Household Debt hits Record High

[UCFKnight85]

I guess no one got the message to save more, take on less debt.

U.S. household debt reached a new record of $12.8 trillion in the second quarter, driven by rising mortgage debt, a strong quarter for auto loan originations, and an uptick in credit-card balances, which reached their highest level since 2009.

https://www.wsj.com/articles/househ...-auto-loans-and-credit-cards-climb-1502809205

 

[EweSeaEff]

SMDH - we'll never learn.

It's a two-way street though. We saw this with residential mortgages (and even some liberal risk-taking in CRE) 10 years ago and now we're facing a similar fate in the auto loan industry. Stop giving loans to anyone that can fog a mirror and stick to the fundamentals. It's like locking what you think is a rehabilitated cokehead in a room full of blow.

 

[barrister1602]

No debt here. I use a credit card to get airline miles but pay off balance each month. When I turned 16, my father told me that he would buy my first car but that I would be buying the rest. Also told me to only buy what I could afford to pay in cash. I listened to his advice and bought used the first times I bought cars. Now I can afford any new car I want ... in cash. Great feeling telling a car salesman I will just write a check for full amount.

 

[Bob the Citronaut]

No debt here. I use a credit card to get airline miles but pay off balance each month. When I turned 16, my father told me that he would buy my first car but that I would be buying the rest. Also told me to only buy what I could afford to pay in cash. I listened to his advice and bought used the first times I bought cars. Now I can afford any new car I want ... in cash. Great feeling telling a car salesman I will just write a check for full amount.

That really doesn't make sense to me. I understand the purpose behind it but there is no reason to pay cash for anything. I'm not talking about racking up credit cards or over leveraging but for major purchases like cars, houses, some toys. When you can get a 0-3% loan for just about anything, you are losing money by paying cash.

 

[EweSeaEff]

That really doesn't make sense to me. I understand the purpose behind it but there is no reason to pay cash for anything. I'm not talking about racking up credit cards or over leveraging but for major purchases like cars, houses, some toys. When you can get a 0-3% loan for just about anything, you are losing money by paying cash.

This. But, I also understand that it's personal preference. I have a friend who's grandchildren's grandchildren's grandchildren will never have to work a day in their life (if he were to set up everything that way, which he won't), but he still pays for almost everything, non-real estate, in cash. He just had a new 7-Series built for him, paid cash and then drove up to SC to pick it up. His philosophy is that he already has enough money, so it makes no sense to leverage and reinvest.

 

[Bob the Citronaut]

Yeah, it makes sense with rich people. They don't care about losing a few thousand in potential gains, it's pocket change.

 

[UCFKnight85]

That really doesn't make sense to me. I understand the purpose behind it but there is no reason to pay cash for anything. I'm not talking about racking up credit cards or over leveraging but for major purchases like cars, houses, some toys. When you can get a 0-3% loan for just about anything, you are losing money by paying cash.

What???

First off I haven't seen any loans being made for 3% in a long time. Auto loans are easily 8% or more to begin with. Even mortgage rates are well over 4% now.

Second, how are you "losing" money by paying cash for something instead of financing it at 3%? That 3% is interest you'll have to pay above and beyond the selling price. When you compound it, it adds up even more. The only theory that works here is if you theorize that you could pay for something at 3% and use your liquidity to do something like, say, buy stocks and yield more gains. Which may be true, but again, 3% loans don't really exist that much.

I bought my last car, used, in cash. It is the greatest feeling not being beholden to some bloodsucking financial group.

 

[Bob the Citronaut]

My truck loan is 1.75%, bought in December. You can buy new cars and trucks all day long at 0%. I refinanced my boat loan about a year ago for 2.99%. Mortgage rates are still below 4%. I can understand the mentality of not wanting to owe anything, I don't care about that though. I pay 1.75% on my truck and easily make 6-8% off that cash right now, I'm netting at least 4.25%. Hell my 401k has done 14.5% the last 12 months. Sure there will come a time when it doesn't make sense, but for the last 6-8 years it has made perfect sense.

