Archive for the ‘debt reduction’ Category

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Good Debt Versus Bad Debt: Revisited!

Tuesday, August 10th, 2010

Good Debt versus Bad Debt

What about the argument that there is good debt versus bad debt?

As I have mentioned here many times, the core reason for this blog is to teach basic money management skills to nurses.

Debt is obviously a common money problem-obvious to all, unless you have been sailing around the world for the last 7 years….

photo by alancleaver-2000

And like many of you, if I am starting my research on something, like an article on debt for this blog, what  do I do?

I go to Google-so I googled “good debt versus bad debt.”  The first non-advertised link, was an article in MSM, submitted by bankrate-articulating many of the old arguments.

The third article on the list is from MSM Money-(way to go MSM-I am jealous of their google juice!).

It has this quote-”Good debt includes anything you need but can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments.”  This sounds like Yogi Berra  in the barbershop explaining why you need AFLAC.

What the heck does that mean?  “Anything you need.”

Now, I don’t know about you, but I can be pretty creative about things I need.  How many people need the new i-Pad, a new car, or even a haircut.   Does that mean if I put those on my credit card, they are “good debts?”

Is a Mortgage, Good Debt?

Some argue that mortgage or other real estate debt is ok as it is an appreciating asset.(something you own that is increasing in value)

Is Business Debt, Good Debt?

The same for money borrowed to advance their business-it will help GROW the business-so it is all good.

Is Student Debt, Good Debt?

Student debt is also good, in that it allows you to grow your income.

Is Good Debt a Hedge Against Inflation?

Many argue these so-called good debts  are  inflation hedges-as they increase in value overtime, or allow you to increase your income.  Therefore these represent a wise financial strategy.

David Bach, for example, a respected personal finance guru, strongly encourages home ownership as a wealth building tool.  His example is that home appreciation averages 6.5%-Allowing many people to build wealth, while they are sleeping.

This video was obviously done after the housing bust.  And I agree with him on many of his points.  But I think the idea that renting is bad, is not nearly as straightforward now as it was in years past. Price vs rent ratios have been used for years to decide whether markets for buying homes were favorable.  As you can see at this NY Times site,   the housing  markets in many cities are still overpriced compared to the rental market.

What those people who think good debt is ok are forgetting is that any debt, increases your risk.  Did any of the folks buying their home during the real estate boom, think their debt was risky?

Home prices were increasing 5-to even 25% per year for many years running.  All their friends were buying homes, and not just a few were flipping them for a huge profit.

Now those same  homes have dropped in value-the average nationwide is about 30%.  Many in the boom areas  of our country have dropped 60% or more.  How many years will it take homeowners in those areas to get back to neutral, much less building wealth in their home.

Those same people now are facing a struggle, with their home “upside down” or worth less than they owe.  They now need to move to find a job, but can’t sell their home for anywhere close to the amount they owe.

And banks are kinda weird in that they want the money you owe them.  And the banks don’t really give a rat’s ass that the home is now worth 30% less than it will get on the market, they still expect you to pay….. (They actually do care if you go into foreclosure, as then they have to sell the home and book the loss! )

I do agree that with the current price of housing and the interest rate’s being at historic lows, that now is a great time to buy a home. But only if you are financially prepared, and are ready for the responsibilities of home ownership, not because it is a great financial tool-to build wealth.

Now what about other  “so called” good debt.

Student loans are mentioned as good debt in many articles- as they allow you to earn more income.  But what happens when you borrow money, but don’t finish the degree because “stuff happens” or you decide to quit to “go find yourself”.  Or you borrow more than your new job’s income stream will allow loan payback without financial hardship.

Nurses are lucky in that there are loan repayment programs available-but not every field has these options.   And if you don’t finish your program-obviously these programs have no value.

Debt

So, think about your justifications for borrowing money, before it is too late!  Be sure you can afford whatever debt you choose to carry, and by all means eliminate consumer debt ASAP, but don’t forget all debt has RISK!

Reader Questions about Good Debt:

What are your thoughts about Good Debt vs Bad Debt?

Have you gotten into a so-called “good debt” that turned into a nightmare for you?

Share your thoughts with our readers, so they can learn from your mistakes or concerns!

But be careful when you try to justify your debts as good debts, as that may be a trap you can’t get out of.

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Ways NOT to Save Money-and Other Good Reads!

