Episode-1522- Debt, The Good, The Bad and The Evil — 40 Comments

  1. I argue that it is reasonable to carry some debt load as long as it is in fixed rate instruments, and as long as you always maintain the ability to pay the debt on short notice. What happens to fixed rate debt instruments during inflation? The financing institution gets paid with fiat currency that has declining value per unit of currency.

    What if you maintained your ability to pay the debt in both fiat currency as well as in a form other than fiat currency, such as silver or gold? If an accelerated inflation event happens, and you have silver and/or gold, your ability to pay off your fixed rate debt obligations improves proportional to the degree of inflation. If accelerated inflation does not occur, you pay off your debt obligations as normal using fiat currency.

    • If you are trying to make that into an argument there is no way you listened to this podcast first.

  2. Hour long show….. about debt…….tell me you’ve done it in the car for the full retro TSP experience!

    Looking forward to it.

  3. Thanks for the show. I always love shows like this. Because I am always thinking about debit. I HATE bills. HATE them. Maybe that is because we have been homeless and jobless to many times. Boy have I made mistakes. Stupid stupid mistakes. At the time I didn’t think it was that big of a deal. My attitude was we are always careful. Never taking on more debit than one of hubby’s pay checks. Always saving something every month even if it’s $5.00. Here is something that I never really thought about way back then. Boy do I now. Not only do I run numbers to see if it makes sense but I also run the age factor. How old will I be when I make the last payment?

    If you are in your 20’s can you picture yourself being 30 or 40? Do you know where you will be at that age. Do you view people that are 40 as old or at least older? What about in your 50’s looking at someone who is in their 70’s 80’s 90’s. That’s what I look at now Holy crap that is old. Do I really want to pay on this debit for that many years? If I can’t picture myself at that age I no way want to carry debit for that long.

    OMG how many times have I bought stuff that I know we NEEDED on a credit card. 3 yrs 5 yrs later you have a credit card bill you pay every month yet you don’t have ANY of the things that you so desperately NEEDED. In fact you would be hard pressed to even list off any thing that you bought. Young and dumb.

    Can you make the payment easily? Very important question. Yes we could make payments easily. Yes we had a savings. No not that much debit compared to others don’t worry is what we were told. Yeah A car accident then several illnesses a lay off a strike later boom boom boom. We could have easily lost our home had we followed others advice and bought the house we were told we could afford. Live below your means.

    Sooner or later the debit comes due and you have to pay the piper. Glad I woke up yrs ago. We have not had a car payment in 15 yrs no cc debit in 12 yrs the house is almost paid for We could pay it off today but choose to carry the very low payment @ 3%. The tractor interest free for 5 yrs again we could pay that off. Low payment I will use their money. At least for 3 yrs. Plus I know I could sell it for more than I owe on it. It feels good It feels great. I have been on the DOWN in DEBIT side and in 1-2 yrs will be on the other side. Then the hard part not ever going back.

  4. One thing I’ve done is make use of some 0% financing for 18 months type of deal when buying something from a store. I’m already at Home Depot or other store, ready to pay for the very necessary riding lawnmower or snow blower using a CC that I always (and I mean always, as in F’ing always ever since I was in college in the 80’s) pay off in full when the bill arrives. Then they tell me “Hey if you put it on the Home Depot card, you have no interest for 18 months. “Well sure, why not”… I have the money in the checking account to pay in full at a moment’s notice anyway, and this gets me free float at their expense. I fully understand that if it is not paid in full in those 18 months, or I miss a payment, they immediately charge back interest all the way to the beginning at like 29%. They’re hoping this happens. But, my discipline is high and has never failed.

    Although, there was one time they put the store financing through Wells Fargo. Wow. I mean wow. What a bunch of flaming ‘tards. The Wells Fargo web site provided no way to pay online, or find out what the monthly payment is or when it is due, requiring I hand write out envelopes and mail in checks like it was the 70’s. That was more than I was willing to put up with so I paid that whole thing all at once just to get away from those idiots who have not heard of a modern web site.

    Anyway, great show Jack!

