Monday, May 25, 2009

"Good" Debts

I cant tell you how many times I have heard people talking about "good" debt vs. "bad" debt. I think everyone agrees that things like credit cards are "bad" debt. Some will argue that student loans, a mortgage, and car loans arent "bad" debt. I will agree with that statement, but I will never refer to any debt as good debt!

My ultimate goal is to not have any debts at all. That hasnt happened yet, but we are working towards it!

I incurred my first debt when I was 20. I had lived on campus for 1 year. I studied abroad for a semester. Then, I lived in an apartment for 6 months.

I realized at that time that I was throwing money away by renting. I also hated being under someone else's control! The apartment I lived in was a piece of crap. It took 3 months for the leak in the roof to get fixed. The linoleum tiles in the bathroom were crumbing, but never replaced. I hated living like that. I hated even more being powerless to change my surroundings. Not long after I moved into the apartment, I knew that wasnt what I wanted. So I began looking for a house.

Finding a house within my budget wasnt easy. I saw a lot of houses that needed a lot of work. I saw some houses that I just laughed at. One house had a 'bedroom' that I dont think you could have even fit a crib into! I did eventually find something. With my Dad as the cosigner, I got a mortgage for my very own house at the age of 20.

The first year, I was shocked at how much money I had to put out for unexpected things! I had a roommate for the first several months. She and I had very different views about the way things should be. She had just graduated from high school and moved our of her mother's house. She liked to leave all kinds of lights on and crank up the electric heater. I, on the other hand, worked hard to keep the expenses down. It was a difficult balance.

Jim lived with me from about the beginning, even though we hadnt been dating long. He always gave me the money I needed to make sure all of the bills were paid. It was never a lot of money, so he had no problems putting in his contribution. Once I knew what to expect, things got much easier.

Two months before my college graduation, my car died. I got it to the dealership to get it looked at. I had dropped it off and while I was waiting for my sister to pick me up, I was looking at new cars. Within the next 2 days, we found out that my car needed way more work than it was worth. I talked to my Dad about cosigning a car loan for me rather than getting another POS. He agreed.

So two months before graduation, I had more debt. A car loan. ("Good" debt.) I was optimistic that I would get a decent job and have no problems paying for it and the house. Thankfully I was right.

By the time we got married, just weeks after graduation, I had a mortgage and a car loan. Jim had just managed to pay off the last of his credit cards, but also had a car loan.

Since that time, my car got totalled in an accident. I had to get a new one, which meant a new loan. I was looking at a 5 year loan with an interest rate of 5.5%. About that same time, Jim traded in his beloved Mustang on a Civic Si. All things considered, it was definitely a smart financial move for us, but we still had to get a loan. He also got a 5 year loan, but with an interest rate of 2.9%. I do love those low interest rates!

So, after Jim and I both got new cars (again), we are making headway. Each month we pay more than the minimum towards my car and the mortgage. With money that has been promised to Jim for graduation, we should be able to pay off my car this summer.

Our next goal is to get 80% equity into the house based on the purchase price. I think we may be able to get there by the end of the year. When we do get there, we will no longer have to pay private mortgage insurance. That will be an extra $50 each month that can go towards principle! I want to get this house paid off as quickly as possible!

Even though all of the debt we have now can be considered "good" debt, I am looking forward to the day when we dont have any! The less debt we have, the less money we need to earn each month. Needing less money each month will make it much easier to live off of one income when I stay home with our kids!

1 comment:

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