Speaker 1: Welcome to How the Money. I'm Joel and I'm Matt,
Speaker 1: and today we're discussing when debt makes sense. Yeah, Joel,
Speaker 1: sometimes debt actually does make sense. Hopefully our listeners aren't
Speaker 1: blindsided by the fact that we don't hate debt, at
Speaker 1: least not all debts. Hopefully they don't think we've gone
Speaker 1: off the personal finance deep end here. That debt is
Speaker 1: kind of a necessity of modern life and it's something
Speaker 1: we have to talk about. Like, not all debt is
Speaker 1: created equally, right, It's important to distinguish Some debt is
Speaker 1: is good, some debt is worth taking on. Other debt
Speaker 1: is awful and you shouldn't even consider it. So, yeah,
Speaker 1: we're gonna kind of parse those specifics in this episode, Matt,
Speaker 1: before we get to that. There's a specific debt I
Speaker 1: wanted to talk to you about, all right, So we
Speaker 1: just had our boys right not too long ago. Regular
Speaker 1: listeners to the show will know that we are our
Speaker 1: our dad's We are proud parents. You've got three girls
Speaker 1: and and now boy. And I've got two girls and
Speaker 1: now a boy. And our boys were born born two
Speaker 1: days apart. But the hospital bills are starting to come
Speaker 1: in and so I wanted to talk about how you
Speaker 1: handle hospital bills when you get him in the mail,
Speaker 1: and I think it's important. I don't know if you've
Speaker 1: noticed this, Bunny, we're handling things differently. You're kind of
Speaker 1: more of a cash payer. And I have insurance through
Speaker 1: my job, and there is a humble brag I've got
Speaker 1: actual insurance. Not at all. I promised, I promised. But
Speaker 1: but you're you're on meta share. You've documented that as well,
Speaker 1: which is an awesome thing for people to consider and
Speaker 1: if they want to save money on health insurance, even
Speaker 1: though it's not technically health insurance. But but yeah, I'm
Speaker 1: starting to get the mail from from the hospital with
Speaker 1: the bills inside. And I will say one thing I've
Speaker 1: noticed through the years of receiving medical bills based on
Speaker 1: different you know, things we've had based on three person
Speaker 1: now at this point, is to never pay the bill
Speaker 1: the first time you see it. To always wait for
Speaker 1: that second bill to come in. There are always adjustments made.
Speaker 1: In particular with one of these bills from the hospital
Speaker 1: stay the first bill, it looked like we're gonna have
Speaker 1: to pay fifty just one of the bills for yeah,
Speaker 1: and I was like that's what you had insurance dog, right,
Speaker 1: I know. I was like, that seems crazy, that shouldn't
Speaker 1: be the way it is. And and then I just
Speaker 1: we just waited a month for the next bill to
Speaker 1: come in, and it was drastically four thousand dollars cheaper, basically,
Speaker 1: So you just kind of never know what's going to
Speaker 1: happen and how it's going to get adjusted, and so
Speaker 1: I kind of wait for things to shake out. So
Speaker 1: that's like one tip I have for people who are
Speaker 1: getting medical bills and just don't ever pay the first
Speaker 1: one wait for another one to command. I feel that
Speaker 1: this is maybe one instance in personal finance that it
Speaker 1: kind of pays a little bit to be a procrastinator. Yeah,
Speaker 1: but it's true. There's a lot of confusion when it
Speaker 1: comes to how to navigate the waters of our insurance.
Speaker 1: And you know, like you found that you've had some
Speaker 1: confusion there. I mean with us having meta share, dude,
Speaker 1: we found it's even more confusing because there are a
Speaker 1: fewer healthcare providers who are familiar with meta share um
Speaker 1: And you know, I've written an article on the site,
Speaker 1: will link to that in the show notes, but essentially
Speaker 1: meta share it's very similar to insurance, but it's technically
Speaker 1: not insurance, you know, it's it's not regulated. There are
Speaker 1: different requirements that they have. But at the same time,
Speaker 1: we are also able to save a ton of money.
Speaker 1: But we have found, though, is that there is some
Speaker 1: additional work that we have to do in order to
Speaker 1: make sure things line up the way that they're supposed to,
Speaker 1: that they're actually submitted to the right place. It's not
Speaker 1: as familiar to most healthcare providers as like Humana or
Speaker 1: Blue Cross, Blue Shield right Now or whoever is exactly exactly.
Speaker 1: So you mentioned procrastinating and how maybe that's a little
Speaker 1: bit of a benefit here, But the thing that is
Speaker 1: not a benefit is to is to hide your head
Speaker 1: completely in the sand in regards to the bills that
Speaker 1: are coming in. And that's what some people do. They
Speaker 1: just don't open them. They chuck them, or or they
Speaker 1: open them and they look at them and they cry
Speaker 1: or scream or whatever whatever reaction they have to getting
Speaker 1: a massive bill that you can't afford. It's time to move, Yeah, exactly,
Speaker 1: we we can move to another country. They'll never find
Speaker 1: us something like that. And so one thing I want
Speaker 1: to stress too is that a lot of hospitals have
Speaker 1: something called a patient advocate, and that can be a
Speaker 1: great place to turn. Look on your hospital systems website,
Speaker 1: call the customer service number and ask if they have
Speaker 1: someone who is a patient advocate, and that patient advocate
Speaker 1: can walk through potential debt for giveness options or at
Speaker 1: least for giving a big chunk of the debt or
Speaker 1: a payment plan that is gonna potentially suit your income
Speaker 1: and your needs. And there are for these nonprofit hospitals,
Speaker 1: there are oftentimes lots of ways that you can have
Speaker 1: a portion or or maybe even all of your medical
Speaker 1: debt forgiven. But if you if you put your head
Speaker 1: in the sand, it's gonna go to collections. You're never
Speaker 1: going to have this option again if you don't tackle
Speaker 1: it within the first ninety days, because if you don't
Speaker 1: turn to the hospital to for help, they're gonna kick
Speaker 1: it to collections. And that's when you're in big trouble. Yeah,
Speaker 1: and when we say procrastinate, definitely don't wait longer than
Speaker 1: ninety days, right, like, maybe wait thirty days, forty five
Speaker 1: of days, maybe for the second time that bill shows up, right,
Speaker 1: But yeah, you definitely don't want to put your head
Speaker 1: in the sand. And you know you mentioned the patient advocate.