Tuesday, March 16th, 2010

Daniel, at  Sweating the Big Stuff, posted this on Ways Not To Save Money-which I think is a good reminder of the trap that can grab you, with the rationalization of being frugal.  Being frugal, is not the same as being “CHEAP!”

I would like to add another couple of thoughts.  He mentions consumer traps.  The wholesale clubs are a great place to “not save money”.  Mainly because of all the temptations.  It is hard to resist all the great stuff at great prices.

To protect against this phenomenon, you definitely need a strong will, and a list-buy nothing unless it is on the list.

Watching TV certainly doesn’t cost anything, except when you are paying for 1000 channels of satellite tv, with the ginormous NFL, NCAA football, Nascar and movie  package comes in at a cool $150 bucks a month…..

Add in the wasted opportunity, when you coulda’  been reading a book on personal finance, (THE MILLIONAIRE NURSE comes to mind) getting free continuing education on the computer, or exercising (also can be free).

Another good read, by the Financial Samurai, is about working to make money, instead of following your passion. I think a lot of folks, unfortunately, are being given the opportunity to follow their passion-cause they lost their jobs.  That certainly can be looked at as an opportunity, rather than a crisis.  If you have always wanted to do _________, then if you have no job-go for it!

At Out of Debt again, there is a great story about Shopping at Whole Foods-my wife would have had the same sense of disbelief about a 6 buck pepper!

151 Days Off, (how bout that name for a blog), has written a post about not getting too uppity( Southern Speak) , if you are making progress in your walk towards financial freedom.  I don’t think that is likely for me, as I dig my way out of attempting to be a real estate baron in Florida-before the crash.   If anyone says they have never made a financial mistake-then run, don’t walk to the nearest exit….

All of these bloggers are in the Yakezie Challenge, which is a self -help/group support lesson in getting the word out about your blog.   I appreciate what they are doing to help the new folks on the blog-block get recognized.  Sometimes it gets lonely writing, and wondering if anyone is reading.  So look for other great posts from other members of the Yakezi Challenge. (I do love a challenge!!!)

Enjoy these great stories, I did!

FHJE69GFNCJE

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More Money For Millionaire Nurses

Wednesday, January 27th, 2010

Extra Income For Nurses

You have decided to make a huge change.  You have decided to quit spending more than you earn.  You look at your spending plan.  You add up your payments and bills. You add up the income.

Your extra money- to put against your debt-there is NONE!!!!!

What can “Millionaire Nurses do, to break through the log-jam and make progress?

We have discussed this a few times:

  • Sell stuff-yard sale, e-Bay, consignment-to raise money
  • Getting rid of some of your payments-use cash raised above to add to the sales price of that 4 wheeler to pay off the note-one more payment gone-Cha-Ching!!!!  (Substitute boat, big screen, Harley or whatever toy you are making payments on.)
  • Earn extra money!

EARNING  EXTRA MONEY

Earning extra money–let me go talk to the boss, for a raise-well, that does work sometime, but let’s just pretend you are still in nursing school-( I know, what a nightmare!).     What can you do?

  • Tutor your friends, especially if you are strong in a certain subject like Anatomy, or Chemistry.  Put up a sign on the bulletin board at school, advertise on Craigs’ List.  See what the going hourly rate is.  Just make sure you don’t get carried away and have it hurt your progress to your degree.
  • Car pool-pick up others, and have them pay towards gas and car maintenance.
  • Get a room-mate or rent out a room or couch- if you have one.
  • Start a blog, and monetize it-if you can write, and are creative.
  • If you are a savvy-social networking expert, (spend too much time on facebook) advertise your services to old people like me to help them set up their page, teach them to post.  They will pay you, and probably feed you, mother you, and you never know, you might find a mentor.

OK, so you are working as a nurse and no raise is in sight…  What can you do?

  • You too can tutor nursing students.
  • Work extra shifts, and over-time.
  • Rent out one of your rooms-maybe to a nursing student-be a landlord and a mentor!!!!
  • Carpool to work-to share expenses.
  • Second job-either in nursing, or in your hobby area-catering on the weekend if you like to cook and you work weekdays.  Find a “temp” agency, and get on their list.

Get creative.  Let nothing be sacred.  Get after your debt.  Remember, as you pay down your debts, you will have more money to put against the remaining bills so the process speeds up-unless your “spending demon” awakes from the dead!

When you are finished knockin your debt down with a hammer, remember how hard you worked:

And never go there again!

Tell us your stories or ways you have earned extra money-legal or illegal-(JUST KIDDING!!!).

