Bad Financial Advice: ’10 Great Reasons to Carry a Big, Long Mortgage’

My Money Blog highlighted this article, 10 Great Reasons to Carry a Big, Long Mortgage, published by Ric Edelman under a section of the website titled Education. I don’t believe that My Money Blog was endorsing this author or article, but simply sharing the information. I’ve included both references only to show how I discovered it.

Before I go any farther, just think about the phrase “10 great reasons to carry a big, long mortgage”. How do you react to that title? Does it sound wise? Does it sound logical? I know what I think, but lets look at some of the information from the article to see if it sheds any more light on the subject.

Never own your home outright. Instead, get a big 30-year mortgage, and never pay it off – regardless of your age and income.

In today’s economic environment, a big, 30-year mortgage is the best thing you can have.

So: Never pay off the mortgage. Reject 15-year loans, never make extra payments, and forget about those biweekly mortgage payment plans.

First, understand that everything you know about mortgages and particularly what you fear about them is wrong. The myths you believe were told to you, bless their hearts, by your well-meaning parents and grandparents. They told you that mortgages are dangerous, that having one means you can lose your home. They told you this because they remember the Depression era, a time when millions of Americans lost their homes.

How do those excerpts sound to you? Wise? Logical? Here is what seems to be the main argument presented- things are different this time. Where have we heard that before? Right around the top of every stock market bubble is when you will regularly hear that phrase. Basically, everyone before was wrong, but now we have it all figured out because we are so much more advanced than those silly little people before us (you know, like the generation of Americans who actually had a positive savings rate).

Still, mortgages are expensive, and you’d rather avoid paying all that interest. That’s why you like the idea of sending in extra cash with your monthly payments. You know that paying off the mortgage early will save you huge amounts in interest charges. Although that’s true, you need to turn that coin over, because there’s another side you have overlooked.

Here it seems the author admits that having a mortgage isn’t a good thing, but wait…now he will tell us why it is. Confused  yet?

That’s why owning your home outright is like having money buried under a mattress. Since the house will grow with or without a mortgage, any equity you currently have in the house is, essentially, earning no interest. You wouldn’t stuff ten grand under your mattress, so why stash two hundred thousand into the walls of the house? Having a long-term mortgage lets your equity grow while your home’s value grows.

I don’t think you can compare cash to a home, but lets play along- IF you had ten grand under your mattress, would you go to the bank and take out a loan against it so you could invest it? Now this argument is a bit tricky because stuffing cash under your mattress isn’t really wise either, but you don’t need a mortgage to let your equity grow! That makes no sense at all.

There’s no way you can avoid debt in today’s society. Cars and college let alone big screen TV’s virtually require you to have loans. And you’ll find that mortgages offer you perhaps the cheapest way to borrow.

This one  really takes the cake This quote is so funny it got me wondering if this article was in fact an anti-debt satire piece of some sort. Did I read this right- “There’s no way you can avoid debt in today’s society“? I think Visa and Mastercard would love that quote. If you really think this is true, please stop offering ‘financial advice’ to anyone in any way, shape, or form.

Not only are mortgage loans low in cost, the interest you pay is tax-deductible. You can save as much as 35 cents in taxes for every dollar you pay in interest.

Yep! What a deal! If you think that is a good idea then please start sending your checks to me and I will pay you 35 cents for every dollar you send me!!!!

Honestly, that’s about all I can take of the article. Please visit the link and read the whole thing and please tell me where I am wrong because I just don’t see any sound arguments to support the title. Just think about the advice and see if it really makes sense to you. Don’t let someone tell you you aren’t sophisticated enough to understand it- apply simple logic and reason and draw your own conclusions.

Debt Free – Can you see the day you become debt free?

Can you see it? I mean really see it. Can you visualize the day you update your spreadsheet and the total debt balance says $0.00? Does that seem real to you? Do you think you can actually get there?

I read a post over at Get Rich Slowly today- Reader Advice: How to Live Debt Free that really got me thinking about it. I’ve read many stories about people becoming debt free. I’ve heard lots of people call the Dave Ramsey show and scream it. I’m not sure what the difference was, but as I read this post I really thought about it and thought about that being me one day.