    • That’s what I did for my new Snowblower, 18 months 0%, so I set up automatic bill payments pro-rated and increased the amount so it would be paid in 17 months. And given the fact that I am digging out from 35″ of snow in one storm, glad I did

    • I did the same thing with an air compressor for my shop. Turned out the financing went through Wells Fargo as well, and OMG what a problem that was. It was obvious what they were trying to do, and why they were trying to do it, so I paid it off ASAP. I can’t afford the time to sit there and argue with them about a bill that’s past due on the 11th, when the envelope for the bill was post marked on the 13th, and there’s no way to pay online.
      Absolutely Ridiculous! But, not my problem anymore.

  5. Great episode. I am going on 9 years with zero credit card debt as I have no cards. Cars are paid off and whittling away at the mortgage with extra payments to the principal on a 15 year fixed. My wife said I should get a card to keep my credit up. I might just do what you said, Jack. I’m trying to think of something that I would want to buy that I would normally pay cash for. Love “have your dog take a shit on it” so much I may make TSP t-shirts with that on it. Jack, that should be in the TSP gear shop.

  6. I like listening to Dave Ramsey, whom I respect deeply, but it is also nice to get an “other side of the coin” perspective. Thanks for that, Jack.

    I’ve had good luck with for tracking my credit. It is actually free (they have ads and suggested services that pay for the site) and is way better than the annual credit report joke sites. Figured I’d pass that along in case anyone is hoping to lightly monitor their credit activity with a legitimate service for free.

    • Ramsey is a good guy but one dimensional that sadly tries to be two dimensional.

      Ramsey on debt gets an A not an A plus but a damn solid, 4.0 GPA, A.

      Ramsey on investing gets a D-

      If you want to eliminate debt listen to Dave. On investing if you listen to him you will have 100% of your wealth at risk of extreme loss at all times with zero plan B. It might work out, but it also very well might not, and it is NOT the way to invest.

      FWIW Dave and I were more in sync on Debt in 2008. His advice was A+ back then. Again he still gets an A.

  7. Jack you may want to mention in your keep a zero balance strategies(auto-pay, etc) the importance of making sure that the credit accounts are not reporting a 0 balance to the bureaus. You want to pay off the account each month after they’ve reported something greater than 0 to the bureaus. Otherwise it’s pointless. Here’s a quote from a link explaining it better:

    “If your reported credit utilization is consistently 0 percent, lenders who pull your information may not feel confident that you’re able to borrow and repay money because your credit report doesn’t show that you have been.
    So when you’re paying back your full credit card balances every month, it is valuable to keep track of when your lender generally reports to the credit bureaus. By doing this, you can make a point to have a balance at the time they report. This helps ensure that you get your due credit for responsible, interest-free, month-to-month borrowing. ”


  8. I never understood the being married with separate checking accounts either Jack. My wife and I have multiple friends who follow that practice. One in particular have certain bills that they pay out of their pay checks that the other person had no clue what the payments are. The husband gives the wife a payment each month since she pays the mortgage payment. She calls it her “allowance.”

    No way to budget, the other person doesn’t even know what the other is paying! To each their own I guess.

  9. Good debt: borrowing money at .01% to invest in treasury bonds, which basically give you a guaranteed return with a nice spread OH WAIT we’re not investment banks never mind.

    Something more applicable, I bet you $20 I can’t think of a 100% risk free legit practical use for a credit card. No bs. (Yes I already thought of it, it’s… using it as a frost scraper for your car windshield!)

    Awesome show by the way, I lovr technical things involving money. “Debt is a tool” seems like such a blindingly obvious concept to me, but maybe that’s because I have almost no emotion tied to buying shit.

  10. What we do is every monday I do all of the accounting for the previous week. All receipts are entered and all expenses are recorded. I then pay off our credit cards that we use. We’re building credit, credit limits, and using it for the “perks”. (2% cashback for example).

    I will also say having dedicated cards for different accounts and purchases has drastically increased the simplicity of keeping the books. (Seems contrary to what you’d think, but its easier to keep track of multiple small accounts, rather than very long single or double accounts).

    • I have no issues with that actually. I present it some what Nazi like so that people if they back up from my line still end up say where you are.