 

[UCFKnight85]

My truck loan is 1.75%, bought in December. You can buy new cars and trucks all day long at 0%. I refinanced my boat loan about a year ago for 2.99%. Mortgage rates are still below 4%. I can understand the mentality of not wanting to owe anything, I don't care about that though. I pay 1.75% on my truck and easily make 6-8% off that cash right now, I'm netting at least 4.25%. Hell my 401k has done 14.5% the last 12 months. Sure there will come a time when it doesn't make sense, but for the last 6-8 years it has made perfect sense.

Those are introductory rates. They will get higher and slam you eventually.

 

[barrister1602]

What???

First off I haven't seen any loans being made for 3% in a long time. Auto loans are easily 8% or more to begin with. Even mortgage rates are well over 4% now.

Second, how are you "losing" money by paying cash for something instead of financing it at 3%? That 3% is interest you'll have to pay above and beyond the selling price. When you compound it, it adds up even more. The only theory that works here is if you theorize that you could pay for something at 3% and use your liquidity to do something like, say, buy stocks and yield more gains. Which may be true, but again, 3% loans don't really exist that much.

I bought my last car, used, in cash. It is the greatest feeling not being beholden to some bloodsucking financial group.

Bought a new BMW M4 black on black 1 year ago. Had to be built in Germany. They sent me photos of it being built and loading onto ship over here. Paid $5k down to order it. When I went to pick it up, the BMW dealer practically begged me to finance the rest. Of course I refused. Perhaps I'm simple minded but financing a car (which depreciates quickly) makes no sense. I get financing a home as long as you pay at least 20% down so no PMI. I financed my first 3 homes. I recently purchased a small farm and paid cash for it. I will be built my final dream home on it but will be paying cash. Once I got completely out of debt about 10 years ago, I swore never to have debt again. Very liberating feeling.

 

[Bob the Citronaut]

Those are introductory rates. They will get higher and slam you eventually.

No, they're fixed rates. Suncoast Credit Union and Lightstream respectively. You can check it out. They've both gone up a 1/4 point since the fed rate hike, but you can still get fixed rate auto loans for 2% and an unsecured boat loan for 3.25% from those two. There are cheaper loans out there too, I just stuck with the two banks I've used for a while.

 

[reddog4720]

Those are introductory rates. They will get higher and slam you eventually.

There are many new car loans that are between 0 and 2% that are completely fixed, same goes for home mortgage rates at or below 4%.

All you have to do is be a well qualified buyer....downpayment with a credit score 750+, so not everyone can get them, but they are out there.

 

[UCFKnight85]

There are many new car loans that are between 0 and 2% that are completely fixed, same goes for home mortgage rates at or below 4%.

All you have to do is be a well qualified buyer....downpayment with a credit score 750+, so not everyone can get them, but they are out there.

I have a credit score north of 800 and am as qualified as they come, yet the local Jeep dealer was trying to hawk a 5% rate on me after I had told him I'm paying cash.

 

[Bob the Citronaut]

I have a credit score north of 800 and am as qualified as they come, yet the local Jeep dealer was trying to hawk a 5% rate on me after I had told him I'm paying cash.

That's going through the dealer. They tack on their own commissions and fees. If you go to the bank directly and get a loan it's a lot cheaper. My last two trucks I got a bank draft from Suncoast and gave it to the dealer.

 

[reddog4720]

I have a credit score north of 800 and am as qualified as they come, yet the local Jeep dealer was trying to hawk a 5% rate on me after I had told him I'm paying cash.

Well I financed my car at 1.75% and my wife's was at 1.95% both with the dealer (VW and Subaru)......so I know it is possible and out there.

The other big difference is new vs used. Used cars always carry a higher interest rate vs new.