I can only imagine what it will feel like to be finally free from debt, and I’m certain it will feel 100 times better than I think it will now, and I already get excited just thinking about it. I really know that I’ll get there. It’s just a matter of time. It won’t be easy, but I have a plan. I never had a plan before. I was just coasting along, spending like a fool, only worried about how to make the minimum payments each month. I was going nowhere. Now I’m going somewhere. There is a reason for everything I do with my money now. I do my best to plan where every dollar will go and I fight to keep every dollar from being wasted on things that aren’t in line with my plan.

You can’t get there if you don’t really know where you’re going. I don’t think I ever understood before what it would really mean to be debt free. It didn’t seem real before. I didn’t know people actually lived that way. If you’re not there yet, you must surround yourself with people who are making that journey or have already completed it. I haven’t yet been fortunate enough to meet anyone in my life who is like that (that I know of), but that is why I take the time to read books and blogs, listen to stories, and write my own blog. I want to get there and I want to help other people get there. If I learn anything along the way I want to share it here.

Right now, I’m facing a mountain of debt- $263,697.62 to be exact. That’s a really big number. It can feel overwhelming to look at. However, I can look at it now without fear. I truly have hope. I can see the day that number changes to $0.00. I have an idea of what it will feel like. I have an idea of what I will do on that day and how my life will change. The few successes I have already had in changing my financial life give me hope that not only is the journey worth it for the end result, but as I make my way down the path my life will continue to improve in many ways. It’s a great feeling to take back control of something that controlled you for so long. I’ve gone too far to quit now.

I felt compelled to write this now so I can remember these feelings when times get rough. I hope that something I’ve written here can inspire others to make the sacrifices and do the work that is required to reach success with money. Let me know if you can relate and please share your stories of what drives you to become debt free.

I don’t have a personal finance success story yet….or do I?

About this- My humble submission to the Get Rich Slowly writing project. Winning the contest would be cool, but I’m happy to participate just because I’m a big fan of J.D. and the Get Rich Slowly website.

I wish I could share a story about how I am debt free and on my way to a comfortable retirement. Sadly, I’m not even close. I have a large, mountain of debt to bury before I can write that story. So how can I share a personal finance success story? I believe that even through the early stages of my plan to get out of debt I have achieved some notable successes.

My total debt is going down now instead of up– this is a huge change! For years my debt number has only gone higher and higher. I kept spending more than I earned and hoping that some day I’d make enough money to pay for it all. Pretty much the typical American way, but thanks to Dave Ramsey and the personal finance blog world I realized that I didn’t have to be typical. I could get out of debt! I started that process by making a budget and spending less than I earned. That simple step was enough to reverse the never ending debt trend that I was on for so many years. Now there is hope.

I went from $0.00 in a savings account to $1,000– that is a huge change! I’ve never had savings before. I spent every dollar I could! It’s a really good feeling too. It feels good to know that I can save money and that I have money available when an emergency strikes. Now there is no need to have a credit card. I just can’t justify it at all- and that is a good thing.

Instead of spending money until my checking account is empty, I plan where every dollar will go at the start of the month– making a detailed budget was really life changing for me. I used to just spend money without any direction or plan, then wonder why I didn’t have money when I needed it or why I kept getting hit with overdraft fees. Now, I have dollars allocated for every monthly need. I know that the bills will get paid and I know how much money I can spend at the grocery store or anywhere else I go. If you haven’t tried a budget yet, I strongly encourage you to do it. It’s an incredibly empowering tool. I can’t imagine living life without one now.

I make some smart decisions with my money now– of course I’m not perfect yet, but I’ve come a long way. I don’t see something I want and rush out and buy it. If I want something, I take some time to think about why I really want it and look for ways that I could get the best possible deal. This usually leads me to not make a purchase at all. I think about how I can simplify my life and be frugal. I have embraced frugality! I thought that was something only ‘cheap’ people did before. Now I get it! Now I see the benefits for my life in general and specifically with my money.

I am losing weight– okay, that isn’t a personal finance success story, but it is because of my focus on getting my finances in order that I feel motivated to lose weight again. Weight is something I have struggled with from time to time, but I strongly believe that the behaviors that put me deeply in debt are at fault for the weight gain as well. It wouldn’t make sense to change my life and win with money and continue to gain weight at the same time.

