How Many Licks Does It Take?

[SeaCat]

Why?


Being financially mature should not be penalized.









I don't mind helping folks that are in a bind, if they lose their job and can't make ends meet.


But I remember when my Dad came to visit me and we were driving around. He couldn't get over all the "big" houses.....

Where I lived a crack house couldn't be had for less than $250,000. And then you see folks driving all these high dollar SUVs.


I have a good income, in fact I made more than most of the folks living in half a million dollar houses and driving the lasest cars....but it just does not compute.....


Was I the only one taking Economics 101?

Why?

Well lets see here. I owed money for a student loan. I owed money on my credit cards. I was renting a place for $1100.00 a month. I was in debt to my eyebrows. I was paying off my debts and living on the cheap. (The absolute cheap, I can give lessons on finding the cheapest foods around.) My credit rating was slowly going up though because I was paying off my debts.

Then I cleared the last hurdle. All of my debts were gone. As a way to celebrate my wife and I bought us a new used car on credit. We then bought our Mobile Home with help from my parents. We had one payment, the car. We pay that on time, and toss in a bit extra. (We have also paid back my parents.)

We rarely use the credit card, when we do we pay it off as soon as the bill comes in.

So what is the effect? My credit rating is going down. Now why in the world is that? Give me a good answer, one that makes sense.

Cat

 

[RedHairedandFriendly]

You score is going down because you pay your debts. You're responsible. They can't make money off of you. Yep, the answer doesn't make sense, but that is the way it works for the companies. For your credit score to go up you have to maintain a loan, card, some kind of debt.

We have two credit cards. Both have a credit limit that is so low that we can pay them off without any issue at all. They don't earn any interest for the credit company at all, because we pay the balance off before the month is over.

 

[CorsetLvr]

Just leave a $10 balance on your credit cards and your score should go up. The fact of the matter is that you have to use debt to have good credit scores. You are using your credit cards like an ATM card now. Credit scores are primarily based on your credit activity within the last 24 monrhs. If you have little activity that hurts your score. Credit scores are based on the idea that they measure your ability to repay debt. If you have little or no debt then guess what, there is nothing that they can measure.

You said you score went down. From what to what score? I've seen people agonize because their score went from 790 to 780. Give me a break. After you get over 720 its pretty much meaningless.

When doing credit counseling I normally suggest that they keep 1 mortgage, 1 auto loan (or other installment loan), and at least 2 credit card to maintian a high score.

Also, be aware that there is more then one credit scoring system. Mortgage, credit, auto, and retail companies all use different scoring models.

 

[Roxanne Appleby]

I think another piece of the puzzle is the dollar's exchange rate. Oil is priced internationally in US $. That means when the value of the dollar goes down, the price of oil goes up. The same applies to other commodities like gold which hit $800/oz. last week. The $ is at almost record lows against several curriencies right now.

A weak dollar helps exporters but really hurts us on imports such as oil. One of my suppliers for a hobby of mine actually started quoting prices based on NZ dollars because of this issue. It looks like I'm not going to be buying anything from him this Xmas.

And why is the dollar weak? Because Allen and Ben printed too many of them. Squeezing balloons - as you said, TANSTAAFL.

 

[Roxanne Appleby]

I just fail to see where you're being 'penalized' in this. So some of your taxes are going to help someone else who needs a hand in a rough spot - that's how it works.

Wow - are these the words of a true disbeliever in the concept of personal responsibility? Are you even aware of the extent to which this describes the view you have enunciated? (I'll be generous and assume not.)

What exactly do you define as a "rough spot?" I would define it as the kind of thing Red described above. I would describe those worthy of a helping hand as individuals suffering from unlikely and unpredictable circumstances, or from "cosmic injustice" like having a child with severe birth defects or developmental disabilities. I would not describe it as someone who borrowed more than they could afford to repay, irrationally thinking that housing prices would increase forever at double digit rates, or that some greater fool would come along and bail them out before the bottom fell out.

I'm trying to be civil, but perhaps it's your notion that some people are too stupid or benighted to be able to understand such things, and therefore need subsidies from the rest of us to insulate them from the consequences of their actions? Wouldn't you say that's a bit patronizing? On what basis does one become a member of the elect wise enough to make these judgements about who should get some of my money ("some of your taxes") - and empowered to enforce them at gunpoint (the definition of taxes)? (In the current system, it's politicians - politicians!)

