Do you believe part 2:
6. I will always have a car payment.
7. If I want a new car every two years, I should lease it.
8. A new car is a great deal.
9. A 30-year mortgage is great because it has lower payments and I can always pay extra to pay it off early.
10. Credit cards are a great way to earn points to get perks.
11. My teen needs a credit card to learn how to handle money.
12. My home equity loan is a good place to consolidate my debt or as my emergency fund.
13. When I consolidate my debt, I only have one payment and I’ll save interest.
14. I can become prosperous when I use debt as a tool to build wealth.
I will always have a car payment.
No, you won’t always have a car payment provided that you pay cash for a good, used car. Car payments allow you buy a car that you probably shouldn’t buy. If you buy a brand new car, the minute you drive it off the lot it depreciates. If you were to have an accident and your brand new car was totaled, guess what, the insurance company would not pay you the full amount you just obligated yourself for on the loan. Why, because the car has lost value as soon as you drove away. Your best bet is to save money and pay cash for a used car. If you save long enough, you can buy a new car in cash!
If I want a new car every two years, I should lease it.
Oh boy, this one is really, really bad. Leasing a car is one of the dumbest moves you can make. Dave Ramsey calls it “fleecing” and for a good reason. You are getting fleeced by the car company when you lease a car. You pay and you pay until the lease is up and what to do you have, an empty pocketbook. Sure, you got to drive a fancy new car, but you paid for all the repairs, you paid for any miles you went above the agreed-on amount. Now, you have to get another car to get you around. Save yourself from being sheered like a sheep and avoid leasing.
A new car is a great deal.
Seriously? There is no way a new car is a good deal. Sure you might have talked the salesperson down a few thousand dollars from the MSRP, but your brand-new car depreciates almost instantly. A new car is not a great deal. Insurance rates, taxes, and registration are higher on new cars than on used cars. You do get that new car smell, which is nice, but having no debt and money is way better.
A 30-year-mortgage is great because it has lower payments and I can always pay extra to pay it off early.
Oh come on, you don’t honestly think that you are disciplined enough to make those extra payments. IF you are, then great. However, if you get a 15-year-loan, your payments are going to be higher. However, you will pay off the mortgage faster and you’ll save a ton of money in interest. Also, if you end-up with extra money and have no consumer debt, your emergency fund is fully funded and you’re maxing out your retirement accounts, then take that money and apply it to your mortgage. You’ll save even more in interest.
Credit cards are a great way to earn points to get perks.
Some companies do offer you points that you can use to buy merchandise. However, if you don’t pay off your credit card in full each month, those points are costing you a lot of money in interest. If you pay off your credit card each month, then great use those points before they expire. Otherwise, they aren’t worth it. The credit card companies are not stupid. If they lost money by offering you points, they wouldn’t offer them. These people are pros at what they do.
My teen needs a credit card to learn how to handle money.
NO! Your teen does not need a credit card to learn how to handle money. You need to teach your teen to pay cash for his purchases; to save money; to work for what he wants and avoid debt. Model what you want your teen to learn and they will catch-on. If you want to get them a credit card, make sure you get them a secured card. Have them talk with you before they make a purchase on their credit card and ensure that they’ll have enough money to pay it off when the bill comes in. Make sure you review the credit card statement with them each month. You are teaching them how to handle money and credit cards wisely when you do the above. Empower your teen, so they won’t end-up being debtors.
My home equity loan is a good place to consolidate my debt or as my emergency fund.
Yikes! You definitely do not want to trade unsecured debt for secured debt. When you have credit card debt, nothing is backing it up. There is no surety for the charged amount. When you get an equity loan, you are now using your home as collateral. The bank can take your home if you default. Also, an equity line of credit is debt. It is not a place where you have an emergency fund. An emergency is money that you have saved and can withdraw without incurring penalties and you can withdraw it at anytime. It does not cost you money to have as does an equity line of credit. You are paying interest on an equity line of credit.
When I consolidate my debt, I only have one payment and I’ll save interest.
No, you won’t save interest. If you have not addressed the root cause of your spending, you are only going to charge up the credit cards and you are going to have that new debt plus the consolidated debt. If you address the root cause of your spending, which in all likelihood is you are living above your means, and you start living on a monthly money blueprint and use cash, then you might be able to consolidate your debt. However, don’t use a home equity line of credit to consolidate your debt.
I can become prosperous when I use debt as a tool to build wealth.
No, no, no! This is what our Federal Government is notorious for doing. They borrow and borrow money and now the Federal deficit is so big, we’ll never be able to pay it down, unless something drastic is done. You cannot borrow money to invest or to build wealth. Borrowed money is costing you more money in interest, than the interest you would earn on the investment. Do not borrow money to invest. If the investment loses money, then you’ve lost all the money or a significant portion of it and you are still obligated to paying off what you borrow. Only invest money that you can afford to lose. Borrowed money is not it.