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Economics 101 for Millionaire Nurses!

Sunday, January 24th, 2010

Economics, just the word scares a lot of folks.  They start thinking of pointy headed nerds, with pocket protectors, and slide rules- using big words to tell people how bad things are out in the real world-like we didn’t already know…..

I found this definition of economics online:  “The social science that deals with the production, distribution, and consumption of goods and services and with the theory and management of economies or economic systems.”

Just the definition puts most people asleep.  What I found a little surprising, was that economics is a social science.  When I think of social science- I usually think psychologists, social workers, and anthropology.

I thought economics was “mathematical”.  Most social scientists that I know, would run from a calculator-so I learned something today….

One of my ways that I give back to society (one of the most important tenet’s of “Millionaire Nurses” -giving back) is serving on our city council-yes, I am a politician!!!!  You might think I do it for the money, but the 300 bucks a month that I get paid, doesn’t go far when I miss at least 10-15 business days a year from my medical practice.  ( I need to learn more about  “economics” myself.)

Now I am not telling you this to pat myself on the back. I consider it a privilege to serve my community- that has provided a great living for my family  for the last twenty-five years.  I also have learned a lot, by going to seminars, and educational opportunities to help become a better councilperson.

Today, I had the opportunity to hear a round-table discussion about the current economic downturn, to help cities manage their budgets. To assist us in providing the services citizens expect from city government, with the severe downturn in revenue from the drop in sales tax revenue, and other fee’s that normally support local government.

The featured speaker, was Dr Jeffery  Dorfman, Professor of Economics at the University of Georgia.

I am happy to tell you, he was neither pointy-headed, nor boring, and certainly didn’t sound like a nerd.  He gave a great presentation on the current economic situation facing our country, and by extension our state and city governments.

My “take home” points from his presentation were:

  • The recession is now over, but until consumer confidence returns, it may not be obvious to you or I.
  • When you are out of work-it doesn’t really matter whether we are in a recession-the household affected is in their own version of a “depression”!
  • This recession, while severe, is comparable to recessions in the sixties and early 80′s, though it will probably take longer to recover, than those past recessions for various reasons.
  • City and State politicians should plan their spending based on conservative estimates of revenue, using the good times to put money in  reserves, so when times are bad, they have a cushion.  This, to prevent having to curtail services, fire people,  or raise taxes-when it is the most harmful for the citizens, who are already struggling.

Now how does that relate to “Millionaire Nurses”?  Obviously, a lot, or I wouldn’t be writing this long post!

This is exactly what I am trying to stress to my readers.  The huge benefits you and your family will have , when you put aside money in the good times-(also known as the “Super-duper emergency fund”).  Limiting your spending to less than you earn, and limiting your borrowing so that you can continue to prosper when times are bad.  Millionaire Nurses are not struggling because of  living beyond their means.

So thanks, Dr Dorfman for an enlightening presentation-the Georgia “Dawgs” are lucky to have you.

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Going Into Debt-Do Millionaire Nurses Do It????

Saturday, January 23rd, 2010

Debt is a way of life in the good ol US of A.   We really don’t even think about borrowing money for a car, putting the kids braces on a credit card, or even that most productive of home appliances, your big screen-6o months of easy payments-no interest!

Till you are a day late with a payment on payment 59.  Then the interest on the whole 60 months becomes due.

Won’t that day feel like the day the last patient  threw up all over you, after drinking a fifth of cheap wine….

Flexo, at Consumerism Commentary has written a great post on 5 debts to avoid. These include:

  1. Pay-day loans-because of high interest.
  2. Loans on your expected tax refunds-again because of the high interest rate, These loans are also used to entice people to buy things that wouldn’t ordinary buy-”it won’t cost you anything but your tax refund!!!!”
  3. Gambling debts-it is one thing to gamble your money away-another to gamble away money you don’t even have.
  4. Rent to own debt-this one gets people, cause they don’t think of it as debt-so they pay what amounts to a high price for an item, that basically is equal to a huge interest rate.
  5. Debt on  an item that is going down in value-cars, mobile homes are the two most common items here-although any appliance debt, four-wheeler, boat, …….could qualify.

Now, he goes on to say that student loan debt, and house mortgage debt, and even car debt in occasional limited circumstance is justified.  Now, because the “right” of home ownership is so deeply ingrained in our country, that the thought of putting off  home ownership – until we can pay cash-would seem crazy to most.  So, my feeling is mortgage debt is ok, as long as it meets reasonable  criteria-see this post.

