control. I’d definitely be farther ahead financially now if I hadn’t had to tackle that debt, but I also think that making that mistake helped me figure out my priorities financially and otherwise in a way I couldn’t have without making those mistakes. I learn best by doing, and learned a ton by having debt and getting out of it!

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    • In some regards I think it is great that your parents told you to get a credit card so young. I think it is good to be exposed to the idea of credit, as long as it is also understood that there are major negatives to taking on too much credit.

      It’s great that you’re able to look at your history with credit and debt as a learning experience. Always best when you can turn a negative into a positive!!

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  4. I was fortunate to have parents like yours. We still did a lot of fun stuff but there were no fancy vacations or name brand clothes when I was younger. My parents paid for all my college. When I got married we decided my husband would go back to school for optometry so now we have school loans but it was worth it! My husband’s in a career he loves & is making good money so we can slowly pay back our debt.

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    • That’s great! I think it is nearly impossible to get through school for medical-related careers without some debt, but at least you come out the other side with a fulfilling and meaningful job.

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  5. I currently have some credit card debt because I was caught off guard with a lay off. I had started to want to change my job so a few months before I started upping my savings but I wasn’t prepared to be cut off and out of work for so long when it did end up happening. I’m working on it now but it’s still baring on my family a bit. I don’t regret it because credit cards kept us from freaking out when our emergency money ran out, so I’m very grateful for them. I think credit cards are great for emergencies but I definitely plan on putting them away once this is all past us.

    Best,
    Rebecca
    http://rebeccakelsey.com/blog

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    • Its great that you had emergency savings that you could use to help get you through your layoff. Credit cards can be useful as a last resort in an emergency, and its great that you plan to pay them off and avoid using them in the future.

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  6. I’m in debt definitely, for some things I don’t care about being in debt, for example my education, that’s something I am proud to be in debt in, and some things I wish I just didn’t get myself into. Being a single mother sometimes you have to take money out of the most “ugly” places and it can hurt you in the end if you don’t keep up with the payments. Fortunately I have a salary based job in the field I majored in which pays me enough to wear my bills are only a small portion of what I make, and that the house I am restoring was basically passed down to me, so I can focus on building my credit back up and getting myself out of debt!

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  7. You’re lucky to not have student loans, and going through the emotional (and financial) impact of student loans, I actually am putting off having kids to give my wife and myself the best chance possible to pay for their entire college educations.

    My thoughts on student loans are this: most people don’t think about it until they are done with school. Those who avoid it, at least 95%+, is simply due to the fact their parents saved and paid for their kid’s college educations (or a large majority of it). You’ll notice on YAM we focus 100% on things that you can do after the fact and we don’t really focus on “prevention” of student loans or dwelling on the “what ifs.” Call me a cynic, but I don’t think there is much that can be done from a blogging perspective unless your target market is high school seniors.

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    • Good points. I agree that most people don’t fully understand the loans they take on until graduation (a major flaw in our education and financial systems), and that many students who make it through school debt free do so not necessarily through their own hard work but through their parents’ planning.

      I think that high school students really should be made more aware of the reality of student loans, although you’re right that my blog is not aimed at high schoolers, so I’m not likely to make an impact there.

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  8. We seem to have very similar backgrounds. Never been in debt or borrowed money because of the same reasons – I was taught by my parents. It was just the way it was.

    When my wife and I got married in 2013, my parents bought us FPU and even went to the class with us. So from the very beginning my wife and I got on the same page by literally putting everything on the same page! It was a great gift.

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    • That is a great wedding gift! Being on the same page as your spouse financially is so important, and is something that I’m working through with my boyfriend right now.

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  9. I love “raised on a debt free diet!” My parents were the same way. My mom graduated and went to Europe on credit cards because no one ever explained the math behind them to her. When she got married, she had tons of credit card debt that my grandpa paid off for her as her wedding present (at that point, she understood, but couldn’t get above water on her own). So we were taught very young balance on credit cards were a bad thing. When we started high school, my dad gave us debit cards and a check book register and we were to keep a running balance (pre-online days, of course) of what we had in there. That was our money at that point for everything… college, etc. If we spent it now, it would be gone. If we earned more, it would be ours. It was a great way to give us a leg-up for college, but also train us to do it on our own. Because of that, we definitely chose cheaper colleges and were more judicious with our money because there was a finite amount.

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    • That is awesome that your parents trained you to manage your money from a young age. When you’re a kid, it feels like a burden, but as an adult you really come to appreciate learning those lessons early in life!

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  10. I have no debt for precisely the same two reasons. We always lived below our means growing up and I would never consider not paying off my credit cards in full every month. I also managed to get a good education without any student loans. My parents paid for my undergrad degree so I guess that helped.

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  11. Your experiences sounds very similar to mine… I feel extremely fortunate to have grown up the way I did. My parents were extremely generous and I worked hard to get some scholarships for my university education. That and living at home while going to university definitely helped me out.

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    • Living at home during college is a great way to cut down on costs. I think that the challenge there is balancing getting the “college experience” with saving money.

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  12. Danii says:

    it is a much less stressful way to live without the burden of debt. Have tried both ways and definitely eliminating debt makes you feel much more in control of your life. The ease of obtaining large amounts of credit and the need for instant gratification seem to be feeding an ever increasing reliance on debt as a normal way of life for many. Maybe the financial institutions raking in billions in profits need to be a little more socially accountable and say no to some people instead of seeing them as sources of profit.

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