      • I definitely understand what you’re saying. I think this episode has probably been needed for awhile now.

        I think what helped me out the most is just getting a really wide scope of how people are using debt so I could make my own determinations. Debt is a tool, which has concequences and rules of use. Sometime’s it makes sense, and other times it doesn’t.

        There is a reason why businesses try to get investors over bank funding. Debt can increase the difficult at which a business decision is sound or not. Reading Sam Walton’s auto-biography definitely showed the light on that to me. They reached a point where they were so leveraged and had maxed out every bit of credit they had, that they could no longer open stores at the break neck rate that they needed/wanted to, eventually going to the open traded stock option. They paid off every debt in the company, and with all the crippling debt wiped away, they could get back to work.

        Debt is what it is. Somebody else’s capital provided to you, with the intent that you make enough capital back, plus extra for the time that you’ve held up that capital.

      • What are your thoughts on using debt as a way to hold and maintain cash capital reserves? Effectively trading interest expenses for maintaining a higher than usual cash on hand?

        I developed a process of paying off my student loans effectively doing that (granted its kind of an inverse scenario). I could pay anything and everything each month, but instead, I would build up my bank account for 4 months, and then at the end of 4 months commit the large payment. During that 4 months it built up breathing room so that if I needed to use that money elsewhere, no harm no foul.

        • I meant to say that my example was a rapid debt payoff with a “backup fund” process, but my question relates basically to using credit for something you could pay for with cash, but you’d rather save your cash for “savings”. You’d effectively consider interest the “cost of keeping your money and using somebody elses”.

        • If it’s credit card debt, I’d just pay cash. There’s no difference between $1000 reserve cash plus (-) $400 credit card debt, and just $600 cash plus $400 in potential credit card spending ability.
          Unless we’re talking physical cash, which can be used in some situations credit card can’t. Like a power outage.

          I do see the value in using other less “liquid” forms of debt (like the easy finance couch- but why are you buying a brand new couch that costs that much?) to keep from taking the hit in your cash reserves, if you value having cash on hand.

          But then again, if you ever need the cash on hand, you probably aren’t in a situation where you wanna be paying loans like that.

          Actually, I’d totally rather have little cash on hand and no liabilities than need to be paying back a loan when I’m in a situation requiring the use of my emergency funds, because you’ll be paying those payments back anyways. I mean unless you want to quit paying your payments and take that hit to your credit, which I try to avoid.

          So yeah I’d say no on that idea. Unless it’s just spare cash not emergency cash, then it’s up to you whether the liquidity is worth the interest.

          Remember net worth is cash minus debt, so there’s no technical advantage unless you view debt payments as optional.

          (I’d never do it)

        • @Unentitled

          I definitely don’t mean buying a couch. My family is waaaaay more practical than that. We still have a couch my wife got for 80 bucks while in college. Same goes for our “entertainment center”.

          I actually mean things of much larger value 8k-15k. I can pay all my bills for awhile with that kind of money. So if I bought lets say a tractor, if I bought it on credit rather than buying with cash.

          The same actually could be said for a car as well. (whether new or used). I just tend to think that having cash and debt is better than having no cash and no debt. Cash has (more or less) no counter party risk and has just about unlimited options for its use, whereas everything else is on some continuum of “cash equivalent”.

          And of course I mean debt that as of right now, and in the future, seems likely that you can shed. I specifically targeted my student loans because of their unlimited liability nature. (Can’t shed, and they were adjustable rates)

        • Right now we have a specific segment of savings that is being accrued to buy, you guessed it a couch. Sectional more likely. We don’t like what we have and want something nicer. There is nothing impractical about that. We also have a segment of savings being saved up to put about a 15K upgrade into our kitchen. I want a greenhouse that in total will cost 3-4K.

          Each has money being accrued to acquire it. Every dollar that goes to the kitchen segment, doesn’t go to the greenhouse or the couch fund. Every dollar saved beyond retirement, we look at and say, which of these things do we want first.

          Right now it is


          Since the cost order is


          It takes discipline! I say that is practical.

