Driving into debt
Another bad debt area is auto debt. While most people need an automobile, and the ultimate cost of an auto is higher than many people can pay in one lump sum, the way people go about it -- namely, purchasing more car than they need -- turns it into bad debt.
"People can afford to pay cash for a car," says Waskin, "but not the car they see themselves in from an ego extension standpoint. So you buy a car at a much higher rate than a house, and that asset is worth less the day you drive it off the lot."
Bach considers auto debt a Catch-22.
"People borrow to buy cars before homes," says Bach, "and that's unfortunate. For most people, their first major loan is a car loan. That's guaranteed to go down in value. So you really want to borrow less. For example, instead of rushing out to borrow to buy a $50,000 BMW, you'd be better off buying a $25,000 car."
Harol reminds us that just a few years ago it might have made more sense to buy a car at 6 percent or 7 percent, and then invest in other avenues and earn 10 percent or higher on your money, than to pay off the car. Now, of course, with traditional market investments substantially riskier, that is no longer the case.
The best type of debt is debt that builds wealth over the long run, and the No. 1 example of that is mortgage debt.
"Home values have increased an average of 6.5 percent a year over the past 30 years," says Bach. "So when you borrow to buy a home, chances are that's good debt. You'll build value."
Bach heavily promotes the idea of homeownership, saying that everyone needs to own where they live.
"About 40 percent of Americans are renters," says Bach, "and the fastest way to wealth in America is buying where you live."
Bach cites some shocking numbers to back this up.
"The average renter has a median net worth of $4,000, and the average homeowner has a median net worth of about $150,000."
Manning also emphasizes what a good time this is to build wealth through debt.
"This is the most advantageous time ever to be in debt," says Manning, "in terms of opportunities to get low income loans, or to renegotiate or refinance."
Duh, debt?
One of the reasons so many people seem mired in bad debt (both Bach and Waskin report that the average American carries approximately $8,400 in credit card debt) is that financial education is virtually non-existent.
"This type of common sense stuff isn't taught in school," says Bach, "and most Americans don't realize how bad high-rate credit cards are hurting them."
"We are stupid people when it comes to financial education," says Waskin. "Only 40 percent of high school students receive any economic training. We don't teach kids how to balance a checkbook, what a credit card is, paying rent. We just say, 'Figure it out.'"
"People are getting in debt before they have a job," says Manning. "Education is important. We used to encourage kids to save, and that has been missed. Students now refer to their credit cards as yuppie food stamps. They see cards as entitlement, and see they will be in debt all their lives."
Waskin says that the way to fix this is to educate kids on the difference between good and bad debt, and to return to some basic fiscal common sense.
"We need to go back to the fundamental values our parents and grandparents had, saving for a rainy day," says Waskin. "The best thing you can do is hope for the best, but plan for the worst."
Another bad debt area is auto debt. While most people need an automobile, and the ultimate cost of an auto is higher than many people can pay in one lump sum, the way people go about it -- namely, purchasing more car than they need -- turns it into bad debt.
"People can afford to pay cash for a car," says Waskin, "but not the car they see themselves in from an ego extension standpoint. So you buy a car at a much higher rate than a house, and that asset is worth less the day you drive it off the lot."
Bach considers auto debt a Catch-22.
"People borrow to buy cars before homes," says Bach, "and that's unfortunate. For most people, their first major loan is a car loan. That's guaranteed to go down in value. So you really want to borrow less. For example, instead of rushing out to borrow to buy a $50,000 BMW, you'd be better off buying a $25,000 car."
Harol reminds us that just a few years ago it might have made more sense to buy a car at 6 percent or 7 percent, and then invest in other avenues and earn 10 percent or higher on your money, than to pay off the car. Now, of course, with traditional market investments substantially riskier, that is no longer the case.
The best type of debt is debt that builds wealth over the long run, and the No. 1 example of that is mortgage debt.
"Home values have increased an average of 6.5 percent a year over the past 30 years," says Bach. "So when you borrow to buy a home, chances are that's good debt. You'll build value."
Bach heavily promotes the idea of homeownership, saying that everyone needs to own where they live.
"About 40 percent of Americans are renters," says Bach, "and the fastest way to wealth in America is buying where you live."
Bach cites some shocking numbers to back this up.
"The average renter has a median net worth of $4,000, and the average homeowner has a median net worth of about $150,000."
Manning also emphasizes what a good time this is to build wealth through debt.
"This is the most advantageous time ever to be in debt," says Manning, "in terms of opportunities to get low income loans, or to renegotiate or refinance."
Duh, debt?
One of the reasons so many people seem mired in bad debt (both Bach and Waskin report that the average American carries approximately $8,400 in credit card debt) is that financial education is virtually non-existent.
"This type of common sense stuff isn't taught in school," says Bach, "and most Americans don't realize how bad high-rate credit cards are hurting them."
"We are stupid people when it comes to financial education," says Waskin. "Only 40 percent of high school students receive any economic training. We don't teach kids how to balance a checkbook, what a credit card is, paying rent. We just say, 'Figure it out.'"
"People are getting in debt before they have a job," says Manning. "Education is important. We used to encourage kids to save, and that has been missed. Students now refer to their credit cards as yuppie food stamps. They see cards as entitlement, and see they will be in debt all their lives."
Waskin says that the way to fix this is to educate kids on the difference between good and bad debt, and to return to some basic fiscal common sense.
"We need to go back to the fundamental values our parents and grandparents had, saving for a rainy day," says Waskin. "The best thing you can do is hope for the best, but plan for the worst."
