Speaker 1: Welcome to How to Money. I'm Joel and I'm Att,
Speaker 1: and today we're talking about good debt. First, bad debt. Yeah, Mat.
Speaker 1: Today on the show, we're gonna define good debt, bad debt,
Speaker 1: and then give some tips on managing your debt. Some
Speaker 1: people don't even believe there is such a thing as
Speaker 1: bad debt, and we'll let them know, yes there is. So, man,
Speaker 1: have you saved any money this week? So? I mentioned
Speaker 1: on a recent episode, uh, the one about cutting your
Speaker 1: monthly bills, that I was paying way too much for
Speaker 1: my internet service because I decided, oh, yeah, because you
Speaker 1: got the Primo service. But then it kind of sucked. Yeah,
Speaker 1: I tried to. I decided to try out the gig
Speaker 1: speed that they were floating in our neighborhood, and I
Speaker 1: was like, Oh, this is gonna be great, and life
Speaker 1: on gig speed. I'm never gonna go back. And I
Speaker 1: just realized that it didn't provide much value over regular
Speaker 1: internet speeds for me, and so I took my own medicine.
Speaker 1: I tweeted at the A, T and T folks. They
Speaker 1: got back to me pretty quick. I had to pick
Speaker 1: up the phone and talk to him, because you know,
Speaker 1: the old school like that. Uh. But ultimately, dude, I'm
Speaker 1: saving seventy dollars a month on my internet bill. That's
Speaker 1: over eight hundred dollars a year. Wait, what were you
Speaker 1: paying if you if you're saving seventy So when I
Speaker 1: initially signed up, it was eighty dollars a month, and
Speaker 1: then they just last month pumped it up to ninety,
Speaker 1: which was that kick in the pants that I was
Speaker 1: I needed to to totally destroy. Down to twenty bucks
Speaker 1: a month for Wicked speed fifty megs. Ye okay, that's
Speaker 1: pretty good, dude, that's how I roll. Man, that's got
Speaker 1: that locked in for a year a year, man, that's
Speaker 1: really good. I was gonna say for maybe six months.
Speaker 1: There's uh, not much better than just acting seventy dollars
Speaker 1: out of your monthly budget. Yeah, dude, that's huge and
Speaker 1: being able to reallocate it. So yeah, I'm pretty pumped
Speaker 1: about that right now. Beers on you for the next year. Yeah. Uh.
Speaker 1: Speaking of beers, we've been tailgating a little bit here,
Speaker 1: a little pregame a little pre podcast beer. Uh and
Speaker 1: a listener of the show, Austin thanks man. He uh
Speaker 1: he dropped these by my house the other week. And
Speaker 1: so we're drinking some wicked weed Lieutenant dank, which is
Speaker 1: a solid I p A. But don't worry, that's not
Speaker 1: the only beer we're having tonight. We're about to pop
Speaker 1: another one. No, yeah, that's just our that's our pregame beer.
Speaker 1: But real quick, you wanted to tell me about some
Speaker 1: razors you recently bought. Yeah, please fill me in. So
Speaker 1: the razors I didn't buy because my parents came and visited.
Speaker 1: And I don't do your parents show up with a
Speaker 1: box of crap from no night really, well they show
Speaker 1: from your childhood, uh, from your like in your closet
Speaker 1: or whatever. No, they just usually show up with presents
Speaker 1: for my daughters. So yeah, we are your parents. Awesome
Speaker 1: shout out. Yeah, I mean my things do that too. However,
Speaker 1: they're starting to clear out my room and so they
Speaker 1: show up every now and then with like a massive
Speaker 1: fruit box from Costco full of like books and just
Speaker 1: tons of other stuff. What do they like? Keep it
Speaker 1: the same? Kind of like Ray Finkel's mom or Na
Speaker 1: Sventure a pet Detective. I don't like I've ever watched
Speaker 1: a spintro all the way through. Man, shut Sorry, I'm
Speaker 1: not a huge Jim carry van. It's the best scene.
Speaker 1: His mom like leaves the room like the way it
Speaker 1: was when he was I've heard of people teenager and
Speaker 1: uh and a spincher walks into the room and it's
Speaker 1: just all creepy and stuff, and it's so I'm imagining
Speaker 1: that your Oh yeah, so I'm imagining that your mom
Speaker 1: kept the room in that exact way, and now she's
Speaker 1: starting to make some changes. Yeah. No, so yeah, they
Speaker 1: show up with a box full of stuff and they say, here,
Speaker 1: here's a bunch of your stuff. You can toss it
Speaker 1: or keep it whatever. And so I was going through
Speaker 1: one of the boxes recently and my razor handle, you know,
Speaker 1: like the metal aluminum handle and something. A little tray
Speaker 1: of razors were in there from when I was like
Speaker 1: sixteen years old. Man, from when I was in high school? Dude,
Speaker 1: can you're gonna start using that stuff? Do I look
Speaker 1: like freshly shaven? I don't see toilet paper all over
Speaker 1: your face? So exactly. So I saw it and I thought, well,
Speaker 1: first of all, the handle is like old school. It was.
Speaker 1: I think it was my dad's from like the eighties
Speaker 1: when I hit the big pie and started having to
Speaker 1: shape Uh. I think he just gave me his and
Speaker 1: he got a new one and so it's kind of cool.
Speaker 1: It's like they don't make him like that anymore. It's
Speaker 1: like solid and heavy. Yeah, but yeah, I was just
Speaker 1: like I popped one of the razors on there, and
Speaker 1: I was like, I think this is still sharp, And
Speaker 1: so I shaved last night. Dude, it looks good. But
Speaker 1: those razors are gonna ask me for like another two
Speaker 1: or three years because I don't have to shave very often,
Speaker 1: and it's way smoother than like shaving with kates like
Speaker 1: leg razors, which totally irritate my skin. What's the difference
Speaker 1: between male and female razors? Because I feel like men
Speaker 1: can't really use the women's razors that that they can.