          Something may be I should have worked into this show, most of these credit building tactics.

          1. Buy couch on credit
          2. Pay of couch with credit card
          3. Pay card off with cash

          Are absolutely not how I do things, my credit card is used to rent a car and perhaps anything else I need to reserve or arrange over the phone should the day come when my debit card isn’t accepted.

          But it is easy for me to say, you don’t need a credit card. I sit here with years of solid income, having bought and sold 6 houses and now having purchased and lived in a 7th for going on the third year. A credit score that was like 830 or some shit when I helped the boy lease his car, etc. I honestly don’t need a card other than for my car rentals as I said.

          What about the 22 year old kid that wants to save and buy his first house by 25 the way I did? How does he get to where I am? Unless he is going to save about 60% of his down payment by then, he is going to have to build credit and do so smartly to avoid the traps that come with it.

        • @Jack

          My practicality statement was more directed towards you only have so much money (lets say less than 3-6 months of capital) and you’re looking at making purchases. I should have stated more clearly that one’s personal capital is only of such size.

          In my opinion if we’re talking about purchasing things that make one more productive, create value, and build a business debt makes more sense than savings in many scenarios (of course I’m speaking about people who have a mind for what they’re doing, not just borrow just because). Debt for anything other than that is just a methodology to pay more for things and getting into trouble. But just like you said, its about running the numbers, and before obligating yourself, perhaps looking around and seeing what all your options are may be better.

          Really that’s the whole real reason we have a banking system to begin with. Obviously there are other techniques such as getting investors, etc which is more an equity situation, which has its pros and cons along with debt. (I am in the process of doing both right now).

          Insidious is taking a break from commenting on the blog otherwise I know he’d be here commenting now about this. He’s had to remind me over and over and over to look around at my all my resource base and use those resources. He kept calling it the “rugged individual” mindset, which is actually a very appropriate way of calling it. Debt and access to finance is one resource, Friends and family are another. Now I’ve started teaming up with people and putting together plans where we start to rely on each other a bit more. Instead of buying a tractor, I may just lease/borrow it from a friend when I need it.

          The cases you described I think are actually a great use for saving money however.

          For me at this point, using debt for anything other than to “getting access to capital” should be limited towards credit building. Which really is for the sole purpose of getting access to capital. So then one has to ask why do I need access to capital, particularly RIGHT now. (Rather than waiting). If you have a plan, or a vision, don’t wait go!

          In fact if you’re not even saying the phrase “getting access to capital” when talking about using credit you’re probably already headed down bad then to evil….

        • I think we agree, I am just pointing out that for the young crowd buying with cash funneled though the system is becoming necessary if they ever dream of owning a home or land.

        • “Insidious is taking a break from commenting on the blog”

          I knew something was missing around here!

  11. We have been out of debt now for the past 12 years. I can’t tell you how good it is to not have those payments, to be able to save, to not be tied to a job you hate because you have a mortgage and/or car payment…

    While I agree with you completely that there are “good debts”, I also think (and I admit that I am guilty!) that it’s very easy when one gets excited about something – an investment or whatever – to have one’s judgment clouded by emotion. We have instituted a “cooling off period” whenever we consider any large expenditure. The time period varies based upon the amount of money involved. More often than not after that cooling period we’ve found that what we were all hot to trot about wasn’t so hot after all. Sometimes we’ve found that the in the time spent meditating on whether or not to make the purchase we’ve actually saved enough to buy it with cash and avoid the debt altogether.

    Another pitfall to watch out for is what I call “little crap overload”; that is, since you have the money (because you’re out of debt) you blow small amounts on stuff that you wouldn’t even consider if the budget was tighter. “Oh, it’s only $20…”. Pretty soon $20 here and $20 there and you’ve blown a lot of cash with nothing to show for it. Don’t ask how I made that observation. ;-D

    • @In the Aspens,

      Every major purchase in the past 15 years Dorothy and I made required at least two trips to look at it and then a third trip to buy it, or four discussions if it was online an over say 1,000 dollars.

      In that time we only made one big purchase without doing that, it was the RV, we regretted buying it.

