It doesn’t make any sense to buy a house with a mortgage.
It would actually cost you way less money, in the long run, to save over the course of many years before finally showing up at closing and paying for the whole thing in cash. After all, you end up spending thousands of dollars in interest when you take out a mortgage and it’s even worse if you pay that loan over the course of 30 years instead of 15.
Beyond that, if you put less than 20% down, you also have to pay PMI insurance. Insurance that was invented just because you haven’t put enough skin in the game for your down payment.
Over the course of your years of saving, you’d have interest work in your favor instead of against it.
So why use debt at all if it doesn’t make any sense?
Because debt allows you to do the heavy lifting when purchasing something like a house would be prohibitively expensive otherwise.
Since buying a home is prohibitively expensive, does that mean you shouldn’t buy? If your plan is to stay debt free, would it be better to avoid getting into a mortgage at all?
Homes are usually considered good purchases. As long as you aren’t stretching yourself too thin with a payment, home values generally go up over time, making home purchases a good bet most of the time.
But debt can be dangerous. It can take all of the money that you’ve earned and suck the life out of your income.
Where do you draw the line? When is it ok to take on debt and when should it be avoided it all costs?
The answer lies in the question, do you really need help lifting the burden?
Debt is a tool that can be used to move massive amounts of money and to make purchases much bigger than you’d be able to take on today. It acts as a fulcrum and level, making you much stronger than you’d be on your own.
Since houses are generally considered to be a good investment(they go up in value), taking on debt to purchase a home for your family would probably be a good way to use debt.
What about taking on debt for your cars? Are cars a big enough purchase and is it prohibitive enough that you need to borrow to get one?
There have been times when we’ve had car payments and times when we haven’t. I can tell you that not having a car payment is the way to go. But sometimes you’ll get one, especially if you need to move fast and you haven’t been able to put yourself in the position to not need it.
This is an example of debt allowing you to lift more than you can on your own, especially when you need to move fast. But cars are not generally considered to be a good investment. They go down in value throughout the loan, and if you are purchasing a car every few years, you’re losing thousands and thousands of dollars through cars throughout your working years.
The best thing you can do is to extinguish the cycle of debt for as many things as possible.
Eliminate high interest rate credit card debt as soon as you possibly can.
For cars, it is possible to extinguish the cycle of debt for your vehicles. Start by keeping your cars for longer instead of just rushing to trade them in and when you finish paying off your loan, keep saving that money that you were putting towards that loan each month into a fund where you can save for the next car in a couple of years. Now, instead of interest working against you, it’s working for you as you save to pay cash for your next one and you never have a payment.
When you extinguish the cycle of debt, you free up your income to live the life you want to live today, not the one you signed up for 5 years ago. You can use debt to help lift the truly huge boulders in your life, while ensuring you aren’t financing your paycheck away.
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