 

[NinjaKnight]

No debt here. I use a credit card to get airline miles but pay off balance each month. When I turned 16, my father told me that he would buy my first car but that I would be buying the rest. Also told me to only buy what I could afford to pay in cash. I listened to his advice and bought used the first times I bought cars. Now I can afford any new car I want ... in cash. Great feeling telling a car salesman I will just write a check for full amount.

Exactly the same here, always enjoy the look in the salesmens eyes when I tell them I'll be paying in cash. Makes the paperwork a lot quicker too

 

[Knight_of_Parrish]

The interest rate on my last three leased cars was nearly 0%. Sounds like they make the big interest $ on the car sales, not leases.

 

[MACHater02]

Acura was offering 0% or near 0% like a year ago and my co-worker bought 2 of them.

 

[Sir Galahad]

People will never learn, there will always be winners and losers in life.

 

[UCFKNIGHTS88]

0% interest isn't real. When the dealers give you 0%, they're paying a bank a fee/interest to originate the loan.

All things being equal a auto loan will be cheaper than a home loan because the repo process is so much shorter ok autos. Banks assume you'll stop paying your home loan before auto.

 

[knightalum74]

I have a credit score north of 800 and am as qualified as they come, yet the local Jeep dealer was trying to hawk a 5% rate on me after I had told him I'm paying cash.

CarMax financing was 1.9% for our last car purchased from them. Plenty of options out there for low interest rate auto loans.

 

[UCFRogerz]

What???

First off I haven't seen any loans being made for 3% in a long time. Auto loans are easily 8% or more to begin with. Even mortgage rates are well over 4% now.

Second, how are you "losing" money by paying cash for something instead of financing it at 3%? That 3% is interest you'll have to pay above and beyond the selling price. When you compound it, it adds up even more. The only theory that works here is if you theorize that you could pay for something at 3% and use your liquidity to do something like, say, buy stocks and yield more gains. Which may be true, but again, 3% loans don't really exist that much.

I bought my last car, used, in cash. It is the greatest feeling not being beholden to some bloodsucking financial group.

I just/am going through a home refinance and got a 30yr fixed at 4.00%. Credit rating in the high 700s low 800s

 

[UCF11and1]

The interest rate on my last three leased cars was nearly 0%. Sounds like they make the big interest $ on the car sales, not leases.

They are already making a lot of money from the lease, they don't need to add interest $ to it.
I laugh every time I see $200 lease with $3,000 at signing for 36 months. They don't realize that is almost $100 extra per month, they only see the $200 number. People pay $10,000 and have to return the car (which they can't enjoy due to the mileage limit) when they can just buy the same car for $18,000. BTW, the dealer sells the same car as pre-owned for $15,000 (used with 36,000 miles)

 

[barrister1602]

They are already making a lot of money from the lease, they don't need to add interest $ to it.
I laugh every time I see $200 lease with $3,000 at signing for 36 months. They don't realize that is almost $100 extra per month, they only see the $200 number. People pay $10,000 and have to return the car (which they can't enjoy due to the mileage limit) when they can just buy the same car for $18,000. BTW, the dealer sells the same car as pre-owned for $15,000 (used with 36,000 miles)

I know some of you financial geniuses will disagree, but I strongly encourage all to NEVER lease a car and ONLY buy what you can afford to pay in cash. Served me well....

 

[reddog4720]

I know some of you financial geniuses will disagree, but I strongly encourage all to NEVER lease a car and ONLY buy what you can afford to pay in cash. Served me well....

But if you're 23, live in a high price condo downtown, and want to impress the girl at starbucks with your beamer it is the only way......

 

[MACHater02]

They are already making a lot of money from the lease, they don't need to add interest $ to it.
I laugh every time I see $200 lease with $3,000 at signing for 36 months. They don't realize that is almost $100 extra per month, they only see the $200 number. People pay $10,000 and have to return the car (which they can't enjoy due to the mileage limit) when they can just buy the same car for $18,000. BTW, the dealer sells the same car as pre-owned for $15,000 (used with 36,000 miles)

I've been trying to explain this to my wife for the last 6 years.

