what is debt exactly?
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| Tue, 01-18-2005 - 8:38pm |
i just wonder...
when you hear people on TV, or ever us here on the boards say they are $50,000.00 in debt what are they condisering debt?
do you count what you have to pay off on your house? or your cars? i know that tuition can be debt- but that puts you towards a good goal of improving your value in the market... so isn't a mortgage good too? and i know that credit cards are obviously debt... but what about money borrowed from a retirement fund?
i just wondered what is considered "debt" and if everyone is using the same terms...
(just FYI, if you don't count cars DH and i only have $900.00 of credit card debt. we rent, have no school debt (anymore) and have minimun other random outstanding bills (-$20 for a doctors appt, $17 for a scrapbook bill, etc...) i think that is exceptionaly good. but then our cars put us up over $25k, and we borrowed from his plan once for $3,000.... so then we'd be closer to $30k in debt... but that just seems wrong when we only have two credit cards and pay over the minimun on EVERYTHING to pay it all off.... $900 vs $30,000.00 -see my confusion?)

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I think people ususally count credit cards, personal loans, car debt and student loan debt.
It's hard to count mortgage debt because it's so huge and has such a long pay-off horizon, and it's considered 'good' (necessary) debt and also an investment. Unless you are in the unfortunate circumstance that your home value is less than your mortgage, you could turn around tomorrow and sell your house and be mortgage-free without using a dime from savings.
I could say the same about my car. Because I put some money down and traded in my old car, my car loan is in the $11,000 range but my cars value is more like $14,000. But I do think of my car loan as debt because I could have saved up and paid cash for it. It's pretty rare to hear of someone paying cash for a house.
I think it's best to clarify debt as "my cc debt" or "my non-mortgage debt."
I don't take my 1st mortgage into my debt total. It's a 30 year loan, and it'll be there for quite some time. Also, I do get a nice tax benefit from the interest paid. :-)
My "Debt" total includes my 20-year 2nd mortgage (taken out in 2000 to replace our rotten wood siding on our home and our leaky wooden windows) in the amount of $20,000 with a 10% interest rate)==currently owe $18,600, and this is our "target debt" right now. All extra funds go to this account each month.
Our debt total also includes our credit card ($9800 at Prime Rate, fixed) and my son's karate tuition ($149/mo. with no interest, due until 2/26/06). When we had a car payment, this was also included in our debt.
Dh isn't very concerned about the credit card right now. He says that it's an "average" amount of debt, and it's at a good fixed rate. The karate school tuition will be paid down month by month as we target our 2nd mortgage. With our current budget, it looks like we can pay off our 2nd mortgage by the end of the year. Our karate school tuition would end soon after, and the credit card will become our next "target" in 2006. Naturally, the balance on that will continue to go down since we are not using our credit card anymore, and we are still making larger-than-minimum payments on it.
I guess it's up to each of us to decide what is "debt". My goal, by the summer of 2006, is to have no bills other than our house payment and utility bills. What a feeling that will be. :-D
Pat
I count our debt as being credit cards, student loans, and a timeshare we owe. We don't have a mortgage yet. We are waiting for closing on mortgage and construction loan. We are building a house.
Once, we have a mortgage, I would not total that into our total debt balance.
MYM
Good question!
KRISTI, mommy to:
I count CC debt and my student loan debt. I rent for now so I don't have a mortgage. I do have car payments, but my car is leased, so it's more of an expense than a debt. I do plan on buying my car at the end of my lease in cash. It will cost about 8K and only be 4 years old, but it will still be worth 12K. I'm saving up for it now, so I won't have a car payment for at least a couple years.
My target for now is my CC debt, which is around 4K. My next target is a 5K student loan. After that I'm targeting a 10K student loan. When I'm done with that one I have another 25K student loan, but it's in my father's name, not mine. So even though I'm responsible for paying it back it's not "technically" my debt. It won't show up on any of my credit reports, so on paper I only have about 15K of student loan debt. I don't get to claim the interst paid on that one for taxes, but it helps out my dad a little so I don't mind.
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