Why do people take on so much debt?

[CAPSLOCK]

Interest is a donation to people who are already rich.

This is so true, and unfortunately unavoidable to most people. Few can afford to cash buy a car, house, college, etc. I refuse to pay exorbitant credit card interest rates though.

 

[ruadisneyfan2]

Interest is a donation to people who are already rich.

The same can be said for buying music, concert tickets, designer clothes/purses, visiting Disney parks or sailing DCL.
It's simply a matter of perceived value for what you're paying.

 

[CAPSLOCK]

But at least for anything else, you get something in return. Interest is a straight money maker with no tangible benefit to the payor.

 

[ruadisneyfan2]

But at least for anything else, you get something in return. Interest is a straight money maker with no tangible benefit to the payor.

It gives the user of the debt the ability to delay paying in full at the time of purchase. If the user feels that the amount of interest is not worth it, they can decline the debt and not buy said purchase. That applies to buying a coat in a department store or buying a home.

There would be very few homeowners if everyone had to pay in full at the time of purchase.

ETA: As for the “straight up money maker” the party that charges the interest is the one taking the risk that the money might not be paid back.
The bank that loans several hundred thousand $$ so people can buy a home are taking a pretty big risk. A lot can happen in 30 years.

They don’t exist as a charity and would go out of business if they didn’t turn a profit. So of course they are going to charge people for that.
If they charge too much, they will not stay competitive with other banks and risk losing business. So there’s a fine line to stay balanced with the rates they charge.

 

[_19disnA]

Many of the comments here sound like they are from the 'let them eat cake' mindset. Some who are apparently well off can't seem to grasp why everyone else isn't.

 

[DCLMP]

Many of the comments here sound like they are from the 'let them eat cake' mindset. Some who are apparently well off can't seem to grasp why everyone else isn't.

That summarizes it pretty well.

 

[tvguy]

Unless they are asking for your advice or asking you to pay their bills then it is none of your damn business. I get that you feel superior to "those" people, or maybe jealous, but being judgmental when you have no skin in the game is never a good look. You don't know what or why and are not qualified to judge them.

Personally, I am sure I have more debt than most on this board, but use it as a tool for when I don't want to sell investments or when the interest is less than what I am earning.

I disagree. Ultimately, SOMEONE has to pay for those people's mistakes, and often it is you and I. Be different if it didn't do that.

 

[tvguy]

Many of the comments here sound like they are from the 'let them eat cake' mindset. Some who are apparently well off can't seem to grasp why everyone else isn't.

Well, when I was working I made about one third of what some on the DIS Boards have stated is a "middle class" income. So not a "let them eat cake" attitude here, just amazement how vastly people's views on what are necessary items differ.
Gail Vaz-Oxlade made a living out of reviewing people's spending on "Til Debt Do Us Part" including trying to get a woman who worked in an office to understand that she did not NEED to spend $500 a month on clothing.

 

[mjkacmom]

I know a few families who live paycheck to paycheck. They do not receive any public assistance. I have single parent friends who live in very high COL areas (Seattle and NYC metro), rent TINY homes, work 2 jobs. The one thing they have in common is having disabled young adult sone (MD, son has been wheelchair bound for close to 20 years, and non verbal autistic). They both need 24/7 care, can’t be left alone. Neither one has ever vacationed, I doubt they’ve ever even been out to dinner. There are no retirement savings. The son with MD will most likely pass before 30, the one with autism will hopefully be able to live in some type of facility. I honestly don’t know of families who live outside their means. The people I know with real money, you’d really never know it unless you knew them well.

 

[barkley]

I know a few families who live paycheck to paycheck. They do not receive any public assistance. I have single parent friends who live in very high COL areas (Seattle and NYC metro), rent TINY homes, work 2 jobs. The one thing they have in common is having disabled young adult sone (MD, son has been wheelchair bound for close to 20 years, and non verbal autistic). They both need 24/7 care, can’t be left alone. Neither one has ever vacationed, I doubt they’ve ever even been out to dinner. There are no retirement savings. The son with MD will most likely pass before 30, the one with autism will hopefully be able to live in some type of facility. I honestly don’t know of families who live outside their means. The people I know with real money, you’d really never know it unless you knew them well.

off topic but b/c of what you shared-i REALY wish your friends would consider looking into the public services and assistance programs their disabled sons might qualify for. i'm in washington state (with a disabled adult son) and there are a wealth of adult disability based services and programs but many have multi year wait lists once eligiblity has been determined (which in and of itself can take a year or more). establishing eligibility BEFORE a service is needed is FAR better than being in the throes of a situation let alone emergency. just because you qualify does not mean you have to accept currently.

i learned the value of pursing these programs not through my experiences as a parent but during my years with dshs-i encountered far too many very proud and well meaning parents of disabled children and adults who saw applying for these programs as a 'last resort' and not applying until they were at the brink of financial catastrophy. the disabled with dire needs that to be met, the parents absent any income, many worn down and becoming disabled themselves from all they do for their children. they were in the position of having to apply for not only their children but also themselves. had they applied years if not decades earlier their financial situation would have become greatly improved, they could have availed themselves and their children of services and supports they never imagined (emotional and respite supports can be life altering/life saving).