 

[WRJames]

If everyone in the US suddenly became financially responsible, the economy would grind to a halt and we would all starve.

Now, don't get me wrong -- personally, I am appalled at the debt burden people are piling up. I am appalled at the compulsive greed to buy the bigger house, the fancier car -- or, at the other end, the Walmart jobs that don't pay enough to live on. But, let's face it, we have the tiger by the tail. If everyone wises up and stops spending more than they should, demand will dry up, production will cease, jobs will vanish, and things will be even worse than they are now.

 

[Roxanne Appleby]

If everyone in the US suddenly became financially responsible, the economy would grind to a halt and we would all starve.

Now, don't get me wrong -- personally, I am appalled at the debt burden people are piling up. I am appalled at the compulsive greed to buy the bigger house, the fancier car -- or, at the other end, the Walmart jobs that don't pay enough to live on. But, let's face it, we have the tiger by the tail. If everyone wises up and stops spending more than they should, demand will dry up, production will cease, jobs will vanish, and things will be even worse than they are now.

I suspect this is something of an overstatement.

 

[Stella_Omega]

I suspect this is something of an overstatement.

Nothing you would ever do, of course.

But seriously-- If everyone began living to their income, how many people would actually buy all of those hi-def TV's, those gaming computers, those brand new SUV's that are just now rolling onto the lots in time for 08?

I make a certain amount of money catering to other people who want me to make their homes pretty. If these people start to live within their means-- will I be able to support my family?

I guess I could go work at Walmart... Walmart helps their employees get state healthcare.

 

[Roxanne Appleby]

Nothing you would ever do, of course.

But seriously-- If everyone began living to their income, how many people would actually buy all of those hi-def TV's, those gaming computers, those brand new SUV's that are just now rolling onto the lots in time for 08?

I make a certain amount of money catering to other people who want me to make their homes pretty. If these people start to live within their means-- will I be able to support my family?

I guess I could go work at Walmart... Walmart helps their employees get state healthcare.

We are operating without definitions here. What exactly is "living within one's income?" It's not being debt free - most people have mortgages for a good part of their lives. Of course what it really means is having no more debt than one can service without making real sacrifices. Given that most people go through life accumulating and discharging various forms of debt and never have to file bankruptcy, it can't be said that most people do not "live within their income."

That said, they probably incur excessive interest expense which diminishes their net worth and reduces their general economic security. It's not wise, and not the path to The Good Life. But it's not the bottomless pit of despondancy that some like to presume in these discussions.


BTW, I don't make "overstatements" - I use rhetorical flourishes.

 

[Stella_Omega]

We are operating without definitions here. What exactly is "living within one's income?" It's not being debt free - most people have mortgages for a good part of their lives. Of course what it really means is having no more debt than one can service without making real sacrifices. Given that most people go through life accumulating and discharging various forms of debt and never have to file bankruptcy, it can't be said that most people do not "live within their income."

That said, they probably incur excessive interest expense which diminishes their net worth and reduces their general economic security. It's not wise, and not the path to The Good Life. But it's not the bottomless pit of despondancy that some like to presume in these discussions.


BTW, I don't make "overstatements" - I use rhetorical flourishes.

Hey, baby, I got a place for your flourishes, right here.

I got the impression that most of us were talking about living pretty much entirely debt free. That would mean paying off credit cards monthly. and buying nothing that you didn't actually need-- oh, god, i can see all of those shiny new kitchen ranges gathering dust on the showroom floors...

(I'd love to replace my stove. But I don't actually need to.)

I went to the hardware store today, That's one of my extravagances-- I choose to go to my local little store for most things, rather than Home Depot. I know I pay a dime or a dollar more, but they know my name, and the owner calls me "boss" and I ask how his poor old mother is doing and if he's gotten any sleep. And they will squirt out paint colorant into bottle caps for me if i ask them to, that I can bring home with me.

Anyway, the owner of the cheap furnitures store next door was standing in his doorway. "How's it going?" I asked as I walked past. "Eh, no much busy," he replied.