The problem with student loan debt, is that it is so easy to get these days, people borrow money for living expenses, not just tuition-that might mean expensive apartments, bar tabs, car payments, etc.  You wake up the day after graduation, so excited to get that first job, at 40,000 bucks a year-whooo-hoooo.   Then you realize you borrowed 125,000 dollars for that degree, and if you are lucky you might pay if off with your first social security check-forty years down the road.  And no, most student loan debt is not bankruptable-it is yours forever.

That leaves car debt, and I have written so many times about car debt lately, that I am not even going to go there.

So, for those of you who say,”What am I going to do now.  I have been borrowing money to make ends meet for years!”

Well, you are at the right place.  That’s the whole point of  “The Millionaire Nurse”.  To teach you how to make goals, plan your spending, and make the correct decisons that will allow you to prosper for the long haul, rather than just feeling good today!

So think twice about going further into debt.  If I can  make you think twice about borrowing money, before you execute, then I have done my job.  The rest is up to you-Good Luck!

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Cars: A Love/Hate Relationship for Millionaire Nurses! Or What to do When You Can't Make the Payments!

Thursday, January 21st, 2010

Cars-an American passion-but what can you do when your dream becomes a nightmare, cause you can’t make the payments?

Cars-a rite of passage for sweet 16′s-I know, in some places it is now 17 for the driving age, but not here in the South-especially in farming country.  Kids here are driving tractors by age 8, and the pick-ups in the fields by 10.

So it’s not a surprise that car debt is also almost a religion.  Paid for car-who does that????

I am reminded of an old MAD Magazine cartoon-”You remember MAD Magazine don’t you??”  For you twenty-somethings-it was a smart-alec illustrated magazine for tweens-was around a long time-”Spy vs Spy!” was my favorite.  Actually, it is still around-check it out…

Anyway-I digress while waxing nostalgic-The cartoon had a picture of an elephant in the back-yard of suburban America, with the caption-”The only reason there is not an elephant in the yard of every American, is no one has offered one for 60 interest free monthly payments!”

Well, I thought it was funny…..

In these challenging financial times, many people find they have more car than they can afford.  What can you do when your car is upside down and you are struggling to make your payment?

  • Well, you can have a yard sale, put you and the kids to work in extra jobs, eBay, consignment and raise the difference to get clear title.  Then sell that ugly lump of coal (they are not as cool looking when you are behind on your payments….)
  • You can go to a credit union or local bank, especially if they are holding the note-and ask them to release the title, so you can sell the car-make sure you get the full Kelley Blue Book, retail value.  You would sign a note for the difference-and pay it off as quickly as possible.
  • You can let the note-holder take back the car.  They will then sell it at a small part of its value, and then will try to collect the difference from you.  (Yes, the proverbial Take-Back Man).  Your credit score will take it in the……..

What do you do for transportation?   Raise enough money to buy an old vehicle, that is in adequate mechanical shape to get you to work.  You may have heard of “Two Buck Chuck”the wine, this might be “Thousand Buck Truck”, the Whine…..

Anyway-then save like crazy, to upgrade your ride, as  your financial condition improves.  Tell your friends you are just being like Warren Buffet-who is said to drive an old pick-up around Omaha….

What if you leased your car and you can’t afford the lease payment-well then you are just screwed…..

Well, not really-you basically have the same options.  Get out of the lease by paying the lump sum pay-off, which is likely  substantial.  Try to find someone to assume the lease payments-if your lease-holder will allow.  Or, just turn it in-again, there is abig credit hit for this-plus they too, will come after you for the payoff when they sell it.  See this article on Edmunds.com for their suggestions.

So now you are saying-”If I had the money, I wouldn’t be in this shape, so what good does this info. do me???”  Well, that is a valid point-which is why I wrote this post.

If you don’t have car debt-don’t go there.  If you do, try to pay it off as quickly as possible.  Paying yourself a car payment every month for a lifetime, will make you a true “Millionaire Nurse!“-unless you are a near senior citizen like me….Every debt you have is a potential risk-no one can see the downside when your  “new car fever”  strikes, so watch out for it.

Reading this blog is like the flu vaccine-an ounce of prevention…. and all that.

So, be careful out there, as the guy in “Hill Street Blues” used to say.  Car payments are evil!

So, let us know, if you love or hate your car or car payment-let us hear your car stories.  Let us hear the name of your car……

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