Speaker 1: I think that's important as well. For you know, you
Speaker 1: kind of were teasing about me being a cash payer
Speaker 1: because a lot of what we are is paying cash
Speaker 1: because we're at such a high deductible. Yeah, that wasn't
Speaker 1: a tease. That's just like kind of what it is
Speaker 1: the reality. But for folks who don't have health insurance, man,
Speaker 1: make sure you talk to that patient advocate ahead of time.
Speaker 1: If you can talk with them in advance of the procedure,
Speaker 1: they will totally work with you find ways to you know,
Speaker 1: split those payments up or even cut you that cash
Speaker 1: deal on the front end. So so yeah, keep that
Speaker 1: in mind. And that's definitely the you know, complete opposite
Speaker 1: of sticking your head in the sand. That's you being
Speaker 1: proactive and making sure you've got things lined up. Healthcare
Speaker 1: so easy to understand. It's the best now. It truly
Speaker 1: is terrible. I wish it was it was an easier system.
Speaker 1: I wish, For instance, Matt, I was getting a quote
Speaker 1: on a procedure the other day, Uh, A procedure that
Speaker 1: means that I will have no more children. I don't
Speaker 1: know if that's t m I For everyone out there,
Speaker 1: but this you're getting castrated. Uh some, that's totally similar
Speaker 1: lesson basi, Yeah exactly. But basically the thing that shocked
Speaker 1: me was the amount that I have to pay after
Speaker 1: submitting the claim through insurance is more than what I
Speaker 1: would pay as a cash payer. So sometimes that's an
Speaker 1: interesting dynamic, too involved in the whole process. It frustrates
Speaker 1: me to a great deal that that's the case. I
Speaker 1: don't think that's how it should be. That's the case
Speaker 1: for getting up prescription oftentimes, which is a real pain.
Speaker 1: And the only way to combat that is to check
Speaker 1: and see if paying cash with an app, specifically like
Speaker 1: good r x, which is an awesome app for for
Speaker 1: shopping prescriptions. You know what, I found so many times
Speaker 1: that offering to pay cash and not going through my
Speaker 1: insurance is better when I'm getting up prescription. Well, it
Speaker 1: can be the same for medical procedure. And that's why
Speaker 1: insurance and that whole health insurance game can be a
Speaker 1: little bit shady. All right, Joel, my unique friend, introduce
Speaker 1: our beer for this episode. Alright, we're drinking one from
Speaker 1: our friends, the Yeast Atlanta Brewers, and this one is
Speaker 1: a check pilsner. So week thanks to our friend John
Speaker 1: Francis for for tossing this one our way. We're really
Speaker 1: excited to have this one on the show. Yeah, thanks John.
Speaker 1: All right, let's get into the topic at hand. Today.
Speaker 1: We're talking about when debt makes sense, which is so weird.
Speaker 1: It doesn't sound like something the guys from How the
Speaker 1: Money should be talking about, and being debt free sounds
Speaker 1: nice in theory, but who can actually live a debt
Speaker 1: free existence. Most of us decided to take on debt
Speaker 1: at certain points in our lives to achieve goals that
Speaker 1: we have. Debt can allow us to accelerate our goals
Speaker 1: and see them come to fruition far sooner than the
Speaker 1: otherwise would have. If you really want to own a
Speaker 1: home or get an advanced degree, well it's really hard
Speaker 1: to save for either of those in full right beforehand, Yeah, Juel,
Speaker 1: that's rights and debt, right. Everyone knows what debt is,
Speaker 1: but I think it's helpful to to look at debts
Speaker 1: in the context of time. Specifically, When you do that,
Speaker 1: you can see that debt is basically the act of
Speaker 1: exchanging something in the future in order to secure it now.
Speaker 1: But obviously you're gonna pay a cost there's a price
Speaker 1: to pay that interest rate associated with your loan. Well,
Speaker 1: that is literally the price that you have to pay
Speaker 1: if you're not able to or maybe you're not willing
Speaker 1: to save up and pay in cash. And as we'll discuss,
Speaker 1: you know, the interest rate you can secure that has
Speaker 1: an impact on the amount of debt that you'll want
Speaker 1: to consider taking out as well. I don't know why,
Speaker 1: but everything every time I think about debt, I think
Speaker 1: about the story of Rumble steel skin and like putting
Speaker 1: up your firstborn child in exchange for the spending that
Speaker 1: straw into gold. Yeah, that's a terrible wager, but that's
Speaker 1: kind of how debt can be, right, Like, you're usually
Speaker 1: sacrificing something good in the future, you know, those payments
Speaker 1: that you'll make over a long period of time for
Speaker 1: something that you can get right now. Yeah, your baby.
Speaker 1: It's like the ultimate payday loan. That's the worst payment
Speaker 1: if that existed. That's totally against the law, right why
Speaker 1: it's a fable. So before we launch into the different
Speaker 1: reasons when debt might make sense for you, well, let's
Speaker 1: talk quickly, Matt about some of the things we would
Speaker 1: recommend you avoiding taking debt out on. Yeah, man, let's
Speaker 1: kick it off with car loans, right, Like you often
Speaker 1: hear folks mention their car payment. It's so commonplace these days,
Speaker 1: like you might actually expected that it's normal to have
Speaker 1: and maybe even a good idea to sign up for
Speaker 1: a car loan. I'm paying for the reliability and the safety.