The reason I was at the hardware store in the first place was to get some bolts to put back together a table that I'd pulled out of someone's dumpster. It might be that someone had purchased a replacement for that table-- it wasn't going to be me. So the furniture guy is feeling that little pinch.

 

[Roxanne Appleby]

Hey, baby, I got a place for your flourishes, right here.

I got the impression that most of us were talking about living pretty much entirely debt free. That would mean paying off credit cards monthly. and buying nothing that you didn't actually need-- oh, god, i can see all of those shiny new kitchen ranges gathering dust on the showroom floors...

(I'd love to replace my stove. But I don't actually need to.)

I went to the hardware store today, That's one of my extravagances-- I choose to go to my local little store for most things, rather than Home Depot. I know I pay a dime or a dollar more, but they know my name, and the owner calls me "boss" and I ask how his poor old mother is doing and if he's gotten any sleep. And they will squirt out paint colorant into bottle caps for me if i ask them to, that I can bring home with me.

Anyway, the owner of the cheap furnitures store next door was standing in his doorway. "How's it going?" I asked as I walked past. "Eh, no much busy," he replied.

The reason I was at the hardware store in the first place was to get some bolts to put back together a table that I'd pulled out of someone's dumpster. It might be that someone had purchased a replacement for that table-- it wasn't going to be me. So the furniture guy is feeling that little pinch.

Reposted from my "big honkin' TV" thread:

In my family we have a phrase, "I broke down and bought x." It used to be unconscious, until one of my sisters started laughing and pointed it out. Now it's something we, or at least I, resist to a certain extent. I mean, I haven't abandoned frugality but, by golly, if my running socks mostly have holes in them, I'm not going to have to "break down" to get a new batch - I'm just gonna do it - to cite an extreme example.

(Trying to "break down" to replace my stained carpet, but that brings in other challenges, like what to replace it with in my mid-century modern house - I'm clueless.)

 

[WRJames]

I suspect this is something of an overstatement.

Not really -- the US economy is driven by consumer spending, and the bulk of that spending is done on credit.

Here is a link on the shocking level of household debt in the US -- note that 40% of households spend more than they earn. If they all cut back to even -- or if the attempted to save -- just think how much that would reduce demand.

 

[sr71plt]

You score is going down because you pay your debts. You're responsible. They can't make money off of you. Yep, the answer doesn't make sense, but that is the way it works for the companies. For your credit score to go up you have to maintain a loan, card, some kind of debt.

We have two credit cards. Both have a credit limit that is so low that we can pay them off without any issue at all. They don't earn any interest for the credit company at all, because we pay the balance off before the month is over.

That's rubbish, actually. My credit score runs between 820 and 840, depending on what company takes it, and I don't run debt--not even a mortgage. This is the stuff that urban legends are made of. If you are rolling in money and paying cash for everything and piling up lots of things of value, your credit score is going to skyrocket.

I'd say this example was more the result of a combination of delayed reaction in information accumulation and not having built up meaningful equity/value in anything.

 

[slyc_willie]

Although I also am debtless (including two houses but no mortgages), I think it's a little extreme not to buy a house as soon as you can swing a reasonable mortgage. This is a solid asset that almost always will go up in value even taking the interest into account (and the interest is tax deductable)--and you've got to have a roof over your head anyway. The alternative is to wash rent money down the drain with nothing of value to show for it.

What's happening now is the result of people living well beyond their means and not gathering value.

It's a balancing act, not an either totally this or totally that thing.

(And compared to when I started buying cars, that 6% auto loan interest was a steal.)

I would agree with you in principle, if those purchasing the house were themselves financially stable. But I know too many people, especially those in their early twenties, who have purchased a house that it just barely within their means, and then they struggle to afford it. They barely have the time to enjoy living in their new, spacious digs.

For myself, I have never seen paying rent on an apartment as money down the drain. Maybe that's because I don't care much for personal wealth. For the amount I pay, I don't have to worry about the costs of maintaining my AC or heating, of cutting the grass, security, painting or roofing, or any of the other typical expenses that come with owning a home.