Speaker 1: There's it's like a different angle or something. Is it
Speaker 1: the angle? Because Emily is trying to use my razors before,
Speaker 1: and you know, she gets cut up a little bit
Speaker 1: more and I've tried to use hers and just have
Speaker 1: a hard time with him. I don't know. Is it
Speaker 1: someone knows out there? And I know the internet let
Speaker 1: us know, Yeah, holler rat us. All I know is
Speaker 1: that it it felt way smoother and way better using
Speaker 1: that razor than using Kate's disposable. So and by the way,
Speaker 1: speaking of hollering at us, we just got an email
Speaker 1: from a listener in Western Australia, a Perth, Perth, Australia. Man,
Speaker 1: it's so awesome, dude, it's so fun. Uh. Probably my
Speaker 1: favorite part of doing this podcast, even above drinking the
Speaker 1: beer and hanging out with your well shaven face smooth,
Speaker 1: is getting emails. Is is hearing from the people that
Speaker 1: listen to the show. And that's a that's a lot
Speaker 1: of fun hearing people stories why they listen, what they're learning,
Speaker 1: and how they're implementing some of these strategies into their
Speaker 1: lives in order to reach their financial goals. Man, I yeah,
Speaker 1: I completely agree. Shout out to Craig he uh was Yeah,
Speaker 1: he shared with us some of the things that sort
Speaker 1: of resonated with him even on the other side of
Speaker 1: the world, and it just it's crazy, but it just
Speaker 1: makes it the world seems so small because there's people
Speaker 1: all over the world that shared the same values you
Speaker 1: do and and and enjoy the same things. And it
Speaker 1: makes you think that you could kind of get together
Speaker 1: even though you've never met, and have a great time.
Speaker 1: You know, It's like let's just get together and hang
Speaker 1: out all you people. Yeah, it seems like a small
Speaker 1: world until you jump on the airplane for that sixteen
Speaker 1: hour flight and then you're like, oh wait, that's a
Speaker 1: long way away. Uh. But was someone someone sounds spoiled? Man,
Speaker 1: I've never been to Australia. It was nice. Uh. But
Speaker 1: I will say to Craig, it's awesome. I love that.
Speaker 1: He told us that he listens to the podcast while
Speaker 1: riding his bike along the river. Yeah. Yeah, he was
Speaker 1: literally listening to our episode on y com Meeting will
Speaker 1: Kill You and he was listening to that one while
Speaker 1: he was biking home from work. That can't help but
Speaker 1: make you crack a smile, right, it's perfect. So alright, Matt.
Speaker 1: So today on the show, we're drinking Hopping Frog Infusion
Speaker 1: a coffee porter. So where did you get this? Because
Speaker 1: because I've never even heard of this brewery, Hopping Frog,
Speaker 1: so I will say, because of their branding is really bad.
Speaker 1: So the label is complete trash. I really don't like it.
Speaker 1: In the first time I ever had a Hopping Frog
Speaker 1: beer was when a friend shipping me one. They're based
Speaker 1: out of Ohio and they distribute now where we are,
Speaker 1: and so we have a little more access to them. So, actually,
Speaker 1: I got this beer on the discount rack at my
Speaker 1: local beer store. Dude, I need to go there. He's
Speaker 1: always putting the good stuff on the discount on the
Speaker 1: discount rat. Why is he? Why is he unloading these bears?
Speaker 1: He just wants to move them. I guess, yeah, yeah,
Speaker 1: I guess just beers that don't sell super well or
Speaker 1: that's put on the shelf for a little while longer.
Speaker 1: And so this one is a coffee porter with chocolate
Speaker 1: and peanut butter. And I don't know if you could
Speaker 1: tell right when we popped it, did your nostrils fill
Speaker 1: with peanut butter? Smells a little bit, not nearly like
Speaker 1: some of the bourbon barrel stuff that we have, but yeah,
Speaker 1: bourbons just a more powerful sent in general. But yeah,
Speaker 1: now that I've got my nose up in it full
Speaker 1: on chocolate, smell some of that coffee like a nuttiness. Yeah.
Speaker 1: So this is a porter, and porters are definitely a
Speaker 1: bit thinner in mouth field and viscosity than a stout,
Speaker 1: and this particular beer it retains a lot of that
Speaker 1: porter thinness, but it does have some really nice peanut
Speaker 1: butter notes, uh, and in a little bit of coffee
Speaker 1: in there as well, super nutty. Yeah, I completely agree. Man. Yeah,
Speaker 1: pour is a really dark brown as you're pouring it,
Speaker 1: but now that's here in the glass, it's like pitch black.
Speaker 1: But yeah, but it's thinner. It kind of wiggles around
Speaker 1: there in the glass, not like a thick barrel aged stout,
Speaker 1: and it feels a little bit enter in your mouth
Speaker 1: as well, a little easier to drink. Yeah. So I
Speaker 1: think it's a certainly a solid representation of the coffee porter.
Speaker 1: And you know, a couple of adjuncts in there, which
Speaker 1: just means additions like chocolate and peanut butter, and that
Speaker 1: kind of rounds it out and gives it, you know,
Speaker 1: a little more flavor, a little more interest. You know.
Speaker 1: Porters are not my go to. It's not something I
Speaker 1: usually enjoy, but even with their terrible labels, I always
Speaker 1: give Hopping Frog a chance, because man, they make some
Speaker 1: of the best stouts out there. I've had some really
Speaker 1: really good stuff from them before, and this one definitely
Speaker 1: worth a shot. It's solid, although not top tier in
Speaker 1: my opinion. Yeah. The fact that this is a porter though, too,
Speaker 1: it's makes it definitely easier to drink in the summer.