Speaker 1: Do you hear that? Right? And that seems like a
Speaker 1: noble mantra maybe to get behind. But don't convince yourself
Speaker 1: that car debt is okay. Financially speaking, You're almost always
Speaker 1: going to be in a losing situation when you finance
Speaker 1: a depreciating asset. Paying more today for something that will
Speaker 1: be worth less tomorrow is something you want to always
Speaker 1: try and avoid. Yeah, man, I've broken this rule just once,
Speaker 1: and that was the Nissan Leaf that I bought and
Speaker 1: I still owned. And it was because I had a
Speaker 1: zero percent loan option when I purchased the vehicle. But
Speaker 1: I also did have the cash to pay for the
Speaker 1: car in full, and so really that debt actually seemed
Speaker 1: like not a big deal because I had enough cash
Speaker 1: reserve to pay for the car outright. I wasn't financing
Speaker 1: something that I couldn't actually afford. But really typically, I
Speaker 1: would say for most people, if you're looking to finance
Speaker 1: a car, well, the better option is to buy a
Speaker 1: cheaper car. And most expensive car I'd ever purchased before
Speaker 1: I bought my Niece on Leaf was at Niecean Ultima
Speaker 1: that lasted me seven years. So it's not like you
Speaker 1: can't find an affordable ride that actually will get the
Speaker 1: job done for you over a long period of time.
Speaker 1: It's just that we think we can't, and so we
Speaker 1: just take the easier path, which it seems easier, but
Speaker 1: ultimately we're sacrificing a lot in the future by taking
Speaker 1: on debt for a nicer car. So debt, even with
Speaker 1: a fairly low interest rate, it's not a great idea
Speaker 1: on a rapidly depreciating asset. And if you do take
Speaker 1: out debt on a car, the rule that we would
Speaker 1: say you should never break is to never take out
Speaker 1: a loan longer than four years. Man, so many people
Speaker 1: Matt get into trouble when they finance a car and
Speaker 1: they finance it for six or seven years. I mean,
Speaker 1: the link on a typical car loan has been lengthening
Speaker 1: over time. Folks want to get those payments down. Yeah,
Speaker 1: if they want the payment down, and so they're willing
Speaker 1: to take out a seven year loan to do it,
Speaker 1: and then they end up upside down for a long
Speaker 1: period of time. And if something goes wrong with their
Speaker 1: car or they decide they want a new one, well
Speaker 1: they're in a really bad situation when a comes to
Speaker 1: getting another car. So true, man, another debt we want
Speaker 1: you to avoid taking on as any credit card debt. Basically,
Speaker 1: credit card debt usually stems from poor spending habits, and
Speaker 1: that's why you often hear credit cards painted in such
Speaker 1: a terrible light. It's not that the cards themselves are bad,
Speaker 1: but it's the credit card debt that is so terrible.
Speaker 1: We talked about this in episode with Brad Barrett. That's
Speaker 1: where we discussed how credit cards are just a tool
Speaker 1: that we can gain a ton of benefit from if
Speaker 1: we use them properly. Yeah, Brad talked a lot about
Speaker 1: travel rewards and sign up bonuses, and you know, we've
Speaker 1: got an article up on our site about some of
Speaker 1: our favorite credit cards, and yeah, credit cards can be
Speaker 1: really awesome. They can provide a lot of rewards for
Speaker 1: people that use them well, for people that sign up
Speaker 1: for the right cards for their type of spending. But
Speaker 1: the problem is when you use a credit card and
Speaker 1: you can't pay it off in full every month, and
Speaker 1: that's when it becomes just a truly terrible cycle. The
Speaker 1: reason that they're so popular is due to how convenient
Speaker 1: they are to throw expenses on. And if you've got
Speaker 1: a credit card with a twenty two or twenty four
Speaker 1: or seven interest rate, well, these cards they become debt vehicles.
Speaker 1: And it's what's often spent and put on the credit
Speaker 1: cards that we have a big issue with. Two. It's
Speaker 1: so spur the moment consumption purchases. Credit cards make it
Speaker 1: easy to spend without thinking. But you want to spend
Speaker 1: with a plan, and if you can't do that well
Speaker 1: with a credit card, well then you're gonna find yourself
Speaker 1: in some serious having some serious issues, Enjoel. The worst,
Speaker 1: absolute worst kind of debt are going to be paid
Speaker 1: a loans card, title loans, and those are the worst.
Speaker 1: You're gonna want to avoid these at all costs, as
Speaker 1: they can have a range of anywhere from four hundred
Speaker 1: a p r when you kind of attack in all
Speaker 1: the different fees, and that's just ridiculous, man. You know,
Speaker 1: if we thought that the credit cards made it convenient
Speaker 1: to pay high levels of interest petty loans, title loans.
Speaker 1: You know, they easily have them beat. And a big
Speaker 1: reason for that too is that they are you know,
Speaker 1: they're there in person. And so like you apply for
Speaker 1: a credit card and guess what, it takes time for
Speaker 1: that card to get to you before you can start
Speaker 1: misbehaving with your money, right, But with like with a
Speaker 1: paid a loan or a car title loan, like it's
Speaker 1: right there in person, And so if you are in
Speaker 1: a pinch, folks are gonna feel tempted to walk through
Speaker 1: those doors and see what kind of loan that they
Speaker 1: can get, and in the end they might go with
Speaker 1: something that is going to really drag them down financially.
Speaker 1: Once you open your eyes to see how many paid
Speaker 1: a loan or title lending places there are around you,
Speaker 1: it'll start to overwhelm you at how many there actually are.
Speaker 1: Just driving up a couple of our main throw for
Speaker 1: your fairs, Matt here in our part of town where
Speaker 1: we live, I'm amazed at how many paid a loan
Speaker 1: shops there are. There's one within every square mile, if
Speaker 1: not multiples. And there's some towns where there's like three
Speaker 1: on one street corner that and it just bums me
Speaker 1: out to see that's a sign of the fact that
Speaker 1: a lot of people that live in that area are
Speaker 1: are certainly hitting them up. They're taking advantage. And the
Speaker 1: commercials that you see for these companies, they make it
Speaker 1: sound like it's super simple and it's a short term loan.
