The American Dollar
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One industrious American family's focus on a financial goal of freedom. Through worldly personal finance education, here is our story.
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Our Story: Both my wife and I are 27 years old and have gone through financial hell and back. Now we are on track to financial freedom, however we are not financial advisors or professionals, just everyday people. Share our journey from a negative networth and email us if you have questions or comments! :)



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Monday, November 28, 2005

Debt: The Story.

We've been dodging it left and right and its time to face it. I'm talking about those little things that crawl up your skin every month and eat at your income; Yes, DEBT. Debt is the single most hated item on the list by many Americans. Not to be confused with expenses, debt can be defined by the items on your expense list that are considered OWED.

When your monthly monies go out to other people because you owe them, this is debt. Here are just a few examples of common debt: Car Payment, Mortgage, Credit card payment, Student loans, etc.

Here are our numbers:
Our Cars - $0.00
Credit Cards - $0.00
Student Loans - (1) $5793.49 (2) $16,233.69
Mortgage - $82,553.93 (some people consider their home an asset, I don't)
Total owed debt: $104,581.11

This debt comes to a monthly amount of : $715.24
Each one of these will be discussed in detail and my feelings on each of them, but for now lets consider the overall picture.

Our income is approximately $4,400.00/monthly
Meaning our debt to income (debt divided by income): 16.25%

Debt is NOT good. Currently we are in the progress of clearing all our debt. Some may argue that your mortgage is not debt but a forced savings because the outcome is establishing equity in your home. I find that the less you pay monthly in debt towards your mortgage, the more it can be utilized for FORCED savings (more on forced savings later).

Nonetheless if you are a homeowner and carry a mortgage, get it paid off just as fast as you would a credit card. Frankly, I'm deathly afraid of credit cards and anything that I would pay INTEREST on every month. Just an example, a $200,000 mortgage loan for 30 years at an average 6.5% rate would equal to approximately $255,088.98 FOR INTEREST!!!! THATS MORE THAN THE LOAN! and I HATE spending any extra money when I dont have to. The lesson today boys and girls: PAY CASH FOR EVERYTHING! PERIOD. If you dont have the money to pay for something, dont go into debt to get it. Its immature and an embarrassment to you and your family to let that money be wasted on something like debt interest!

1 Comments:

Anonymous credit card debt said...

ok, I understand how a person can avoid using credit cards because most of them are used for purchases you can choose not to make. But how are you going to get a house without a loan?

6:54 AM  

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