Speaker 1: You know, like some of those huge stylets, it's tough
Speaker 1: to drink those in the summer, like maybe once, like
Speaker 1: once the summer, or like once a month or something
Speaker 1: like that. You know. Yeah, when it's in the eighties
Speaker 1: and nineties, you don't want this giant, oily machine gloopy beer. Yeah,
Speaker 1: whereas this this still drinks it feels it feels light
Speaker 1: in your mouth, but it gives you those darker chocolate
Speaker 1: e listed flavors, so you kind of get that profile
Speaker 1: without getting weighed down by the heaviness of the of
Speaker 1: a boozy beer. I'm with you, not my favorite, but
Speaker 1: uh I dig it all right, Matt. So let's tackle
Speaker 1: the topic good debt versus bad debt, and I guess
Speaker 1: the ultimate question and the debate rages in the personal
Speaker 1: finance community. Is there such a thing as good debt? Yeah? Man,
Speaker 1: And for your listeners out there as well, I'm sure
Speaker 1: that's something you've heard of, right, Like you've heard plenty
Speaker 1: of people say that, oh, debt's bad. You want to
Speaker 1: try to avoid debt as much as possible, But then
Speaker 1: kind of the more you get into it and the
Speaker 1: more you maybe research, you start seeing folks saying, well,
Speaker 1: oh there's you know, there's maybe some good debt out there.
Speaker 1: There's some different rules. So we're gonna talk about this
Speaker 1: more generally, I guess, but we're gonna talk about the
Speaker 1: differences between what we would characterize as good debt and
Speaker 1: what we'd characterize as bad debt. Yeah, And I wonder
Speaker 1: if even good debt is the best term to use,
Speaker 1: just not awful debt maybe, right, And so I wouldn't
Speaker 1: say there's any debt that you that could be characterized
Speaker 1: as good where I would say, go get some of
Speaker 1: that debt right now. It's great. But yes, I agree,
Speaker 1: but at least it's not awful debt, right, So, and
Speaker 1: I think there is a big difference to be made.
Speaker 1: And then I think we can parse out some of
Speaker 1: the details of you know, debt that you should consider
Speaker 1: terrible debt that you need to attempt to eliminate as
Speaker 1: quickly as possible, and then other debts that you might
Speaker 1: be carrying that you can afford to pay the minimums on,
Speaker 1: or at least just afford to pay off a little
Speaker 1: more slowly over time. Yeah, man, that's good. Also a
Speaker 1: good way that maybe think about it is that debt
Speaker 1: and loans are tools, and they can be used poorly
Speaker 1: and unwisely, and that could take somebody further into debt
Speaker 1: and kind of on this downward cycle of spending and consumption.
Speaker 1: But at the same time, it went in the hands
Speaker 1: of somebody that knows what they're doing, right, that has
Speaker 1: the knowledge and experience and knows how to use the debt,
Speaker 1: how to leverage it, then perhaps that same product, like right,
Speaker 1: like that same loan or that same debt could could
Speaker 1: be very beneficial. Yeah, I mean, I think one good
Speaker 1: episode that we've done that kind of correlates to this
Speaker 1: is our episode on using credit cards like a pro. Yeah,
Speaker 1: the credit cards obviously our debt or their tools of debt.
Speaker 1: And so in the hands of one person, a credit
Speaker 1: card can be this awesome tool to get frequent flyer
Speaker 1: miles and like the sign of bonuses that's my favorite, yeah,
Speaker 1: Jet said, or get some awesome cash back bonuses and
Speaker 1: still never be accruing any interest at all. And then
Speaker 1: in the hands of someone else, they can be using
Speaker 1: it essentially to buy lifestyle and paying the minimums every
Speaker 1: month and essentially digging themselves in a bigger hole month
Speaker 1: after month after month because they don't know how to
Speaker 1: use it properly. So in the same way as we
Speaker 1: approach this episode, again, it's not necessarily good debt, but
Speaker 1: that's how we're gonna refer to it. And in the
Speaker 1: hands of one person it can be used wisely. In
Speaker 1: in the hands of another, it can be used for
Speaker 1: great harm. Yeah, man, that's right. So, generally speaking, good
Speaker 1: debt is borrowing money for something that will appreciate over
Speaker 1: time and so so an example of this definitely would
Speaker 1: be mortgages. Right, you buy a house or you know,
Speaker 1: you mortgage with the house, and over time you expect
Speaker 1: it to go up and value. Generally speaking, we would
Speaker 1: call that a good debt. Again, we don't want to
Speaker 1: put up this blanket statement because if someone hears that, oh,
Speaker 1: mortgage debt is a good debt, we don't want to
Speaker 1: encourage someone to go out and rack up a massive
Speaker 1: mortgage payment, right, because that might be bad for their situation.
Speaker 1: It just depends on the individual. But generally speaking, a
Speaker 1: mortgage is considered good debt. Yeah, So let's dig a
Speaker 1: little bit deeper into that map, especially in this interest
Speaker 1: rate environment, having a mortgage at a low interest rate,
Speaker 1: and many people out there listening that have a home
Speaker 1: with a mortgage are probably paying somewhere between three and
Speaker 1: a half and four and a half percent on that mortgage.
Speaker 1: Record lows for mortgage interest rates. Yeah, and so considering
Speaker 1: where rates are headed and the fact that you probably
Speaker 1: have something locked in for a long period of time,
Speaker 1: that makes it really smart to actually hold onto that
Speaker 1: low interest rate debt and use the surplus that you
Speaker 1: might have put towards paying it down more quickly into
Speaker 1: something that is even more beneficial. So something like you
Speaker 1: and I would say investing in more real estate, buying
Speaker 1: something that will also appreciate in value over time and
Speaker 1: provide cash flow every month. And if you're not interested
Speaker 1: in that, well, then putting more away in your retirement accounts,
Speaker 1: in your four o one K or your wrath Hi ray,
Speaker 1: those would be better uses of your extra funds to
Speaker 1: save for the future than to try and pay down
Speaker 1: your low interest rate mortgage more quickly. Yeah. And so
Speaker 1: basically what what you're describing is leveraging debt. And so essentially,
Speaker 1: when you have, say specifically a mortgage that's locked in
Speaker 1: at a low rate four percent these days, right around there.