Speaker 1: But the problem is the vicious cycle that people get into,
Speaker 1: in particular with with these paid a loans, with these
Speaker 1: the loans and inability to pay it back that quickly,
Speaker 1: because if you need that quick cash, how in the
Speaker 1: world are you gonna be able to pay that back
Speaker 1: in a week or two? And so oftentimes people get
Speaker 1: stuck in a rut and it's the worst place they
Speaker 1: can go. That's like the worst kind of debt that
Speaker 1: you can take on. Yeah, dude, it truly is pretty terrible.
Speaker 1: And let's talk as well about consumption because at the
Speaker 1: core of all these different types of debt that don't
Speaker 1: make sense for you is the fact that they are
Speaker 1: all consumption based. They might pad your lifestyle in the
Speaker 1: short term a little bit, but they drastically hurt your
Speaker 1: ability to grow your wealth in the long term. You're
Speaker 1: essentially sticking your future self with today's tab. It's essentially
Speaker 1: a punishment for your future self, right that it is
Speaker 1: only focused on the here and now. If if consumption
Speaker 1: had like a motto or like a slogan, it would
Speaker 1: be yellow. Yeah, exactly. You know. Actually, in episode one eight,
Speaker 1: when we brought j. D Roth on from Get Rich Slowly,
Speaker 1: he has this article about the stages to financial freedom,
Speaker 1: and he actually mentioned that that first stage, where you
Speaker 1: are in debt. He said, it's essentially like you're a slave.
Speaker 1: When you don't have any assets whatsoever to speak of,
Speaker 1: and you're in debt and you owe people money, whether
Speaker 1: it's owing your girlfriend and your significant other, your your parents,
Speaker 1: or the credit card company. You've essentially become a slave
Speaker 1: to the decisions that you've made. And the only way
Speaker 1: to get out of that is to take action and
Speaker 1: to get rid of that debt as quickly as possible
Speaker 1: so that you're not under any sort of enslavement anymore. Yeah,
Speaker 1: and I agree, Matt. Consumption is at the heart of
Speaker 1: that for most people. That's how we typically get into that.
Speaker 1: We we see something Chinese, we see something that we like,
Speaker 1: we see something even that we think that we need
Speaker 1: we buy it, and then it leads to heartache as
Speaker 1: we're enslaved the payments for it over a long period
Speaker 1: of time. But the title of this episode is when
Speaker 1: debt makes sense. And we've covered the really terrible things
Speaker 1: that debt can do when it does not make sense, Yeah,
Speaker 1: when it invades your life. But we have to talk
Speaker 1: about when debt does typically make sense, our folks, and
Speaker 1: we'll get to that right after the break. Alright, Joe,
Speaker 1: we are back from the break. We've talked about when
Speaker 1: not to debt. Now we're gonna talk about when to debt.
Speaker 1: Let's talk about when debt might make sense for you.
Speaker 1: But here's the thing. Just because something might fall into
Speaker 1: the smart debt category that we're gonna talk about here,
Speaker 1: you don't want to go hog wild. Right. We'll talk
Speaker 1: more about some special considerations that you want to keep
Speaker 1: in mind, but for now, here are some instances when
Speaker 1: debt can make sense. Well, it's just like beer, Matt.
Speaker 1: Good debt is like a good beer, And you know what,
Speaker 1: you put a good beer in front of me, it
Speaker 1: doesn't mean I want six of them, right, And so
Speaker 1: even good debts, it doesn't mean you want to get
Speaker 1: crazy and go overboard. There's a nice, healthy limit. I
Speaker 1: think even with good debt, we need to make analogies
Speaker 1: to beers more often. Why have we not done that? Actually? Alright,
Speaker 1: a new rule for the podcast every episode, have the
Speaker 1: beer analogy. Yes, yes, we'll make it happen. It's like
Speaker 1: the SuDS, it's like the foam. I don't know, there's
Speaker 1: a lot of the aroma of the beer that you appreciate.
Speaker 1: That's the secondary benefits. All right, So let's talk about
Speaker 1: some of those times where debt might make sense for you. Well,
Speaker 1: getting in education is is one that's often touted and
Speaker 1: one that Matt and I agree with. We covered this
Speaker 1: just the other week on the show. We talked about
Speaker 1: when college is worth it? Like, we asked the question
Speaker 1: is college worth it? And we came down on the
Speaker 1: fact that lots of times, for lots of people, it
Speaker 1: is a smart move, and a college education can be
Speaker 1: worth it even with debt if you take out a
Speaker 1: smart amount. Don't overdo it. But an education is a
Speaker 1: solid reason to accrue debt in your life. And that's
Speaker 1: especially because most people going into debt for a college education, well,
Speaker 1: they're youngsters. They're seventeen or eighteen. They don't have any
Speaker 1: assets to their name in almost all circumstances, so how
Speaker 1: how are they going to pay for college? It's it's
Speaker 1: just basically an impossibility to pay for college on your
Speaker 1: own as a youngster in almost all circumstances, and education
Speaker 1: is actually getting you somewhere, it's moving you in in
Speaker 1: the right direction. A good rule of thumb, though, so
Speaker 1: as to not take out too much debt on a
Speaker 1: college education, is to not take out more than you'd
Speaker 1: earn your first year after graduating from school, in your
Speaker 1: first job, your first year salary, don't take out more
Speaker 1: money in debt than you're actually going to make in
Speaker 1: that first year of working. And something else too. I'm
Speaker 1: thinking about different school like quote unquote school expenses. Make
Speaker 1: sure that you're not using your student loan money to, say,
Speaker 1: buy that new car because you think, oh, I need
Speaker 1: reliable transportation to get to class, or even like going
Speaker 1: on spring break right like, just because it's on the
Speaker 1: school calendar like that, that doesn't make it a school event,
Speaker 1: right I think you know, if you were to do that,
Speaker 1: if you were to spend money on things not actually
Speaker 1: going towards your education, you're only fooling yourself. So just
Speaker 1: make sure you're using your actual student loans for education.