      To be fair we had looked at RVs for YEARS and had decided to buy one before we went. Still we broke the rule, we bought at a show and we regretted.

      I think that one was more because I hate RVs and I didn’t know it till I had one. I should have rented one. It would of saved me about 9K in depreciation. (as Dave Ramsey would call it, stupid tax)

  12. When I was 12 my dad (an accountant) got a credit card in both his and my name and used it to buy groceries weekly. By the time I was 18 I had great credit even though I never saw said credit card. He did the same for my sister. A guy in his 50s didn’t need the credit but the benefit for kids was great.

  13. Great show, Jack. I was literally laughing out loud while driving down the road this morning at the end of the show when you were riffing on married couples maintaining separate accounts. I’ve never understood that either, those people don’t understand what marriage really is (and from my experience, they’re generally not happy in their marriages either).

    We have a MasterCard that we get cash back on, and we use it for most of our non-discretionary expenses every month (gas, tolls, groceries, etc.). I literally log on to my account and pay it off in full at least 2x per week. We’ve never even come close to carrying a balance on it since we started doing this.

    When it comes to car loans, I financed our last one as long out as I reasonably could (I think it was 5 years) since I qualifed for an interest rate of 1.9%. I figure that the interest charges will be less than the decline in dollar value from inflation, and the lower payment allows me to save away more every month. If I’m wrong, I have cash-on-hand to be able to wipe it out in one fell swoop. The one thing about having liquid assets is that it gives you options when it comes to debt.

    I’d definitely place this episode in your top-10. Something that everyone out there needs to hear. Thanks again.

  14. Jack

    I have to say I agree with about 95% of what you had to say in this episode. This all seems like common sense to me, but I’ll admit it wasn’t 20 years ago. I also understand that this episode may have been more geared for the person establishing credit, not someone with established credit but I think it is easily transferrable. Had I heard this information 20 years ago I believe I would be in the same place today as I am in now, but the road would have been mostly downhill, instead of the up and down on I traveled to get here, but I adamantly believe it made me stronger in the long run.

    Some comments:

    1. I loved your analogy of good muzzle discipline. Without muzzle discipline you should not be shooting a gun, without debt discipline you should not be using debt. The bottom line is you must know the basics, the theory of operating a weapon (debt is a weapon) then practice it every time you pull that weapon (gun or credit card, or pen to sign the loan).

    2. Credit cards. I think these are a necessary evil but you call it bad debt. You also call it a tool for debt management, and I would agree. I use my credit card for absolutely everything that I can but I have not paid cc interest in over 15 years. Good muzzle discipline. I always pay this debt before any other, and accrue the cash back options in my account. By using my credit card I put $1000 – $1500 in my pocket every year from cash back options. I think it is silly not to take advantage of this. By doing this, I accrue enough to make one additional mortgage payment per year, saving me 7 years over the life of my loan, thus saving me several hundred thousand dollars over the life of this mortgage. This is good muzzle discipline. The trouble today is it is getting more difficult to use credit without paying a higher fee for doing so. The perfect example is one of your sponsors, JM Bullion. There is a very clear price difference for purchases made by credit vs cash. I am finding it more common to pay with cash than credit these days simply for this reason, but I will take what I can get, whenever I can get it. You have also mentioned a few examples of using a credit card to pay car loans, etc. I am also finding these opportunities dwindling. Many agencies utilizing online payment plans will only accept direct withdrawal from bank accounts and not credit cards (without an additional fee making it not worth the effort). I understand the point you make, but also appreciate the fact that you do not use credit cards, as you have stated this. For this reason I don’t believe you may be aware of this, simply because you do not use this option. I think it would almost impossible to place payments of anything on a CC these days (car payments, etc), as companies seem to be wising up to this tactic and placing premiums on cc purchases/payments. Interestingly enough the one “payment” that I am able to place on my CC monthly is my student loan through online bill paying. Before you have a stroke regarding my student loan, please read number 3.