 

[Bob the Citronaut]

If you want a new car every couple to few years a lease isn't a bad way to go. You're not going to be any better off paying cash or taking out a loan. You'll lose the same in depreciation when you trade or you'll be making similar payments on a loan.

 

[barrister1602]

But if you're 23, live in a high price condo downtown, and want to impress the girl at starbucks with your beamer it is the only way......

I never needed a nice ride to impress the bishes .......

 

[btbones]

I've been trying to explain this to my wife for the last 6 years.

There's a long list of things I've been trying to explain to mine for longer than that

 

[chemmie]

Bob told us all of this household debt is because people keep buying weed, liquor, and cigarettes.
It obviously has nothing to do with stagnant wages for 90+% of Americans over the last 35 years.

 

[Sir Galahad]

Bob told us all of this household debt is because people keep buying weed, liquor, and cigarettes.
It obviously has nothing to do with stagnant wages for 90+% of Americans over the last 35 years.

Well if your wage is stagnant then your spending should be as well now shouldn't it.

 

[Bob the Citronaut]

Bob told us all of this household debt is because people keep buying weed, liquor, and cigarettes.
It obviously has nothing to do with stagnant wages for 90+% of Americans over the last 35 years.

When?

 

[Great2BAKnight2]

The best finance move for the long term is to buy a 2-3 year old car and keep it for about 10 years. Cars can easily go 120k-150k miles without too much expensive maintenance. If you're not going to do that and you're buying new and selling in 4-5 years, lease deals may be better. There's a point where the scale tips to leases as the better option, but that's only if you're turning cars over frequently. But doing that is significantly more expensive over the long term compared to buy used and keep it.

 

[UCF11and1]

Nothing like the feeling after the last payment is made.

I also heard that you have to buy new tires when the lease is over

 

[UCFhonors]

The best finance move for the long term is to buy a 2-3 year old car and keep it for about 10 years. Cars can easily go 120k-150k miles without too much expensive maintenance. If you're not going to do that and you're buying new and selling in 4-5 years, lease deals may be better. There's a point where the scale tips to leases as the better option, but that's only if you're turning cars over frequently. But doing that is significantly more expensive over the long term compared to buy used and keep it.

This where I'm at. The other big depreciation drop is when your car hits the 6th year old. The reason is because most financial institutions won't finance a car older than 6 year old. So the bottom falls out of the demand when people can't find financing.

But I'm torn with keeping it for another 4 years to really get the biggest bang for my buck.

 

[barrister1602]

This where I'm at. The other big depreciation drop is when your car hits the 6th year old. The reason is because most financial institutions won't finance a car older than 6 year old. So the bottom falls out of the demand when people can't find financing.

But I'm torn with keeping it for another 4 years to really get the biggest bang for my buck.

Drive till wheels fall off. I graduated law school and was fortunate to start off with a big silk stocking law firm. Made decent scratch but hated the work and the big firm environment. Switched to plaintiff's work after 10 years but went from making decent salary to "eating what I killed". Lived off savings for about 9 months till that ran out. Had about 6 more months till money started coming in. Learned to live more "practical" again. Sold my expensive car and got a beater. Needed the funds to pay bills. Like starting over....and I loved it cause I loved what I was doing. Was broke, wondering how I would pay the bills and happier than ever. Eventually the cases began to resolve and the money started rolling. But that old beater was kinda of a symbol for me of the struggle i went through. Now I have multiple expensive rides including high end sports and GT cars. But I still have that old beater in a shed behind my house. I still go out and look at it about once a month to remind myself to keep working hard.

Drive that used car till the wheels fall off then keep it as a reminder. Pay yourself a car payment in the meantime and you will soon have a large fund to get what you want ...with cash.