Speaker 1: So education. Another area where we think that debt can
Speaker 1: make sense is if you're going to start a business.
Speaker 1: Just like getting an education is investing in yourself, starting
Speaker 1: a business might be akin to investing in your future income. Right.
Speaker 1: The business is a great way to create your own
Speaker 1: employment and invest in your future. You might need to
Speaker 1: rent a physical space, you might need a higher help
Speaker 1: purchase inventory, but most businesses need access to some sort
Speaker 1: of capital in order to kind of get off the ground. Yeah,
Speaker 1: starting a business is a legitimate reason to take on
Speaker 1: debt if you have an idea, if you have a
Speaker 1: business plan, if it's well thought out, in your plan
Speaker 1: is for this business to replace having a career, then
Speaker 1: I think taking on debt makes some sense for that reason.
Speaker 1: And then the next reason when debt makes sense for
Speaker 1: lots of folks is buying a home. Purchasing real estate
Speaker 1: is probably the easiest debt to justify, since saving for
Speaker 1: a primary or investment home is in full is basically
Speaker 1: near impossible. Only the Great Dave Ramsey would say that
Speaker 1: you should pay cash for a home, and we don't
Speaker 1: really agree with that, Yeah, Joel. However, we do agree
Speaker 1: with Dave when it comes to the argument that you
Speaker 1: shouldn't pay off your mortgage because you get to write
Speaker 1: off your mortgage interest. This makes my mortgage a good idea, right, Well,
Speaker 1: some folks might be able to take that deduction, but
Speaker 1: a fairly small number of actual homeowners will receive any
Speaker 1: tax benefit for having a mortgage. So just make sure
Speaker 1: you're not making that a reason for keeping your debt around. Yeah,
Speaker 1: I completely agree. I think that's something that a lot
Speaker 1: of homeowners tout as a reason to have a mortgage
Speaker 1: or to take out a loan on a home. The
Speaker 1: mortgage interest deduction has been overblown for years, and especially
Speaker 1: with the most recent tax law, it's insanely overblown. Standard deduction, baby, Yes,
Speaker 1: that's all you need. What I want to say, almost
Speaker 1: taxpayers take the standard deduction now, and because of that,
Speaker 1: that means that whatever interest you're paying on your mortgage,
Speaker 1: it has no effect taxes at all. Yeah, so don't
Speaker 1: let that be an excuse for a reason to have
Speaker 1: a mortgage. For most people, it's just not true. I
Speaker 1: bet Dave totally loved the fact that the standard deduction
Speaker 1: got overhauled and then that can no longer be an
Speaker 1: excuse for most folks. Right, Yeah, It's important to note too,
Speaker 1: while we're talking about taking out a mortgage debt for
Speaker 1: a home, that what mortgage interest rates are at nearly
Speaker 1: all time lows right now, And we actually just recently
Speaker 1: answered a question about paying more principle on a mortgage
Speaker 1: and whether that's a good idea or not. Yeah, and
Speaker 1: with mortgage interest rates at incredibly low levels, well, I
Speaker 1: think that is something that we need to talk about
Speaker 1: in the dynamic of taking on mortgage debt. I think
Speaker 1: would be home buyers might see something like that and
Speaker 1: might determine that it makes sense to take on even
Speaker 1: more mortgage debt, because why not you can get a
Speaker 1: mortgage at historically low rates or even buy a home,
Speaker 1: you know, when they weren't ready to purchase a home yet,
Speaker 1: right right, right, Yeah, And I think that is one
Speaker 1: thing that can be a trap for people as they
Speaker 1: are thinking about taking out mortgage debt. You know what
Speaker 1: we just said that it is a debt that makes
Speaker 1: sense for a lot of people, but even in that vein,
Speaker 1: it doesn't make sense if it doesn't fit into your lifestyle.
Speaker 1: It doesn't make sense if you're stressing your budget to
Speaker 1: afford the payments, you still want to make sure whatever
Speaker 1: debt you're taking out is reasonable, and specifically with buying
Speaker 1: a home, to just make sure that you don't get
Speaker 1: ahead of yourself, that you don't buy more home that
Speaker 1: you can afford, or take on just a debtload that
Speaker 1: you're uncomfortable having. Right Well, what's tricky to Joel is
Speaker 1: that what's reasonable to one person may not be reasonable
Speaker 1: to somebody else. Like somebody else might be much more
Speaker 1: comfortable with spending a lot of money, like they're spenders
Speaker 1: out there and their savers. So we'll have some specific
Speaker 1: numbers as far as what you should keep in mind
Speaker 1: later in the show. So, Joel, what's at the core
Speaker 1: of all these instances where debt might make sense is
Speaker 1: the fact that you are expecting these things to appreciate, right,
Speaker 1: Like your education that should allow you to earn more
Speaker 1: over your lifetime, starting a business that can ensure a
Speaker 1: steady and not only a steady, but a fulfilling source
Speaker 1: of income for years, maybe even a lifetime. And homes, man,
Speaker 1: they aren't getting any less expensive at least over the
Speaker 1: long run, right, Yeah, and a primary home, like it
Speaker 1: shouldn't necessarily be viewed as a great investment vehicle, but
Speaker 1: we know that real estate does appreciate over the long haul. Yep, yeah,
Speaker 1: I completely agree. So I think that's, yeah, the biggest
Speaker 1: difference between kind of some of those debts we mentioned
Speaker 1: at the beginning that are just not good debts to
Speaker 1: have in your life versus these debts that actually makes sense. Well,
Speaker 1: their debts that are investing in something you're basically investing
Speaker 1: in your future. All right, Matt, and we're gonna get
Speaker 1: to some of those specifics. We're gonna talk about what
Speaker 1: things you need to consider before you actually take on
Speaker 1: debt and how you need to think about that as
Speaker 1: a personal decision before you actually do take on more debt,
Speaker 1: even if it is one of these debts that we
Speaker 1: think make a lot of sense. And we'll get to
Speaker 1: that right after the break. All right, we're back from break.
