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Would you borrow against a paid off house to go on vacation?
Would you go on vacation if your house was not paid off yet?
It seems like a lot of people think the first is unwise or risky but think nothing of the second. How can this make any sense at all? The end result of both is the same, after all...
Similarly, a lot of people who consider themselves to live within their means have cable TV or live without roommates despite the fact that they say they will likely get a car loan the next time they buy a car - is this not the same as borrowing against a paid off car to pay for those same things?
You could even ask the same question about student loans - how is going on vacation/buying "X" luxury items while having outstanding student debt supposed to be less foolish than taking extra student loans while in school in order to pay for the same thing(s)?
are you some kind of anti-debt nutjob or are you really curious about this?
Not if he saves up and pays cash!
Or if he puts it on the CC and pays in full.
That was an example with a very specific situation, and you're clearly missing the point.
If you pay in cash while you still have debt outstanding, it's no different from paying down the debt and taking on new debt to pay for the vacation.
Let's make this even simpler. Consider someone in the following situation as of this exact moment.
$5,000 in cash saved up
$5,000 in debt(source doesn't matter)
$3,000 vacation oppourtunity coming up.
There are two options if this person wants to go on vacation
Pay off the debt and pay for the vacation by taking on new debt
Pay for the vacation with cash, but only pay down $2,000 on the debt
And Pitt Chick, before you comment that he could just pay off the debt and then save up another $3,000, that's the point of this thread! The $5,000 in debt could be a mortgage with a $250,000 balance instead.
Would you say that the person shouldn't go on vacation until the entire balance of their mortgage is paid off?
ncole has always been - to the best of my knowledge - very, very anti-credit card on these boards.
her initial question seems absolutely ridiculous unless its someone who is really confused and wants help understanding the difference. its so silly i dont really want to give a serious answer if its an anti-debt nut but id answer it to help someone who is really confused about the difference between the 2 things.
Your post 7 has the same issue. You're not getting the question at hand. If you save up cash and use that cash to pay for a vacation, it's no different than paying down the debt and reborrowing. You're still using debt and paying an interest rate as a result of your expense.
Again, I personally think paying interest at a reasonable rate isn't a problem, so I wouldn't be opposed to borrowing at mortgage rates for a vacation. But technically, you can't "save up" anything while you're in debt. Until you pay off your loan, every dollar you spend it a dollar that could have been used to pay off your debt.
The only difference between a person with $20,000 in CC debt choosing to go on a vacation and a person with a mortgage choosing to go on a vacation is the interest rate. They both could have used that cash to pay down the debt instead.
I referred you there because it answers the question you asked me, which was "Would you say that the person shouldn't go on vacation until the entire balance of their mortgage is paid off?"
I don't have any issues.
I think people need breaks and need vacations.... mortgage or not.
Your post 7 has the same issue. You're not getting the question at hand. If you save up cash and use that cash to pay for a vacation, it's no different than paying down the debt and reborrowing. You're still using debt and paying an interest rate as a result of your expense.
Again, I personally think paying interest at a reasonable rate isn't a problem, so I wouldn't be opposed to borrowing at mortgage rates for a vacation. But technically, you can't "save up" anything while you're in debt. Until you pay off your loan, every dollar you spend it a dollar that could have been used to pay off your debt.
The only difference between a person with $20,000 in CC debt choosing to go on a vacation and a person with a mortgage choosing to go on a vacation is the interest rate. They both could have used that cash to pay down the debt instead.
why would you waste money paying down debt when that cash could be invested and grow your net worth? sure, if you are stashing cash in your mattress then you arent increasing your wealth but you are still reducing your financial risk by using debt. but if you are making good financial decisions, then paying off that low interest debt is making you poorer.
I referred you there because it answers the question you asked me, which was "Would you say that the person shouldn't go on vacation until the entire balance of their mortgage is paid off?"
I don't have any issues.
I think people need breaks and need vacations.... mortgage or not.
I didn't say you had the issue, it was your post that had the issue. It's contradictory. You can't say that you wouldn't borrow and then say that you would pay for something while maintaining debt. Paying cash for something while in debt is using debt to pay for it.
Again, I don't think it's a problem to borrow for things, and I'm not nearly as opposed to debt at a reasonable price as most people are. But I think people need to realize when they're using borrowed money, and I think that was kind of the main point.
It's like a person who won't pay for cigarettes with a credit card, but will pay for food with one. If they choose to avoid using their cash on gas and use a card so that they can pay for the cigarettes, they're really just fooling themselves into thinking they're not using debt.
why would you waste money paying down debt when that cash could be invested and grow your net worth? sure, if you are stashing cash in your mattress then you arent increasing your wealth but you are still reducing your financial risk by using debt. but if you are making good financial decisions, then paying off that low interest debt is making you poorer.
True, I was intentionally staying away from mentioning that for simplicity sake, but what we're really talking about here is the opportunity cost of the vacation. You could use it to pay down CC debt, pay down a mortgage, or invest somewhere. Either way, there's always a cost.
No money is ever spent at 0% unless you're spending it on your death bed. It's not a problem, just something to recognize and be aware of.
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