Speaker 1: And if you can, say, make ten percent in the
Speaker 1: stock market, well you're you've got a spread of six percent.
Speaker 1: And so instead of taking your money and paying it
Speaker 1: down towards your mortgage, which is essentially and effectively gonna earn,
Speaker 1: earn you four percent, right, because if you're paying four
Speaker 1: percent and you're able to eliminate that mortgage, you're saving
Speaker 1: yourself four percents. You're making four percent um. Instead of
Speaker 1: doing that, you're gonna make six percent. But yeah, that's
Speaker 1: the general idea. Yeah, and I think that doesn't even
Speaker 1: take into account, you know, the potential tax implications where
Speaker 1: your home mortgage is tax deductible and your four percent
Speaker 1: interest rate is actually effectively much lower than that. And
Speaker 1: then on top of that, investing in the stock market
Speaker 1: in tax advantage accounts could save you money on taxes
Speaker 1: either now or in the future, and that creates an
Speaker 1: even greater spread. Yeah, it's like a double w amy
Speaker 1: where yeah, where the spreads even wider. Yea. So the
Speaker 1: main thing I would tell people to be cautious of
Speaker 1: is overleveraging themselves and taking on more debt than they
Speaker 1: can actually afford to pay off on a monthly basis.
Speaker 1: So it's not wise to take out low interest rate debt,
Speaker 1: even just for the purpose of trying to finagle a spread.
Speaker 1: And if the stock market experiences a prolonged trough, that
Speaker 1: could certainly create a lot of worry and a lot
Speaker 1: of sleepless nights for you. But I guess the main
Speaker 1: key here is if you have a mortgage that is
Speaker 1: at a low interest straight and you have extra cash
Speaker 1: to pay it off, is that the wisest use of
Speaker 1: your funds? Yeah? Man, So again this is how a
Speaker 1: mortgage can be considered a good debt. Uh. It makes
Speaker 1: sense if you're looking at it from a number standpoint, right,
Speaker 1: because if you're locked in to a lower rate, you
Speaker 1: can do a lot of other things with that money
Speaker 1: than paying down that low interest debt. It's tough to
Speaker 1: say these sort of general blanket statements of like mortgage
Speaker 1: debt is good, but generally speaking, you know, the numbers
Speaker 1: can make sense for you to maintain your mortgage and
Speaker 1: to not pay that off, and ultimately you're going to
Speaker 1: budget for a place to live every month, whether that's
Speaker 1: rent or a mortgage, right, And so the thing I
Speaker 1: want to warn people away from is from paying down
Speaker 1: low interest rate debt more quickly than they need to
Speaker 1: when their money could be allocated better elsewhere. That's right,
Speaker 1: I think, at least at this point in time where
Speaker 1: we're at with interest rates, Mortgages are just the perfect
Speaker 1: example of that. To have something that is locked in
Speaker 1: at such a low rate for such a long period
Speaker 1: of time, there's a good chance that as you earn
Speaker 1: more in your job or as you cut back your expenses,
Speaker 1: that those extra savings should go more towards appreciating assets
Speaker 1: or towards investing in the stock market than just towards
Speaker 1: servicing your debt at a faster rate. Yea man. So,
Speaker 1: in the end, good debt is borrowing for things that
Speaker 1: will go up and value. When you're locked into a
Speaker 1: low rate, that allows you to free up that money
Speaker 1: to then invest in other things that are going to
Speaker 1: earn more than what you're paying against that debt. So
Speaker 1: that's good debt, Joel, you want to talk something about
Speaker 1: bad debt, yeah, Matt, So, bad debt is essentially borrowing
Speaker 1: money to pay for something that depreciates and usually at
Speaker 1: a higher interest rate. For example, in our episode about cars,
Speaker 1: we said that taking out loans for an automobile is
Speaker 1: a terrible idea because of the rapid rate of depreciation, right,
Speaker 1: And so ultimately it's a bad debt because even though
Speaker 1: you might get a super low interest rate, it's just
Speaker 1: not smart to finance things that are going to depreciate
Speaker 1: that weekly. Yeah, man, that's right. It's just consumption, you know.
Speaker 1: Or oftentimes it's called consumer debt because literally you're just
Speaker 1: consuming it, like it's just something that you're eating. You're
Speaker 1: just like feeding your belly, and nothing ever comes of it,
Speaker 1: you know this, It's nothing that grows at all. Yeah.
Speaker 1: So other examples of that would be credit card debt,
Speaker 1: title loans, buying a boat, right or a jet ski. Uh,
Speaker 1: there are I don't think I hear anyone that ever
Speaker 1: is happy about buying a boat. You know, well they
Speaker 1: you know, they say that the best day two best
Speaker 1: days in your life for the days you bought the
Speaker 1: boat in the day you sold it, so in the
Speaker 1: day that it sinks right to collect the insurance check.
Speaker 1: But just like good debt can create a positive spread
Speaker 1: between the low interest rate debt and the higher interest
Speaker 1: rate you can earn on investing, bad debt does pretty
Speaker 1: much the exact opposite. And creates a gap of loss
Speaker 1: that you just can't overcome. A lot of times people
Speaker 1: think that they can take that money that they would
Speaker 1: have put down to paying for whatever that they're purchasing
Speaker 1: in cash, and instead of paying for that kind they think, oh,
Speaker 1: I can take this now and invest it. But what
Speaker 1: they're not really taking into account is that, well, first
Speaker 1: of all, you've got your interest payments on that, right,
Speaker 1: But then on top of that, you've got that rate
Speaker 1: of depreciation, and say specifically for a car, you're looking
Speaker 1: at close to a year in depreciation on a new vehicle.
Speaker 1: And so if you've got say I don't even know
Speaker 1: if this is a current interest rate for a car,
Speaker 1: but say you're paying five percent in a car and
Speaker 1: you're looking at fift and percent and depreciation, you're looking
Speaker 1: at needing to make at least in some investment in
Speaker 1: order to even break even, right, And that's really not possible.
