Like a job, debt is basically working for someone else, by making them money you should keep and invest!
House, car, college, cards, it doesn’t matter. All debt is first designed to make creditors money, but there’s more. Debt is designed to trap us in a cycle of payouts to others wherein they get more of our money than we actually need to spend. At first it seems so very convenient. You get money to buy something, and can pay it back over time. It gives us leverage where an equal amount of cash can never seem to build up in our bank accounts.
So, to buy a car to get to work, the worker must pay back a loan of thousands or tens of thousands. They pay to insure it. They pay to license/register it. Every month this single purchase can cost as much as half what a poor person makes. This is one reason we believe wages are too low and exploitation of low and middle wage workers is out of control.
There is debt and there is endless debt. The car payment lasts until the next car for most people. Then a new one begins, if it’s not a refinance where the payment is readjusted and continues. The mortgage or perpetual rent, if not carefully paid down can cost more than the eventual value of a house. Especially where the house is not maintained properly.
To avoid long-term debt, a simple strategy can be employed. When you’re ready, check out these calculators to help you budget, but start here: Forget a thirty year mortgage. Try for a fifteen year and a guarantee of no penalties for prepayment. Then pour as much extra money onto the principal as you can. The goal is to pay off the house in ten years. The same strategy can be applied to any loan. By paying off quicker, and reducing principals, we save money which would otherwise be paid to the creditors as interest. Whatever we save, we apply to either a high yield investment, or to pay down other debt.
Of course there is another side to this effort and that is making more money. Many employees choose to do small side-businesses. Arts and crafts, online marketing, local flea markets and so on. We know of a few guys who work office jobs by day, but paint houses on weekends. Are we suggesting you should invest extra time working to avoid long-term debt? Partially. What we are really suggesting is corporations and our government should pay higher wages or lower tax bills for those making less than the median wage, at least. We are also suggesting that working harder earlier is easier and better than working into old age. Last and essential, paying down debt early allows longer for investments to grow and larger amounts of capital on hand to invest. Light real estate investments, such as buying a house and renting part of it can help produce capital and reduce the mortgage payout time significantly. Duplex, private room, shared space… it can all be done successfully depending on availability and preference.
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