No debt, no credit
When John Keeling, 50, of Iowa City, decided to buy his first house in 2005, he discovered that not having a debt made lenders cautious. Keeling had $ 40 000 to put an estimated bill of $ 83,000 ($ 58,000 for a room at home and $ 25 000 for renovations). Lenders are not happy that he wanted to borrow as little, he says, and his sporadic use of credit card did not help either. A lender even asked an additional $ 2,000 for "security" purposes. Ultimately Keeling does a loan from his mother. He borrowed $ 25 000 its a 5% interest, and bought the house directly. Renovations are still ongoing.
Certainly, in some cases, lenders are willing to discuss alternative payment records, including your current account, says Watts. But most still want an appropriate credit history. This means less favorable rates are often offered to consumers free of debt if credit is available to all.
Good debt vs. bad debt
After graduating from college, Robin Gagliardi, now 41, promised to live a life free of debt. "I decided very early that I did not want to put myself in more debt," said Canton, NY, resident. She and her husband have lived for four years on his salary $ 40 000, saving his wages $ 40 000 to buy their first home directly. "We saved, while our friends have gone," she recalls. "We thought the house would still bring in another house."
Family was completely debt-free for almost two decades. Then the couple decided to adopt a small debt, in order to build a home of their dreams. The family had now swelled to five, with their three children, and they yearned for more space and a gourmet kitchen, ideal for family meals and entertaining. "We decided that we were OK with taking a small mortgage," says Gagliardi, even if the possibility to take his first major at the age of 39 debt scares him a little '. (Their home record is the property to help them avoid the problems encountered Keeling securing a mortgage.) Pay the $ 150,000 loan 15 years faster, a couple of pre-payment is that the extra money that comes into play in just three years, the balance dropped to $ 79,000.
Smart? Not necessarily, says Jason Rich, author of "smart debt." "The time to sit and do the math, but can work in your favor for these [good] debts," he said. Mortgage debt and student loans are generally quite cheap, and allows a valued asset. In addition, the interest you pay on these loans is deductible. Having this type of debt you really can get ahead if you invest the extra money instead of putting your loan principal.
Consider this: You must pay $ 876 a month on $ 150 000, 30, fixed-rate mortgage with a rate of 5.76%. If you were to prepay your mortgage by an additional $ 100 per month, it paid six years earlier and save $ 42,703 in interest. Did this investment of $ 100, earning a conservative 8%, $ 55 745 would be enough to offset the interest paid on $ 13,042 profit.
Debt free cash poor
Struggling to stay debt-free, or to become debt-free and can also cause problems when you do so at the expense of saving for your future, says Elaine Morgillo, a certified financial planner based in North Andover, MA continually postponing or diving save to keep debt-free lifestyle can lead to serious financial problems will be retired.
"You can not just come back and say," I want to make up the contribution of retirement two years ago, "said Schatsky. In other words, be addressing some debts at other goals that saving for retirement, at the same time. Perhaps the best way to ensure that you are not looking for a loan during your sunset years.