Speaker 1: We're talking about when debt makes sense, and it's important
Speaker 1: not to just consider the specific items that you are
Speaker 1: considering taking out a loan for, but also to consider
Speaker 1: your specific life scenario as well. Taking out a mortgage
Speaker 1: while having massive amounts of student loan debt is vastly
Speaker 1: different than taking one out. Once you've paid off all
Speaker 1: of your student loan debt, your specific income level, your
Speaker 1: savings rate, and your overall financial trajectory should be considered
Speaker 1: before you decide to add more debt into your life.
Speaker 1: Yeah man, And another big factor to consider is how
Speaker 1: much debt you already have, right like, how much dobt
Speaker 1: you currently have. Lenders will typically calculate a debt to
Speaker 1: income ratio to determine how much to lend to you
Speaker 1: as the borrower. They do this because they want to
Speaker 1: make sure that they get paid right. However, here's the thing.
Speaker 1: Not all lenders will actually calculate a debt to income
Speaker 1: ratio a d t I, especially during economic booms. You know,
Speaker 1: lending requirements like they tend to get past and you
Speaker 1: might find yourself getting approved for a loan that you shouldn't.
Speaker 1: So in this case, it is up to you to
Speaker 1: self regulate. And so if you're wondering, like, how do
Speaker 1: I calculate my own debt to income ratio, well, I'm
Speaker 1: going to tell you how to do it. So to
Speaker 1: calculate it, you just need to divide your monthly debt
Speaker 1: payments by your monthly gross income, and that I'll give
Speaker 1: you a percentage rate. And so, for example, let's say
Speaker 1: you have in debt payments that you have every month,
Speaker 1: and let's say that you make five thousand bucks every
Speaker 1: single month. You do that math, and that's gonna give you. Yeah,
Speaker 1: that's way too high, right, That's there's a reason why
Speaker 1: I gave that as an example. Basically, anything below a
Speaker 1: debt to income ratio is pretty great, is solid, right,
Speaker 1: like that put you in a great range. But beyond
Speaker 1: that you start getting into more murky waters. Anything above
Speaker 1: like that's gonna be bad news. And so this isn't
Speaker 1: necessarily a perfect calculation. But what I do like about
Speaker 1: this is you can do some math and figure out
Speaker 1: where you land. Right beyond, you're gonna be hard pressed
Speaker 1: to even get approved by a bank for a mortgage
Speaker 1: or even getting approved for a credit card. A debt
Speaker 1: to income ratio that high is something that you're gonna
Speaker 1: want to try to stay away from. Yeah, you know
Speaker 1: what a lender says about you, Matt, and what they
Speaker 1: say you can handle when it comes to taking on debt, well,
Speaker 1: they're often going to be pretty optimistic, and you should
Speaker 1: be a little more pessimistic. Well, they're in the business
Speaker 1: to make loans and loan you money, right, they want
Speaker 1: to write you that loan, and they want to make
Speaker 1: interest back on their money. And so they're gonna tell
Speaker 1: you that you can afford, well a little more. You
Speaker 1: can stretch that number, especially with mortgages. This happens, right,
Speaker 1: you can stretch that a little more. You can afford
Speaker 1: a house that's worth three thousand dollars when really you
Speaker 1: should be settling on one that's uh they cost. And
Speaker 1: so I think it's important to note that. But I
Speaker 1: think also if you take a look at your d
Speaker 1: t I, you you calculate that and you find yourself
Speaker 1: in that kind of upper echelon that's not good of
Speaker 1: having a d t I oft or higher. Well, I
Speaker 1: think the biggest takeaway from that is not to beat
Speaker 1: yourself up, but it is to to start paying down
Speaker 1: debt and to avoid taking on new debt. Right, even
Speaker 1: those debts so we mentioned as debts that make sense, well,
Speaker 1: they don't make sense if you can't afford them. And
Speaker 1: if you have a really high debt to income ratio,
Speaker 1: well that means you can't afford to take on new debt.
Speaker 1: So focus instead for the time being on paying off
Speaker 1: your debt as quickly as possible. Yeah, so d T
Speaker 1: I your debt to income ratio. That is an important consideration,
Speaker 1: an important personal consideration when you're thinking about taking out loans.
Speaker 1: Something else that we want everyone to consider is stress.
Speaker 1: Remember that taking on debt can be stressful. Even good
Speaker 1: debt can lead to lots of amounts of stress. Uh,
Speaker 1: Those regular monthly debt payments, like they can be financially
Speaker 1: overwhelming if you overdo it. So make sure that you
Speaker 1: know yourself. We all have different amounts of risk tolerance
Speaker 1: and what we're willing to take on. Yeah, consider the
Speaker 1: mental bandwidth that you feel like you're capable of and
Speaker 1: make sure that you're not mentally overwhelming yourself by taking
Speaker 1: on too much debt. Matt. A long time ago, I
Speaker 1: think we mentioned this stat that the people that are
Speaker 1: overwhelmed with debt essentially their i Q drops by thirteen
Speaker 1: points on average. And that's because debt really does kind
Speaker 1: of make us us dumber. It overwhelms us in this way.
Speaker 1: It makes it hard for us to think clearly about
Speaker 1: the tasks at hand, about our futures. Debt can have
Speaker 1: this overwhelmingly negative effect on our lives and on our brains.
Speaker 1: Well plus man, and we know that I can't afford
Speaker 1: that thirteen point drop, man, then you're in unsightly i
Speaker 1: Q territory that would not be good. But basically, I
Speaker 1: think most of us we don't think about how the
Speaker 1: debt that we take on is going to, you know,
Speaker 1: impact kind of our mental functionality and and how well
Speaker 1: we can cope with the stress that comes along with
Speaker 1: those increased monthly payments. So let's take, for example, like
Speaker 1: a investment property and the mortgage that we would take
Speaker 1: out by buying one. Let's just assume even that the
Speaker 1: numbers completely makes sense, they work out, we've done the math,
Speaker 1: we hit the one percent rule, and that investment property, well,
Speaker 1: it makes a whole lot of sense from a financial perspective.