    3. Im not sure I agree with your opinion of student loans per se simply because they cannot be discharged. I would object to the con artist selling them to teens and talking them into fashion merchandising and communication degrees. I would also object to $20k – $30k per year tuition/board rates for middle of the road institutions that are quite frankly taking advantage of young people. You mentioned using tax attorneys, CPA’s, etc. thus telling me that you think there services are valuable. Do you really think that tax attorneys and CPA’s went to college without student loans? If everyone followed your advice on this there would be no tax attorneys, no CPA, no doctors or nurses, engineers, etc. Obviously I am exaggerating here, but I think you get my point. I worked full time and went to school fulltime through undergrad and graduate school to make ends meet and I still needed student loans to get through. With good muzzle discipline student loans can be a bad debt tool used for good purposes, not evil.

    Thanks again Jack, I loved the episode.

  15. This was a great show!!!

    Jack, could you help me figure out the leasing situation?

    Being a business owner I’ve heard there are tax advantages of leasing, but never understood how leasing was a good deal.

    After listening to your show, it somewhat sounds like “Buy Term and Invest the difference” sort of thing but for leasing.

    How do if figure out if leasing is a better option?

    Take a $30,000 car I’m looking at a Nissan Pathfinder or Toyota Highlander or Ford Explorer.

    A 60 month loan for 5.5% would be $573 per month
    Lease is $299 for 36 months Monthly payments total $10,764 At lease end, purchase for $17,526.
    By Leasing and saving the difference I would be able to save $274 /mo Which would be $9864.
    I would save the $274 and earn say 5.5% that would give me a compounded return of almost $11,000. I would then have to I would do that just for 2 more years which would be $287 per month.


    36 month savings is $11,000
    Total lease plus 2 year finance plus savings is $28,652 for a savings of $5728
    PLUS my tax savings by being able to write of the lease for the first 3 years How would I be able to figure out that savings for the lease. It already looks like I’m ahead by Buying Term and investing the difference already.

    Thanks for your mind expanding programs.

  16. Oh and let me qualify. I like to buy new cars / trucks and keep them a long time. I’ve got an 08 F150 with 70K on it bought new during the Bailout for $23K (It was a $35K sticker price truck) also bought an 09 Nissan Altima for like $23K (not as good a deal) It’s got $100K and it’s the one we are thinking of trading/selling and buying new.

  17. One of the thoughts that keeps me up at night is what to do when you know an economic collapse is coming, but you don’t know when.

    I feel like if the collapse is coming in the next two months I would start working on being prepared as a priority and if it was coming in 30 years I would pay off my mortgage as a priority.

    Paying off your mortgage in the face of a near term collapse seems like throwing water into a sinking boat. When the bank collapses, your loan disappears (sometimes).

    How do you balance wanting to be debt free in the face of the debt industry collapsing?

    • To be blunt stop worrying about shit you don’t control. Reducing debt, saving money, investing smartly, all these things are best practices in both good and bad economic times. As for the end of the world collapse, stop even thinking about it, how many stupid decisions have been made waiting on or expecting it. Get your shit strait and stop bitching, whining and using what might happen as some point as a fucking excuse. How is that for clear, blunt and actionable advice?

    • Debt Doger Jack puts it up front and I agree. Thing is you could also be dead tomorrow or next week. You don’t go out an charge things because of that. Nor do you blow your pay check because of that.

      You are more likely to have your own personal financial collapse lay of fired injury illness some one sues you for some crazy reason That list is endless. YOu stated that “If you knew the collapse is coming in the next two months I would start working on being prepared as a priority. ” Being prepared should ALWAYS be a priority. build your savings, build your food stores, learn to grow food, learn skills, learn how money works, build your retirement, take care of your health. All of those things will help give you a better life no matter what. There is no need to “BALANCE” the debt industry collapsing. Besides you can’t. Sounds to me more like an excuse to not get debit free.

      • The only debt I have left is the mortgage, paid off all the rest.

        I’m already pretty well prepped, but as you know, just saying that probably proves you aren’t.

        I see three choices here: You can make minimum payments on the mortgage and prep faster or you can make maximum payments on the mortgage and hope that you’ve got time left to prep. Finally, you can kind of suck at both and wind up somewhere in the middle. Right now I’m favoring prepping.