Speaker 1: And anyone that's promising you that runaway, and exactly exactly,
Speaker 1: And so just keep in mind that what characterizes bad
Speaker 1: debt is borrowing for things that depreciate and value that
Speaker 1: ultimately will have no value and ultimately in the end
Speaker 1: make you poor. Yeah, And the tough thing is that
Speaker 1: in our culture right now, there's access to cheap debt
Speaker 1: for all sorts of things, and we can find ourselves
Speaker 1: paying monthly payments on a crazy variety of items. At
Speaker 1: this point. You can take out a loan for dental work,
Speaker 1: or a new air conditioner or a sofa. There's a
Speaker 1: million things out there right that you can quickly and
Speaker 1: easily take out a loan for. But with some thoughtfulness
Speaker 1: and discipline, you can avoid that consumer culture and that
Speaker 1: idea that taking on debt willy nilly for every little
Speaker 1: inconvenience that you encounter or every little thing that you
Speaker 1: consider buying, staying away from taking on debt just because
Speaker 1: it's cheap, I mean, that's just smart cool Joel. Yeah,
Speaker 1: So those are generally speaking, the kind of differences that
Speaker 1: you're going to see between good debt in between bad debt. Again,
Speaker 1: these are sort of relative terms, So we're a little
Speaker 1: hesitant to categorize some debt as always being good debt
Speaker 1: or categorizing some debt as always being bad, because so
Speaker 1: much of it depends on what you're gonna do with
Speaker 1: that money, right, you know, it's a tool, like it's
Speaker 1: not necessarily good or bad. It kind of depends on
Speaker 1: what you're going to do with that. And in the
Speaker 1: hands of a smart investor who knows what they're doing
Speaker 1: with their money, that can leads to more wealth for them,
Speaker 1: And on the coentrary and the hands of someone who
Speaker 1: is just using that sort of financing to basically finance
Speaker 1: their life to pay for a consumption and their lifestyle,
Speaker 1: that is not going to lead to more wealth. If
Speaker 1: you're considering taking on more debt, I want you to
Speaker 1: be skeptical, I want you to be wary, and I
Speaker 1: want you to be prudent. We're trying to cut through
Speaker 1: the nuances of debt and how it affects you, what's good,
Speaker 1: what's bad, and we're about to get into some more
Speaker 1: practical tips on on how you actually apply these principles. Ultimately,
Speaker 1: some of the debt that's in your life that you
Speaker 1: might be trying to pay down more quickly, you might
Speaker 1: want to hold off on paying down, but don't let
Speaker 1: this episode be an excuse to go out and take
Speaker 1: on debt that you don't need and that you can't
Speaker 1: afford right to pay for things that are going to
Speaker 1: depreciate in value and even if you're taking out debt
Speaker 1: to to buy something like a home or to go
Speaker 1: back and get something like a master's even on smarter
Speaker 1: debt choices like that, you're going to want to crunch
Speaker 1: the numbers and make sure that that purchase makes sense
Speaker 1: for you as an individual. Yeah, man, this is tricky, right,
Speaker 1: Like this is hard. It's it's kind of hard to
Speaker 1: talk about because yes, there are generally speaking things and
Speaker 1: products out there, right, tools that are good, and there
Speaker 1: are other products out there that are generally bad. But
Speaker 1: so much of this depends on the individual at the
Speaker 1: stage of life they're in. It's such a personal decision
Speaker 1: and so much of this comes down to the individual
Speaker 1: that Yeah, like Joel said, just be careful because even
Speaker 1: the smartest thing on paper for you as an individual
Speaker 1: could be terrible for your finances. Yeah, and just a
Speaker 1: quick example, I read this great article in the New
Speaker 1: York Times just last week about people that decided to
Speaker 1: go to college and take on student loans but then
Speaker 1: didn't finish college. And so most financial experts would say,
Speaker 1: taking on student loans to go to college, that's a
Speaker 1: wise debt to take on, right, But if you're not
Speaker 1: able to finish college. If you take on more loans
Speaker 1: than you can handle and you don't graduate and find
Speaker 1: a job in that profession, well, that decision to take
Speaker 1: out student loans for an education that you didn't finish
Speaker 1: well actually end up harming you more. Yeah. So that's
Speaker 1: why these debt decisions do come down to you as
Speaker 1: a person in so many ways. Chedel It's good that
Speaker 1: you mentioned student loans because that's an area where it's
Speaker 1: kind of gray, right, Like a lot of folks would
Speaker 1: say that, yes, this is a great thing. Like you said,
Speaker 1: a lot of financial advisors would say, certainly, this is
Speaker 1: going to increase potential earnings down the road. You know,
Speaker 1: it's ten years down the road, you're gonna make way
Speaker 1: more money. Well it could, you know. And and like
Speaker 1: you said, there's so many people that are getting saddle
Speaker 1: with tons of student loan debt. I mean it's in
Speaker 1: the trillions right now in the United States. Yeah, I mean,
Speaker 1: statistics bear out, Matt that if you get a college education,
Speaker 1: you will more than make your money back on that
Speaker 1: investment over the long term. A couple of the keys
Speaker 1: when you're thinking about taking out student loans are trying
Speaker 1: to keep them to a minimum and try to take
Speaker 1: out as much low interest rate student loan debt as
Speaker 1: you can and ultimately get a degree in something that
Speaker 1: interest you and that will actually help you in the
Speaker 1: real world. I think if you stick to those principles
Speaker 1: when you're taking out student loan debt, there's a really
Speaker 1: good likelihood that that is a smart decision for you. Yeah, man,
Speaker 1: that's a good word, Like, actually consider how much he
Speaker 1: might be making, right, It's sort of like, I mean,
Speaker 1: it's a business decision. It's like how much money am
Speaker 1: I willing to invest now? And what will the end
Speaker 1: profit potential be? Look at it that way. You know,
Speaker 1: if you're going into it from like an art history
Speaker 1: major standpoint, no offense to all the art history majors
Speaker 1: out there, but obscure Russian literature major, but know what
Speaker 1: the potentials are for that and treat it like a
Speaker 1: business because essentially it is. Because in the end, if
Speaker 1: you're stuck with loads of debt and you have a
Speaker 1: degree that doesn't earn you the type of income to
Speaker 1: make those payments, then you're gonna be in a world
Speaker 1: of hurt from a financial standpoint. Angel. So you just
Speaker 1: mentioned some practical tips for student loans you want to
Speaker 1: mention some other ones for folks. Ultimately, when you're considering
Speaker 1: what debts you want to pay down, the first thing
Speaker 1: you always have to be careful to do is to
Speaker 1: at least pay the minimums on every monthly payment of
Speaker 1: debt that you have. If you are late or you
Speaker 1: miss a payment for your credit card bill, your student
Speaker 1: loan payment, your mortgage, those things have consequences that can
Speaker 1: ultimately add interests and penalties to the debt you already have,
Speaker 1: and you don't want to be in that position. So
Speaker 1: paying the minimum on everything is the place to start. Yeah, man,
Speaker 1: that's right. Make sure that those minimum payments are met.
