Debt is not a good thing for you, but it is for the lenders.
It seems that most of the media and internet ads are touting more debt, mortgage cash outs, reverse mortgages, cash back credit cards, etc. Credit card companies spend billions to get you in more debt than you already are. (I’ll call them the credit pushers) Colleges sell you degrees for obscene amounts of student loan debt.
We have become a nation of debtors. The age group 55-64 has an average household debt of over $ 108,000. This was based on a 2016 study, so it’s probably higher today. Are you planning to retire anytime this next decade? If so, this number needs to be reduced drastically.
Yes, mortgage debt is probably a large part of this number (average means half of those surveyed owed MORE than that amount) According to Social Security Administration the average benefit was $ 1,461 per person in 2019. So, for the average couple with $ 2,800 in total Social Security benefits servicing that average debt plus current living expenses must be daunting.
Many of you had grandparents who warned you about debt. Most likely they’re gone, so here I am to fill the void. FICO was created to protect the banks and lenders from YOU. It ensures no independent loan decisions are made anymore. In the past if you messed up your credit you could usually find a car loan or mortgage based on your overall honesty and history, ignoring one bad decision. That’s all gone.
You now have little or no chance to repair your credit after a downturn in less than 7-10 years. Even if you don’t go bankrupt it’s difficult to start over. So, what’s the answer?
1. Don’t get on the debt train in college. The students are prime candidates for the credit-pushers. Besides being indoctrinated for 12 years at primary school that you must go to Harvard and pay $ 80,000 year for the privilege, the credit card sharks are at every football game, or gathering selling you the first credit card. Don’t do it. Go to community college if necessary and stay in-state and pay as you go. If it takes 6 years to graduate, fine.
2. Don’t buy a house for the tax benefit. It’s insignificant these days. Rentals are overbuilt all over the US, and it’s a “buyers- market” to be a tenant.
3. Buy a used car. A 3-year-old car is probably 50% of a new one, and in many cases has long term warranties to protect you. Pay cash if you can, take only a 3- year loan otherwise. So, buy what you can afford to pay off in 3 years.
4. Don’t use retail credit cards, especially the “no-interest for 3- year type.” It’s a total trap. Once you miss one of those $ 10 payments, interest accrues retroactively, and the dreaded FICO score will drop by 50 points.
5. If you have a current mortgage, paying a couple of hundred dollars a month against the principal; this will probably save you years of payments and maybe $ 100,000 in interest over a 30-year loan.