Granted, if and when I am able to afford a house (meaning, I make at least three times the amount of the monthly mortgage), I will seriously consider doing so.

But I take home only thirty thousand a year. About $2,500 a month, on average. Sure, if I wanted to pinch pennies and check the couch at the end of every month for loose change, I could afford a house. But I wouldn't enjoy it.

Yet, I see many people who make the same money as I do, scraping every month to get by, just to afford a house they think is necessary because it 'means' something.

They only thing it means to me is that they're idiots.

 

[sr71plt]

I would agree with you in principle, if those purchasing the house were themselves financially stable. But I know too many people, especially those in their early twenties, who have purchased a house that it just barely within their means, and then they struggle to afford it. They barely have the time to enjoy living in their new, spacious digs.

For myself, I have never seen paying rent on an apartment as money down the drain. Maybe that's because I don't care much for personal wealth. For the amount I pay, I don't have to worry about the costs of maintaining my AC or heating, of cutting the grass, security, painting or roofing, or any of the other typical expenses that come with owning a home.

Granted, if and when I am able to afford a house (meaning, I make at least three times the amount of the monthly mortgage), I will seriously consider doing so.

But I take home only thirty thousand a year. About $2,500 a month, on average. Sure, if I wanted to pinch pennies and check the couch at the end of every month for loose change, I could afford a house. But I wouldn't enjoy it.

Yet, I see many people who make the same money as I do, scraping every month to get by, just to afford a house they think is necessary because it 'means' something.

They only thing it means to me is that they're idiots.

I should have said they should buy something sensible as soon as possible (that's what I mean by the most reasonable mortgage they can swing). I agree that they shouldn't overextend themselves and that the reason that many are now in trouble (and want me and Sea Cat to bail them out) is because they did overextend themselves--and were self-indulgent and consumptive about it.

I couldn't afford a house when I got married, either, so we bought what we could afford--a waterfront lot in a just-starting recreation community that got swallowed into suburbia. The profit from that more than covered the Mediterranean villa we bought for cash thirty years later. Within two years of marrying we bought a small townhouse and worked our way up--always buying sensible size in location, location, location. By the time we could move out of the city to someplace slower paced, we could more than cover a larger house from the equity of city house we'd built up to.

Back to the balance, common sense, and restraint from perishable toys you don't need. (But we won't talk about my Mercedes.)

If we started now, it likely would have to be a condo--but that's a start on building equity and being able to cash out on the surest investment there is--residential real estate. Even a trailer is a start (not much of one, granted, but better than renting).

 

[sr71plt]

What really, really ticks me off in how this debt thing is playing out (and going back to Sea Cat's original thread) are the TV commercials from debt consolidation scams and tax lawyers blasting out that they can help people pay less than they owe. I have no sympathy for those failing to live the high life through their own irresponsibility and wanting me to pick up their tab.

 

[slyc_willie]

I should have said they should buy something sensible as soon as possible (that's what I mean by the most reasonable mortgage they can swing). I agree that they shouldn't overextend themselves and that the reason that many are now in trouble (and want me and Sea Cat to bail them out) is because they did overextend themselves--and were self-indulgent and consumptive about it.

I couldn't afford a house when I got married, either, so we bought what we could afford--a waterfront lot in a just-starting recreation community that got swallowed into suburbia. The profit from that more than covered the Mediterranean villa we bought for cash thirty years later. Within two years of marrying we bought a small townhouse and worked our way up--always buying sensible size in location, location, location. By the time we could move out of the city to someplace slower paced, we could more than cover a larger house from the equity of city house we'd built up to.

Back to the balance, common sense, and restraint from perishable toys you don't need. (But we won't talk about my Mercedes.)

If we started now, it likely would have to be a condo--but that's a start on building equity and being able to cash out on the surest investment there is--residential real estate. Even a trailer is a start (not much of one, granted, but better than renting).

The problem for many, I think, is the perception of just how much a person, couple, or family could realistically afford. Sure, when I look at bare numbers, I could afford a house that costs me $1,000 a month. I make two and a half times that.

But then . . . .

Maintenance costs and taxes. Let's be nice and say $200 a month. Then there's the fact that I now live away from work. Oh! I need a car! $600 a month with car payments and insurance, not to mention gas. And that's if I get the cheap economy model.