Speaker 1: That's the first thing. The next thing, though, if your
Speaker 1: employer is offering a company match towards your retirement savings,
Speaker 1: that is something you pretty much always want to continue
Speaker 1: to fund pretty much regardless of what your interest rates
Speaker 1: are on any other debt that you have. Right A
Speaker 1: lot of employers will match up to six percent of
Speaker 1: what you contribute. Some will even match a pent up
Speaker 1: to six percent. It's not as common, but I mean,
Speaker 1: you can't beat that fifty to on your money, even
Speaker 1: if you have the highest credit card debt. Hopefully, you're
Speaker 1: not paying anywhere near that would be insane. So even
Speaker 1: though it might feel you're under a high percentage rate,
Speaker 1: make sure that you're continuing to contribute to your four
Speaker 1: one K if your company is offering a match, before
Speaker 1: you start looking at pain down some of that high
Speaker 1: interest debt. Hopefully you don't have any high interest debt
Speaker 1: that is greater than if you do that, that's probably
Speaker 1: first in line, but hopefully that's not the case, so
Speaker 1: make sure you get that match. After that, the next
Speaker 1: step you'll want to take with extra funds that you
Speaker 1: have is to start paying down the highest interest rate debt,
Speaker 1: which is likely a credit card that you have in
Speaker 1: your life. Nice, So, Joel, I think a big question
Speaker 1: that folks would have then is to differentiate between what
Speaker 1: makes up a low interest payment versus like a high
Speaker 1: interest payment, like you said right, like a credit card
Speaker 1: that has a high percentage rate. What is that like?
Speaker 1: Where does that need to land before someone starts really
Speaker 1: attacking that high interest rate? Sure, I think there's a
Speaker 1: good kind of rule of thumb that people can work with,
Speaker 1: and I think the maybe line of demarcation is somewhere
Speaker 1: in that six eight percent range and between six and
Speaker 1: eight is kind of this gray area that you kind
Speaker 1: of have to exercise some wisdom on. But really, any
Speaker 1: debt that you have above an eight percent interest rate
Speaker 1: is debt that you want to be working to pay
Speaker 1: off as quickly as possible pretty seriously. Yeah, and so
Speaker 1: in particular, the highest interest rate debt that you have first.
Speaker 1: So example, you have three credit cards, each with balances
Speaker 1: of four thousand dollars for a total of twelve dollars
Speaker 1: in debt, and one credit card has an interest rate
Speaker 1: of another has an interest rate of nineteen percent, and
Speaker 1: the other one has an interest rate of twelve percent
Speaker 1: because it's with a credit union. Um, it's such a nerd. Ultimately,
Speaker 1: you're gonna want to start paying off the first, paying
Speaker 1: the minimums on the nineteen and the fourteen. Once you
Speaker 1: get the percent credit card paid off, you'll move on
Speaker 1: to the nineteen percent credit card and and funnel as
Speaker 1: much extra money as you can towards that debt until
Speaker 1: you pay that off while paying them in on the
Speaker 1: fourteen percent credit card, and then you'll move on to
Speaker 1: the fourteen percent paying that off as quickly as possible.
Speaker 1: But any debts that you have kind of below that
Speaker 1: six eight percent rate, Those are going to be debts
Speaker 1: that you're going to want to continue to pay just
Speaker 1: the minimum amount on. So if in addition to those
Speaker 1: credit cards, you have a mortgage and student loans that
Speaker 1: are both below five or six percent, you don't even
Speaker 1: think about starting to pay those down more quickly until
Speaker 1: you've eliminated all of that credit card debt. Yeah, man, certainly,
Speaker 1: and that could even be considered good debt. Right Like
Speaker 1: those mortgages and the different payments that you have at
Speaker 1: say four or five like, those are the rates where
Speaker 1: you might say, you know what, I'm just gonna pay
Speaker 1: this out to the end of the term, you know,
Speaker 1: as agreed upon, because I know that I can take
Speaker 1: that money instead of paying that down and invest that elsewhere.
Speaker 1: So specific example, in my life, Matt, I have a
Speaker 1: home mortgage at three point seven five percent for a
Speaker 1: thirty year term, and on top of that, the interest
Speaker 1: that I pay on that mortgage is tax deductible, which
Speaker 1: makes my effective rate even lower than that. So if
Speaker 1: I have four dollars extra a month, well, there's no
Speaker 1: reason for me to pay down my mortgage more quickly.