 

[UCFhonors]

Drive till wheels fall off. I graduated law school and was fortunate to start off with a big silk stocking law firm. Made decent scratch but hated the work and the big firm environment. Switched to plaintiff's work after 10 years but went from making decent salary to "eating what I killed". Lived off savings for about 9 months till that ran out. Had about 6 more months till money started coming in. Learned to live more "practical" again. Sold my expensive car and got a beater. Needed the funds to pay bills. Like starting over....and I loved it cause I loved what I was doing. Was broke, wondering how I would pay the bills and happier than ever. Eventually the cases began to resolve and the money started rolling. But that old beater was kinda of a symbol for me of the struggle i went through. Now I have multiple expensive rides including high end sports and GT cars. But I still have that old beater in a shed behind my house. I still go out and look at it about once a month to remind myself to keep working hard.

Drive that used car till the wheels fall off then keep it as a reminder. Pay yourself a car payment in the meantime and you will soon have a large fund to get what you want ...with cash.

Great story / post.

I had 2 beaters in college after for a few years after. One was $700 and the other was $500. It took me years before I broke down and got a car payment on a certified pre-owned. The $700 was a Saturn. It was a beast. 230k miles. It would have lasted forever if I took care of it.

I always said, that I would always pay cash for cars. That was until I got a VW Golf - Turbo of course. It started to fall apart and the repairs were costing obscene amounts. I would have had to drive it for years to recoup the cost vs a car payment - which I was kinda trying to do. Eventually I wrecked it. And that was the inflection point to breaking down and getting a payment.

I don't know if you do you own taxes, but I think everyone should look at how much they pay in interest. (It's easy to see on all tax forms) If you have a mortgage - Interest expense is by far your single biggest expense. Add a car and student loans and a credit card, and it's likely that well over 50% of your income is going to pay for interest. Interest is literally the cost of not saving cash to pay for things.

 

[UCFBS]

I love how everyone says we Libertarians are anti-regulation.
No, we're pro-regulation ... but anti-control, anti-checkbox regulation, anti-feel good but don't do anything laws.

And no amount of regulation can prevent people who failed basic fiscal math, like the concept of future value of money.

You ask Baby Boomers or even early Gen-X what those tables look like, or some educated Gen-X'ers what those formulas or buttons on a calculator are for, and they know. But then other Gen-X'ers, and most Millennials, don't seem to understand compound interest, and expect an app for everything.

I wish I was joking. But in my own testing, I couldn't believe most people of younger, adult ages, didn't remotely understand how mortgages worked, and some basic concepts in figuring out how much of a home they could afford.

 

[goodknightfl]

My truck loan is 1.75%, bought in December. You can buy new cars and trucks all day long at 0%. I refinanced my boat loan about a year ago for 2.99%. Mortgage rates are still below 4%. I can understand the mentality of not wanting to owe anything, I don't care about that though. I pay 1.75% on my truck and easily make 6-8% off that cash right now, I'm netting at least 4.25%. Hell my 401k has done 14.5% the last 12 months. Sure there will come a time when it doesn't make sense, but for the last 6-8 years it has made perfect sense.

0 percent loans are not 0%. You almost always have the option of x$ cash back or 0%. If you can pay cash you take the $$ up front. No loan fees, usually a few hundred dollars, and no 2% to 6% depending on your credit. and you take what would have been payments and save them collecting 1 or 2%. Most of us are caught on the loan wagon, but there is no doubt we could do better if we were not. If banks can make $$ on a loan, you by simple math have to be losing it.

 

[Sir Galahad]

I used to buy a new car every four years or so until I met my wife. She was 32 years old and driving a ten year old BMW 318i with 125,000 miles on it. Quickly realized that car payments suck and if you can't pay a car off the day you buy it and they are not giving you 0% type financing, don't buy it. My wife drives a new 435, I drive her old 14 year old Lexus with 150,000 miles on it. I would rather my money go elsewhere than to a car.