Like I said at the start, I have a long way to go, but I already have a solid foundation of successes to build my future on. I didn’t get into debt overnight and I won’t get out of debt overnight, but I have hope for the future and I know that some day I’ll be writing another personal finance success story.

Turning Junk Into Debt Payments

I posted previously about how much junk I have and how I’ve wasted money on ‘stuff’. Over the last couple of weeks I’ve started work on getting rid of this stuff and turning it into some cash for extra debt payments. So far this month I’ve brought in an extra $267 by selling stuff that was collecting dust on a shelf or hidden away in a closet somewhere (you know, in case I needed it some day). I can’t say that I miss any of it. Well, I do miss my Seinfeld DVDs a little, but I already watched them once and it was unlikely I would watch them often enough to justify the cost (could always get them on Netflix later). This money will be going straight to debt and that actually has me excited to find more junk to turn into cash.

I took some books and DVDs to a local used book store to save some time over listing all of them on Ebay. They don’t pay a lot, but for not-so-popular items, this is really a time saver. I also listed some items on Only one has sold so far, but the price is decent and the fees you pay to are much lower than on I listed the higher value and more popular items on Ebay. I tried a few new things on these listings, with mixed results. I started the prices really low and I don’t think that worked out so well for me. I’ve never done this before and I felt like most of my auctions didn’t finish as high as they could have. I also listed on a Saturday and I’m not sure that was a great move either- I’ve always listed on Sundays before. I can’t tell which change resulted in the weaker results, but I’ve always felt better about my Ebay sales in the past so I will be going back to my old ways next time.

I still have a fair amount of stuff to sell, but I’ll be very busy wrapping up a project this month so it may be a little while until I can get the rest of it sold. However, this will give me some time to take a few more looks at the shelves and closets and see what else I can do without- do I really need those Simpsons DVDs? I’m afraid I don’t. 🙂

My Plan To Get Out Of Debt

I’m a big fan of Dave Ramsey and his debt snowball plan. I think it is probably the easiest approach for most people to get started with getting out of debt. I’m following the majority of his plan, though not exactly as Dave outlines it- no offense Mr. Ramsey. 🙂

If you haven’t seen it, here is the basic Ramsey plan:

  • Stop using your credit cards
  • Make a written budget
  • Get current with all of your bills if you aren’t already
  • Suspend retirement savings
  • Save $1,000 for an emergency fund
  • List all of your debts from smallest balance to the largest
  • Pay minimum payments on all debts, but pay any extra money you can find toward the smallest
  • Work your way down the list, rolling the payments from debts you pay off into the next one on the list
  • Once you are debt free except for the house, save a 3-6 month emergency fund
  • Resume retirement savings
  • Pay off your house

I am following the overall structure of the plan, but I have made a few modifications. Rather than paying off my smallest debt first, I decided to attack my highest interest rate credit card, which also happens to be my largest credit card balance. See the details below and I think you’ll know why I did this.

  • $10,110.72 @ 11.9%
  • $7,120.97 @ 4.63%
  • $5,535.76 @ 4.99%
  • $1,702.75 @ 3.99%

Not all of those lower rates are fixed for good, but they will last a while and the finance charges on the high rate card are more each month than the other three combined. It just makes too much sense to pay the high rate card first. Overall, the credit cards taken as a whole are the smallest debt when compared to the student loans and the mortgage, I’m just not breaking down each card in order to pay the smallest first.

In my opinion, the most important part of this process is tracking your spending and making a budget. As Ramsey says, write down every dollar on paper, on purpose. You really have to plan every single dollar and make sure you balance everything each month. Doing this step was like getting a raise. I’ve found so many ways to cut my spending and I’m making very nice progress on my debt snowball now. Look for a post soon that will cover my budget in detail.

The rest of my debt snowball seems a long way off, but I will attack the student loans after the credit cards, then the mortgage. I will most likely boost my emergency fund and start some investing after the credit cards are gone. My student loan rates aren’t great, but I don’t want to delay investing and savings any longer than I have to. Of course, I have some time to figure this part out, so my plans are subject to change. I wanted to share this to help you get a feel for where I am coming from and how I am working at getting out of debt. I hope it helps someone too!