Speaker 1: I'd rather take that money and funnel it into my
Speaker 1: four oh one k at work, essentially saving more for
Speaker 1: my future and at the same time creating even more
Speaker 1: tax advantages for myself. Yeah. Or taking that money and
Speaker 1: putting that towards a down payment maybe on another property
Speaker 1: that is going to be an investment, right, And so
Speaker 1: that's what's so important and what's so key in this
Speaker 1: in this situation is that if you take that additional money,
Speaker 1: you need to invest it. Because if you instead just
Speaker 1: take that additional money and you eat it, like you
Speaker 1: put that to what your lifestyle, than from a number standpoint,
Speaker 1: that extra fours would be better spent paying down that
Speaker 1: three point seven mortgage because at least in that case
Speaker 1: you'd be earning almost four percent. That's the biggest difference
Speaker 1: is that you need to be disciplined and you kind
Speaker 1: of need to know yourself. Let's follow off my example
Speaker 1: and say I had an extra four dollars a month,
Speaker 1: but instead of putting it towards four oh one k
Speaker 1: or towards another investment property, I was setting it aside
Speaker 1: in a Bank of America checking account, earning an annual
Speaker 1: rate of return of point zero one oh, you mean
Speaker 1: basically zero. That is a terrible idea, and my money
Speaker 1: would be put to much better use paying down that
Speaker 1: mortgage more quickly. You would at least be making close
Speaker 1: to four percent in that example, and I also wouldn't
Speaker 1: be paying taxes on the eight cents I would earn
Speaker 1: throughout the year right on that checking account with the
Speaker 1: big bank Yemen. On that note, I think it's worth mentioning,
Speaker 1: uh that, instead of putting it in the Bank of
Speaker 1: America checking account where it's earning basically zero percent. Mentioning
Speaker 1: the money market account that even using recently, right the
Speaker 1: c I T money market account. Yeah, and when I
Speaker 1: signed up for it, the rate was one point seven
Speaker 1: five and they've already bumped it up again to one
Speaker 1: point eight five, which is kind of unheard of these days.
Speaker 1: But yeah, that's awesome. So if you want to know
Speaker 1: more about that, check out the article on our site
Speaker 1: Poor Not Poor dot com. Yeah, you should easily be
Speaker 1: able to find the article on our website, but if not,
Speaker 1: just search c I T in the search bar. Yeah.
Speaker 1: Mat So, when it comes down to that order of
Speaker 1: paying off debt, you know, some people decide that they're
Speaker 1: going to pay off their mortgage as quickly as possible,
Speaker 1: even though it's what we would consider to be good debt. Yeah,
Speaker 1: for some folks, it seems like it kind of weighs
Speaker 1: on them, you know, like they can't sort of stomach it,
Speaker 1: Like in their heads, it's like this big, terrible thing.
Speaker 1: But what we're trying to encourage folks to do is
Speaker 1: to think about it, because in reality, keeping that debt
Speaker 1: around might be much smarter from a financial standpoint. We
Speaker 1: can't speak to the emotions of it, because I mean,
Speaker 1: ideally we want you to try to remove your emotions
Speaker 1: from the situation and truly just look at the numbers
Speaker 1: and to think, Okay, what does this actually mean if
Speaker 1: I were to keep this debt around, what could I
Speaker 1: actually do without money? Instead, there's a natural sort of
Speaker 1: tendency to try to avoid debt because generally speaking, that's
Speaker 1: good advice, Like I don't want to discount in one
Speaker 1: that says, oh, yeah, you should pay off your debts,
Speaker 1: because for a lot of folks out there in the
Speaker 1: world today, that might be what they need to do.
Speaker 1: But if you kind of want to take it to
Speaker 1: the next level, and that's what we're here talking about,
Speaker 1: look at the numbers and actually consider what you could
Speaker 1: do with that money instead of paying down that low
Speaker 1: interest debt man. And I think another argument that a
Speaker 1: lot of folks have for wanting to just go ahead
Speaker 1: and be done with debt and paying it down is
Speaker 1: because they want to simplify even what we might consider
Speaker 1: to be a good debt, right like a mortgage. They say, Oh,
Speaker 1: I just want to kind of simplified where I don't
Speaker 1: have to worry about it. Well, you know, if it's
Speaker 1: on auto pay, you don't really have to think about
Speaker 1: it like it's it's getting drafted every month, you know
Speaker 1: the amount. It's not like it's going to be a surprise.
Speaker 1: And then again, you can decide what you want to
Speaker 1: do with that additional money. It doesn't have to necessarily
Speaker 1: be a super complicated thing. You can just invest it
Speaker 1: in the market, fairly simple. I think when people say
Speaker 1: that they want to simplify their life from a financial standpoint,
Speaker 1: I just think that argument is overused. So, yeah, if
Speaker 1: you are already in debt, don't be in a rush
Speaker 1: to pay that off necessarily. Yeah, I remember the rule
Speaker 1: of thumb six percent. It's kind of a good figure
Speaker 1: to go off of, and debts that you have that
Speaker 1: are a lot higher than that, Well, those are debts
Speaker 1: you're gonna want to tackle more quickly. Non variable interest
Speaker 1: rate debts that you have below that six percent line, well,
Speaker 1: those are debts that you can afford just to pay
Speaker 1: as agreed over time. But if you're considering taking on
Speaker 1: new debt, here's a couple of things to consider. Try
Speaker 1: and keep your debt to a minimum and make sure
Speaker 1: that your debt to income ratio doesn't get out of whack. Ultimately,
Speaker 1: you want to be really really careful to shop around
Speaker 1: for the best rates and find banks who are keeping
Speaker 1: costs down. Make sure to compare lots of different options
Speaker 1: when you're financing a home. Whatever you can do to
Speaker 1: lower the rates and carrying costs of your debt is
Speaker 1: pretty much always a good thing, Dude. I feel like
Speaker 1: that's something that you are actually really good at. I
Speaker 1: think you always end up shopping in around a bunch,
Speaker 1: and I think that a lot of people don't do that,
Speaker 1: and they kind of just go with the very first
Speaker 1: bank that they call, or you know, like the first
Speaker 1: mortgage mortgage lender that they're real to recommends because they're like, oh, yeah,
Speaker 1: I talk to so and so. They do they do
Speaker 1: great work and then they end up paying half a
Speaker 1: point higher and the closing costs are a lot more. Yeah,
Speaker 1: shop it around. That's that's that's huge. Yeah, and that
Speaker 1: could end up meaning hundreds or more than a thousand
Speaker 1: dollars on the day of closing, and then they could
Speaker 1: end up meaning tens of thousands of dollars over the
Speaker 1: life of your mortgage easily. All right, Matt. Back to
Speaker 1: the beer, Hopping Frog's Infusion A coffee porter. Wait, what's
Speaker 1: called infusion A as in like A like Canadian A.