Speaker 1: There's always risk involved. And if the debt that you
Speaker 1: took on for that rental property, even if your numbers
Speaker 1: are fundamentally sound, that you ran in the lead up
Speaker 1: to just seeing that property, well, if it's going to
Speaker 1: have an adverse effect on your mental state, then it
Speaker 1: makes sense to kind of take a step back and
Speaker 1: think about what your goals are. And you know, what,
Speaker 1: it's just not worth it to take on extra debt
Speaker 1: if it's going to add bigger problems into your life,
Speaker 1: and if it's going to cause you mental anguish, like
Speaker 1: that is one of the most overlooked problems that debt creates. Yeah, Joe,
Speaker 1: what we're talking about here is leverage, right. Essentially, anytime
Speaker 1: that you can take on debt and use that to
Speaker 1: make profits, like, that's what leverage is. But anytime you
Speaker 1: have leverage, there is risk that is inherently involved, and
Speaker 1: risk like that leads to stress. And so that is
Speaker 1: an example of how taking on a debt that, even
Speaker 1: though it might be good, can lead to more stress
Speaker 1: in your life. So these are a number of the
Speaker 1: different considerations, right, that you want to keep in mind
Speaker 1: when you are personally assessing whether or not you should
Speaker 1: take on debt. That might make sense to you, but
Speaker 1: assuming you've sort of run the numbers, you've looked at
Speaker 1: all these things, you've you know, you've considered the amount
Speaker 1: of stress that you're willing to take on. You might
Speaker 1: be asking yourself like where do I go to get
Speaker 1: my debt? Which just kind of sounds like a bad
Speaker 1: thing to say out loud, but you do want to
Speaker 1: make sure that you're going to go somewhere that is
Speaker 1: not just reputable, but where you know that you'll get
Speaker 1: a good deal. Right, where you can get a good rate.
Speaker 1: So go into a dark alley and finding someone there
Speaker 1: who's willing to lend me fifty grand like a loan shark.
Speaker 1: Is that the place to go, Matt, like a hard
Speaker 1: money lender. That's what you want. They're so nice too.
Speaker 1: If you forget to pay or you can't pay, yeah, no,
Speaker 1: you you want to make sure that you are using
Speaker 1: the the kind of institutions that won't come after you.
Speaker 1: Aim your kneecaps exactly. You want to find the best
Speaker 1: type of loan for your specific need. While you pretty
Speaker 1: much always want to avoid the big national banks, yes
Speaker 1: you do. Yeah, you You also want to always check
Speaker 1: with your local credit unions. And this is for student loans,
Speaker 1: for business loans as well as for a mortgage, and
Speaker 1: then beyond that those right, if you're looking at getting
Speaker 1: student loans, obviously you want to start with FASTA for
Speaker 1: federal loans, but then if you're looking at private loans,
Speaker 1: make sure that you're checking out sites like Credible or
Speaker 1: so FI. If you're looking to get capital for a
Speaker 1: small business that you're looking at, starting in addition to
Speaker 1: your local credit union, you can find funding through the
Speaker 1: s b A, which is the Small Business Administration, if
Speaker 1: at all possible. And then again for a mortgage, always
Speaker 1: start with your local credit union, but beyond that you
Speaker 1: can look at online lenders like Rocket Mortgage and again
Speaker 1: even with Credible and so far they can be good
Speaker 1: options if you're looking at a mortgage. Yeah, but you're right,
Speaker 1: like where you go to get your debt is so
Speaker 1: important because you want the best terms. You want the
Speaker 1: best rate. Sometimes going through a lender that isn't super reputable,
Speaker 1: they might have different terms that just aren't standard or
Speaker 1: are really anti consumer and they're not consumer friendly at all.
Speaker 1: For instance, you might go to a bank that would
Speaker 1: have a pre payment penalty for your mortgage, and if
Speaker 1: you want to get rid of your debt more quickly,
Speaker 1: well guess what you're gonna pay for that price. But
Speaker 1: if you go to a credit union or a credible
Speaker 1: lender like Credible, uh, you know you're not gonna have
Speaker 1: any of those shady terms with lenders that partner with
Speaker 1: Credible or with a credit union, And so yeah, you
Speaker 1: want to make sure that the terms are the best
Speaker 1: and where you go makes a huge different. Also, it's
Speaker 1: important to be selective about the debt that you take on.
Speaker 1: Even debt for quote unquote good reasons can end badly.
Speaker 1: Taking on debt is not something that you should do
Speaker 1: without considering alternatives. So for example, like, should I rent
Speaker 1: longer so I can save up more in order to
Speaker 1: buy the house of my dreams in order to buy
Speaker 1: that starter home whatever it is? Should I be running
Speaker 1: longer or should I be more content to stay put
Speaker 1: where I am for the time being? Or here's another question.
Speaker 1: Can I go to school or cheaply? Like? Do I
Speaker 1: need to attend this school? Are there ways that I
Speaker 1: can find more scholarships in order to help me pay
Speaker 1: for school? Can I work part time while I'm in
Speaker 1: school in order to decrease the amount of debt that
Speaker 1: I'm taking on? Like, there are all these questions that
Speaker 1: you can ask instead of just blindly taking out the
Speaker 1: maximum amount you can Is there a better way to
Speaker 1: hustle to start my small business while I'm working full time?
Speaker 1: Is this something that you can launch while you still
Speaker 1: have a regular paycheck at your day job and putting
Speaker 1: in those extra hours in the evenings and on the weekends.
Speaker 1: It's not something that I want to do full time
Speaker 1: for the rest of my life working two jobs. But
Speaker 1: is it something that you can do in order to
Speaker 1: get jump started and avoid taking on that added risk.