I'm up to $1,800 a month already, and that's not taking into account the average of $200 a week I spend on just myself. Groceries, toiletries, those few daily luxuries I like to indulge in. Now I'm at $2,600 a month.

I'm already $100 in the hole, growing by that amount, every month. If I slip and fall at work, break my leg or get a spinal injury, I'm SOL. Unless I have enough equity in my home to take out a loan. But then, I'd be even more in debt.

Not too many people I know think of such things. The ability to accurately budget has gone out the window. "Hey! I make X amount every month, and a house costs less than that! Let's get a house!"

They aren't thinking. They aren't planning. Hell, with my tiny little apartment, and how much I make, even I get close to being in a bind once in a while. If I owned a house . . . well, I sure as hell wouldn't now. It would have been foreclosed. And I'd be back to living in a cheap flat but with even more debt than before.

 

[sr71plt]

The problem for many, I think, is the perception of just how much a person, couple, or family could realistically afford. Sure, when I look at bare numbers, I could afford a house that costs me $1,000 a month. I make two and a half times that.

But then . . . .

Maintenance costs and taxes. Let's be nice and say $200 a month. Then there's the fact that I now live away from work. Oh! I need a car! $600 a month with car payments and insurance, not to mention gas. And that's if I get the cheap economy model.

I'm up to $1,800 a month already, and that's not taking into account the average of $200 a week I spend on just myself. Groceries, toiletries, those few daily luxuries I like to indulge in. Now I'm at $2,600 a month.

I'm already $100 in the hole, growing by that amount, every month. If I slip and fall at work, break my leg or get a spinal injury, I'm SOL. Unless I have enough equity in my home to take out a loan. But then, I'd be even more in debt.

Not too many people I know think of such things. The ability to accurately budget has gone out the window. "Hey! I make X amount every month, and a house costs less than that! Let's get a house!"

They aren't thinking. They aren't planning. Hell, with my tiny little apartment, and how much I make, even I get close to being in a bind once in a while. If I owned a house . . . well, I sure as hell wouldn't now. It would have been foreclosed. And I'd be back to living in a cheap flat but with even more debt than before.

I agree they aren't thinking (at least aren't thinking unpleasant reality thoughts).

On the car and commute thing, though, I've lived most of my life abroad and in countries where most people rarely see cars let alone own one (or two or three). I've never understood the phenomena that seems to require Americans to live across town and acres of asphalt roadbed from where they work.

Again, something that I think is their personal responsibility to work into their budgets.

These are all reasons and excuses you put forth--not what could be through careful planning and husbanding of a budget.

I admit that my own way was one of trading personal security for high pay and free housing, car, and other amentities while I was serving overseas--which freed funds for careful investment--but it wasn't like the line waiting for the choices I made was overcrowded.

But I do hear you on what much of middle America is facing (making too much to get whatever welfare the Republicans haven't discovered and killed yet but not making enough to afford health care). I keep voting to try to address that problem, including voting to tax the hell of myself (I don't mind if the fatter cats than me get hit at least as hard)--but America keeps voting to ignore it. Not long ago I decided to give up worrying about that as well.

 

[slyc_willie]

I agree they aren't thinking (at least aren't thinking unpleasant reality thoughts).

On the car and commute thing, though, I've lived most of my life abroad and in countries where most people rarely see cars let alone own one (or two or three). I've never understood the phenomena that seems to require Americans to live across town and acres of asphalt roadbed from where they work.

Again, something that I think is their personal responsibility to work into their budgets.

These are all reasons and excuses you put forth--not what could be through careful planning and husbanding of a budget.

I admit that my own way was one of trading personal security for high pay and free housing, car, and other amentities while I was serving overseas--which freed funds for careful investment--but it wasn't like the line waiting for the choices I made was overcrowded.

But I do hear you on what much of middle America is facing (making too much to get whatever welfare the Republicans haven't discovered and killed yet but not making enough to afford health care). I keep voting to try to address that problem, including voting to tax the hell of myself (I don't mind if the fatter cats than me get hit at least as hard)--but America keeps voting to ignore it. Not long ago I decided to give up worrying about that as well.