Speaker 1: I wish no, just the letter oh, as in like
Speaker 1: this is infusion A and there's an infusion be yep, okay, sweet,
Speaker 1: have you had an Infusion B or ce? No? But
Speaker 1: if Hopping Frog wants to send us some, we'll totally
Speaker 1: take it. Yeah, man, I don't want to put too
Speaker 1: much weight on a brewery's labeling and like they're they're braining,
Speaker 1: But I gotta be honest, not my favorite at all.
Speaker 1: That being said, the beer is really good though. Yeah.
Speaker 1: Even though porters aren't necessarily one of my favorite styles,
Speaker 1: this is really nice. It's got that kind of peanut
Speaker 1: butter chocolate coffee almost has like a recist cup kind
Speaker 1: of quality, very nice like that. Even though the mouth
Speaker 1: feel is a little bit thin, it's still a kind
Speaker 1: of fun beer to drink. Yeah, I think for a
Speaker 1: lot of folks out there that aren't drawn to the
Speaker 1: hobby sort of bitter I p a S that they've
Speaker 1: had out there. If you know you don't like I
Speaker 1: PA s, then porters are are definitely kind of the
Speaker 1: porters and stouts or beers you want to try and yeah,
Speaker 1: look this one up. This might be one that you
Speaker 1: find yourself drawn to. Let's go ahead and do a
Speaker 1: wrap up first, we want to challenge you listeners to
Speaker 1: not blindly pay off debt. Specifically, don't blindly pay off
Speaker 1: low interest debt that you have locked in at that
Speaker 1: low rate. That's right, there's such a thing as good debt,
Speaker 1: like mortgages and student loans that are typically borrowed at
Speaker 1: pretty low interest rates and are actually creating value in
Speaker 1: your life at the same time, and then contrary to
Speaker 1: that is bad debt. So typically this is debt where
Speaker 1: you're borrowing money to pay for something that depreciates. And
Speaker 1: essentially what this is is consumer debt. This is stuff
Speaker 1: that you are just consuming, you're using it to pad
Speaker 1: your lifestyle. It is not growing and is not increasing
Speaker 1: your wealth. This is the kind of debt that you
Speaker 1: want to avoid at all costs. Yeah. Ultimately, debt is
Speaker 1: kind of like a tool, and it can be used
Speaker 1: really well or really poorly. Take student loans for an example,
Speaker 1: and students can kind of fall on that fence. Right.
Speaker 1: You can definitely be good, right, and it can also
Speaker 1: be really bad for someone that doesn't have a plan. Yeah.
Speaker 1: Just like ice cream is good, if you have three
Speaker 1: cartons of it, it's pretty bad, right, And same thing
Speaker 1: with with student loans. If you're judicious about the amount
Speaker 1: of student loans that you take out and to benefit
Speaker 1: the ultimately receive from having that college degree translates well
Speaker 1: into the workforce, well then bam, you just made a
Speaker 1: great debt decision. But just make sure that you're wielding
Speaker 1: that debt tool thoughtfully. Yeah, man, that's right. So a
Speaker 1: good rule of thumb then for folks if you're considering
Speaker 1: paying down debt is if you have any debt that
Speaker 1: is below six percent, you want to think twice about
Speaker 1: paying that that down. That might be debt that would
Speaker 1: be considered good that you could keep around where you
Speaker 1: could use any additional money that you have an intead
Speaker 1: of paying that down to instead invest, And that's what's key.
Speaker 1: You want to invest that additional money. Yeah, but if
Speaker 1: you've got debts with higher interest rates above that six
Speaker 1: percent line of demarcation, you're gonna want to go hard
Speaker 1: at those things. Yes, So create a strategy, a plan
Speaker 1: of attack to get rid of those super high interest
Speaker 1: rate debts first and as quickly as possible. But conversely,
Speaker 1: don't be in a rush to pay off that fixed rate,
Speaker 1: low interest debt because there's a strong likelihood that you
Speaker 1: could be putting your money to work for you in
Speaker 1: places that will earn you a better return a few
Speaker 1: matt That's what This one is A tough one, right, dude.
Speaker 1: Not the easiest topic to discuss because so much of
Speaker 1: this comes down to the individual. It's hard to say
Speaker 1: that there are hard and fast rules for calling certain
Speaker 1: debt bad and certain debt good. You need to know yourself,
Speaker 1: You need to know if you are actually going to
Speaker 1: invest or not. Yeah. That being said, I think we
Speaker 1: gave some really good general principles for people to follow.
Speaker 1: And if you're gonna put that money aside and savings account, dude,
Speaker 1: better to pay down even the three and a half
Speaker 1: percent rate mortgage than just stashing it in a savings account,
Speaker 1: earning you next to nothing. Yeah, you may as well
Speaker 1: just bury it in the ground, which is a bad idea,
Speaker 1: or under your mattress, right, it's just as bad. Thanks
Speaker 1: everyone for listening. Our home on the web is how
Speaker 1: to money dot com. We'll have shown notes up there
Speaker 1: for this episode. Yea, and if you like what you hear,
Speaker 1: please review and subscribe us on Apple Podcasts or on
Speaker 1: cast Box. Cheers, Buddy, Cheers Man, best Friends Out, Best
Speaker 1: Friends Out,