Speaker 1: Being selective about the debt you take on and asking
Speaker 1: yourself those hard questions is crucial in order to make
Speaker 1: sure that, even when debt makes sense, that you're doing
Speaker 1: it wisely. Yeah. Man, even though taking on debt can
Speaker 1: be good in certain situations, that doesn't mean debt is
Speaker 1: a welcome to me. Go be thoughtful. We want you
Speaker 1: to be thoughtful and careful about what debt you bring
Speaker 1: into your life. Essentially, make sure that you have a
Speaker 1: plan to get rid of it, and preferably like in
Speaker 1: short order. Right, if you have debt, no, your plan
Speaker 1: to tackle it. But then even beyond that, not all
Speaker 1: debt necessarily needs to be paid off as soon as possible.
Speaker 1: Right if you want to keep that debt around because
Speaker 1: maybe you have a really, really great loan, maybe you've
Speaker 1: got a fantastic mortgage with an incredibly low a p R. Well,
Speaker 1: make sure that you have a plan for investing the difference,
Speaker 1: like the money that you're not paying to pay down
Speaker 1: that mortgage. Make sure that you are investing that money
Speaker 1: and being smart with your money. Yeah, some of these
Speaker 1: debts makes sense, and it doesn't make sense to pay
Speaker 1: them off as quickly as possible to the exclusion of
Speaker 1: every other goal financial goal that you have in your life.
Speaker 1: So be careful out there. Some of these debts might
Speaker 1: make some sense, but as in all things, moderation is key,
Speaker 1: and even taking on good debt, we would suggest, requires
Speaker 1: a lot of moderation as well. So, Matt, let's get
Speaker 1: back to the beer that we had on the show today.
Speaker 1: We had a check Pilsner by our buddies over at
Speaker 1: Yeast Atlanta Brewers. What was your take on this one?
Speaker 1: Well Man, Before I shared my, you know, my thoughts
Speaker 1: on this beer, I thought it would be interesting to
Speaker 1: share what exactly is a check pilsner and the name
Speaker 1: itself check Pilsner. It's almost redundant because it's sort of
Speaker 1: like saying an a T M machine. Really is it
Speaker 1: like literally the only beer they make in Czechoslovakia or
Speaker 1: something almost so like if I went to Czecho, Slovakia
Speaker 1: and I said, could you get any other beer? If
Speaker 1: I said, give me a Pilsner. Would they just look
Speaker 1: at me like you idiot? All of our beer at Pilsner. Possibly,
Speaker 1: I don't know. But that's the thing craft beer, man,
Speaker 1: It's it's making its way around the world, and so
Speaker 1: there's all types of beers everywhere. But the name pilsner,
Speaker 1: basically what it means is that it's a beer from
Speaker 1: the city called Pilson, which is a city in Check.
Speaker 1: And so to call it a check Pilsner is sort
Speaker 1: of not necessary, Like you can just call it a
Speaker 1: Pilsener because like, at the core of it, you go
Speaker 1: back in history and a Pilsner was a beer from Check.
Speaker 1: So just a little a little beer history for you.
Speaker 1: There man, there we go. But Joel Man, my fossil,
Speaker 1: this beer are that it's this tastes like a classic
Speaker 1: European beer. Like if I envision going over to Europe
Speaker 1: on vacation and I just sit down at a random
Speaker 1: restaurant in any country basically in the entire continent of
Speaker 1: Europe and asked for a beer, Well, this is what
Speaker 1: they're going to give me. It's light, it's refreshing. I
Speaker 1: feel like this is a beer I could essentially have
Speaker 1: pretty much with any kind of cuisine across all of Europe.
Speaker 1: It's interesting enough to enjoy, but at the same time,
Speaker 1: it doesn't have so much flavor going on that it
Speaker 1: would detract from a meal, all right, So he said
Speaker 1: it would pairal well with any cuisine, any cuisine. What
Speaker 1: about a lean cuisine? Man, did you eat those in
Speaker 1: the nineties, because I totally did. I remember going through
Speaker 1: that phase at home where like the microwavable little meals
Speaker 1: like the parmesan chicken on top of edgies or something
Speaker 1: like that, you kind of like peel up the corner
Speaker 1: stick in the microwave for a three fifty. Well, if
Speaker 1: our friend John will donate another bottle, I'll try it
Speaker 1: with a link cuisine and I'll report back. So gross,
Speaker 1: All right, So this beer, in my opinion, it had
Speaker 1: a light body but a full flavor punch. At the
Speaker 1: same time, it had kind of hints of clothes in there,
Speaker 1: a little bit of a banana bread feel. I'm kind
Speaker 1: of going on Matt today on on this episode like
Speaker 1: it with the flavor references. But yeah, so a little
Speaker 1: bit of banana bread. And so you know what, I
Speaker 1: say that this beer was tasty enough that how the
Speaker 1: money has got to take a road trip to Pilson
Speaker 1: to check out some more and see how they taste
Speaker 1: over there. Oh man, I'm totally gonna add that to
Speaker 1: my to my bucket list. Actually go to Pilson and
Speaker 1: order a Pilsener. It doesn't get more real than that, right, Yeah,
Speaker 1: it's gonna happen one of these days. All right, Matt,
Speaker 1: that's gonna do it for this episode. And I just
Speaker 1: hope more than anything that folks walking away from here
Speaker 1: we'll know to tread lightly with debt. It can be sneaky,
Speaker 1: but but it can also you know, make sense for
Speaker 1: people in a lot of addit a lot at different
Speaker 1: times in their lives. Yeah, we loved that. No, no,
Speaker 1: that's not the takeaway. Tread lightly, that's the takeaway. Okay.
Speaker 1: And if you want show notes through this episode, you
Speaker 1: just go to our website how to Money dot com.
Speaker 1: And if you enjoyed this episode, we would love for
Speaker 1: you to leave us a review over at Apple Podcasts.
Speaker 1: Know that that review will help others to define our
Speaker 1: show and that will help them to do smarter things
Speaker 1: with their money. Yeah, all right, man, Well that's gonna
Speaker 1: be it until next time, Buddy, best friends out, best
Speaker 1: friends out