 

[AlohaNow]

Some debt I take on because it's a better "deal" than using savings. For example, we bought a new fancy TV about a year ago - it was around $2500. Best Buy offers 0% interest on their credit card, so we put the TV on there and divided out exactly what we needed to pay each month to have it paid off before the promotional period ended. We had $2500 in savings we could have used, but why use money that is making money?

This! And what someone else upthread said about not wanting to liquidate investments that are doing well. We snagged a used car loan at 1.99% and are halfway through paying it down. If you think I'm going to pay that off even a day early, you're crazy. I'm still earning more on investments than I'm paying in interest on that loan, so I still come out ahead. The only number I actually care about is the bottom line one, my overall net worth. I learned years ago to run my household budget like a business. There are always open and available lines of credit just in case. Money will need to be borrowed from time to time, and a reasonable amount of interest paid back along with it. But as long as that net worth figure is increasing, I'm good!

 

[AquaDame]

it's the same story today with young people entering college as it was when i attended in '79-the majority change their minds about what career path they will pursue and that's fine-great even b/c people's minds change as they are exposed to new ideas/experiences. that said-i would MUCH rather see a young person fully understanding what can be lifelong financial implications of their choice of college so those changes in interests and aspirations don't negativly impact them for decades down the road.

we live close by 2 community colleges, 2 state universities and 2 private universities. community colleges are a different animal so not even figuring them into the mix, the tutions (no fees or dorms which add many thousands per semester) vary as follows-

state u #1- $8139 per academic year
state u #2- $12701 per academic year
private #1- $48990 per academic year
private #2- $50735 per academic year.

the first 2 years at each are pretty much identical course wise with general ed. other than one being a much better pathway to pursue a medical degree and another law, the ba/bs offerings/credentialing and master's programs are on par with one another. just looking at the numbers, a student at state #1 or state #2 could change their mind once a year delaying gradution with each change by a full year 4-6 individual times before incurring the cost of one single year's change/delay at either of the private.

it's simple dollars and cents that need to be explained to students exploring college. whatever degree they decide to pursue, is it feasable let alone do you want to be looking at incuring and paying for the identical degree/job opportunities (for 5 years which is the average these days with changes of the mind)-

$45,000 ish
$62,000 ish
$245,000 ish
$255,000 ish.

the difference in those numbers can have life altering and life limiting implications.

Obviously not a problem if you are a stellar student, but it is harder to transfer into a university than it is to be brought in as a Freshman. My own as an example accepts 93% first year students and only 63% of transfers. You also only need a 2.5 GPA versus a recommended 3.39 GPA as a transfer student to have a shot, whereas university courses are harder. Most folk I knew had their GPA drop a bit or a lot depending on the major.

I did my first two years in community college and transferred in, but by then most people already had their cliques - socially I was stunted as I also did not live in the dorms. Luckily I was still able to reach out to some friends from HS who moved on to the same university and through them met some good folk who ended up being great resources when it was time to find a job. There are intangibles to those precious first two years aside from the money aspect.

Someone else mentioned credit card rates being 20-30%; the cards we use for cash back and airline miles are between 12 & 15% (if we carried a balance on them, which we don't, FWIW). There is reckless debt and strategic debt and you can't always tell by just hearing folk talk about using cards.

Others have already mentioned investments and making money work for you while paying low interest rates on chosen items like cars and investment properties so I won't bother rehashing that. I try to be mindful of generation gaps.... anyone in college within the last 15+ years has it very different than anyone prior, myself included. I barely got out before tuition and rent really went crazy. The comments about people taking out debt assuming the government is going to pay it sounds like a repeat of some news' sound bites... No one I know thinks like that, I've only heard it from people who aren't in that boat to begin with. They just shrug and say yeah, they're going to be paying it the rest of their lives, probably.

 

[barkley]

Obviously not a problem if you are a stellar student, but it is harder to transfer into a university than it is to be brought in as a Freshman. My own as an example accepts 93% first year students and only 63% of transfers. You also only need a 2.5 GPA versus a recommended 3.39 GPA as a transfer student to have a shot, whereas university courses are harder. Most folk I knew had their GPA drop a bit or a lot depending on the major

i guess it depends on the public university-here at our closest it's a minimum recommended 3.25 gpa for both freshman as well as transfers (88.4 acceptance rate for freshman/76.05 for transfers).

again, on the classes-depends on the university. i took the identical lower division gen ed classes in community college that were given at the 3 (2 public/1 private) highly selective/top tier u.s. universities in close proximity to where i lived (same grading criteria). identical curriculum/identical profs. (they liked the hourly pay rate). subsequently, when i transfered to a university the same profs. i had at the university taught the identical classes summers at the local community college. my oldest (graduated a handful of years back) just learned that a co-worker is taking classes at the local community college in the same major from the same profs that taught /are still teaching at the university.