These days, I doubt my vote would mean much, beyond the simple number-crunching. I live in an apartment. I don't own a car (by choice). I have no credit card debt. As far as Dems or Reps are considered, I probably don't exist, because I am not the consumer they hope to reel in.

I guess that makes me the anti-consumer, in a way. Alas.

 

[Caitano]

80 percent of sub-prime borrowers are not behind in their payments. Half of those who are less than 30 days behind.

There were some scummy lending practices when this bubble was expanding, but either we're going to have a free society and free economy, or we're not, and if we are, then individuals must ultimately be responsible for their own actions, including taking loans they can't afford.

Housing prices are insanely overblown, and that is partly due to the low rates. Milk is headed for $4 a gallon. Fuel. Yes, they lay traps in the lending practices, but wages are stagnant and everything basic is climbing in price. You can say it's shipping costs, and so it might be-- a person caught in this economy without sufficient savings is screwed no matter what, even without debts. No debt means no mortgage, but rents are just as steep. A weekly paycheck lasts three or four days.

 

[Misty_Morning]

Alot of viewpoints and informative information so far on this thread.

I would have to say that I agree with slyc on most of his viewpoints.

I would like to own a house, and have done so in the past while I was married. But since then the one time I was seriously considering it was cuz I thought better to own a house then piss my money away on rent.

But as other have expressed, I felt the market was WAAAAYYYY over priced. And I was in a transition period. I really didn't like the crime rate of the area I was living in.

I wanted to find a safer place to live, and I didn't want to be saddled with a house that I possible couldn't sell. I needed to be liquid and mobile. Not to mention that I wasn't too keen on buying a house for an inflated price.


So I got a better job in a place that was more to my liking. But the cost of homes was outrageous. It was a tourist area.

Then I lost my job.

Got another, not what I really wanted, but it pays the bills and then some. But the cost of houses is still TOO FUCKING HIGH.

So now I am still in a period of transition.

Not willing to take that risk as I will probably be moving on sometime soon.

But the fact remains....I have considered my options. And have chosen to NOT overextend myself...it's not that I want to remain debt free. Hell the reason I have a good credit rating is cuz I have utilized controlled spending and debt.

Another thing some folks may not have considered. I live in florida, and the cost of owning a home is much more than in MOST other states. I have known alot of folks who have had to sell their home cuz thay can't afford the insurance anymore cuz of the hurricanes.


All in all, I have have done what is best for me so that I will not get into a bind.


Just seems that there alot of folks out there that haven't done the same.





And BTW, I don't helping someone who is in a bind, but I do want to give a handout to those who never considered the possibilty that they were overextending themselves. We are ALL gonna havta pay for their greed.

 

[Stella_Omega]

And BTW, I don't helping someone who is in a bind, but I do want to give a handout to those who never considered the possibilty that they were overextending themselves. We are ALL gonna havta pay for their greed.

I'm sure the entire world agrees with this sentiment. Except, of course those greedy folk of which you speak... Which makes me wonder, who are they, these reckless fools? Do you know of anyone firsthand?


Rhetoric is so easy.

 

[cantdog]

Yes, I do know of someone first hand. She works with my wife. They have, now, what their earnings of a lifetime half again as long as they have yet lived would have bought. And she has to work overtime to meet the payments. If she breaks a wrist or has a stroke, they are ruined.

 

[cantdog]

Her mortgage isn't in the picture with the ones we are discussing. But they went into hock big time for the house as much as they did for all the toys and stuff.

 

[Misty_Morning]

I'm sure the entire world agrees with this sentiment. Except, of course those greedy folk of which you speak... Which makes me wonder, who are they, these reckless fools? Do you know of anyone firsthand?


Rhetoric is so easy.

Yes I do. Some are close friends that I now am very worried about. But they got themselves into this pickle. Some thought...let me buy this house now and in a few years I'm gonna sell it and make a bundle. But they didn't stop to think that maybe reality would catch up to them.

I am not talking rhetoric, and I am not by any means well versed in bussiness matters as some folks here are. I am purely speaking from my first hand experiences and, yes, observation.

I mean, really, not everyone is making a 6 figure salary....so why try behave financially as if you do?