I did my first two years in community college and transferred in, but by then most people already had their cliques - socially I was stunted as I also did not live in the dorms

cliques? never a consideration when i or my oldest attended. oldest's major did have great reliance on student to student 'networking' but those relationships were born of upper classes (hundreds of students shared lower division classes-who knew anyone?).

anyone in college within the last 15+ years has it very different than anyone prior, myself included.

i agree-it's much more remote over the past 5 years esp. the number of students that actualy choose to attend in person on the many private and public universites near us has plummeted. i would say that anyone who attended over 5 years ago has no basis of comparison.

The comments about people taking out debt assuming the government is going to pay it sounds like a repeat of some news' sound bites... No one I know thinks like that, I've only heard it from people who aren't in that boat to begin with

my oldest is 29, graduated college in '18, working with early 20 somethings with major debt/aquiring debt who are absolutly and undoubtingly convinced that the promises of student debt elimination will be upheld and are 'just in the works'

 

[theMoreDisneytheBetter]

my oldest is 29, graduated college in '18, working with early 20 somethings with major debt/aquiring debt who are absolutly and undoubtingly convinced that the promises of student debt elimination will be upheld and are 'just in the works'

I have a 30 year old sibling who believes the exact same thing! He also has hundreds of thousands of dollars of medical school debt which will be “cancelled” in just 10 years (according to him), though I’m still not entirely clear as to why that might be. Income-based repayment program, perhaps?

 

[tx911]

But at least for anything else, you get something in return. Interest is a straight money maker with no tangible benefit to the payor.

But you are getting the ability to buy something you would not otherwise be able to get. So I think there is something in return.

 

[FreckledOne]

Gail Vaz-Oxlade made a living out of reviewing people's spending on "Til Debt Do Us Part" including trying to get a woman who worked in an office to understand that she did not NEED to spend $500 a month on clothing.

I recently discovered the episodes on youtube. The content is awesome and I wish it was still running or something similar.

 

[DCLMP]

I disagree. Ultimately, SOMEONE has to pay for those people's mistakes, and often it is you and I. Be different if it didn't do that.

How would you are I pay for an individuals mistakes. The government yes,

 

[tvguy]

How would you are I pay for an individuals mistakes. The government yes,

Higher interest rates on our debts. Lower dividends on our investments in the businesses that don't get paid. Yes, currently the government does bailout some with student loan debt. But otherwise, you and I pay for it.

 

[DCLMP]

Higher interest rates on our debts. Lower dividends on our investments in the businesses that don't get paid. Yes, currently the government does bailout some with student loan debt. But otherwise, you and I pay for it.

The student loan bailout is new and goes against the Supreme Court ruling. Not sure how that’s going to end up.

Higher interest rates should result in people taking on less debt. There is still way to much free money out there. It doesn’t seem to having an effect on inflation or debt. It really has no effect on established debt at a fixed rate.

 

[mjkacmom]

off topic but b/c of what you shared-i REALY wish your friends would consider looking into the public services and assistance programs their disabled sons might qualify for. i'm in washington state (with a disabled adult son) and there are a wealth of adult disability based services and programs but many have multi year wait lists once eligiblity has been determined (which in and of itself can take a year or more). establishing eligibility BEFORE a service is needed is FAR better than being in the throes of a situation let alone emergency. just because you qualify does not mean you have to accept currently.

i learned the value of pursing these programs not through my experiences as a parent but during my years with dshs-i encountered far too many very proud and well meaning parents of disabled children and adults who saw applying for these programs as a 'last resort' and not applying until they were at the brink of financial catastrophy. the disabled with dire needs that to be met, the parents absent any income, many worn down and becoming disabled themselves from all they do for their children. they were in the position of having to apply for not only their children but also themselves. had they applied years if not decades earlier their financial situation would have become greatly improved, they could have availed themselves and their children of services and supports they never imagined (emotional and respite supports can be life altering/life saving).

Oh believe me they are not proud and accept what they can get, and fight hard. My friend with the MD son has to fight like crazy for his medications, finally got an old van with a lift, is qualified to get an aide for him (he can’t use the bathroom unassisted) but no one wants to work for that pay. He now had a $82,000 wheelchair which was a long time coming. My friend with an autistic son moved back here years ago because our school system is better at school placement. She had to fight of course, but he’s bused to a decent school. She’s been looking into a permanent home for him when he ages out of school, she has to work. Fighting for services takes up so much time, and they’ve been doing it forever.