# Debt - Should you expect it, or fear it?



## forfeitclothing (Apr 25, 2007)

I did not see a thread like this anywhere I searched, and I think it is an issue that has probably went through everyone's mind at one point. How much is to much debt? As a young company did you expierence debt? and how do you think is the correct way to handle it? My company is about 10 months old, and I am in a pretty penny. I do have the money in merchandise, and plans i feel confident in that put me above water. The basic flow of this is more of an opinion of your thoughts, and a starting up story - and any mistakes that are easily avoidable!


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## Solmu (Aug 15, 2005)

Expect it, *and* fear it (or rather, respect it).

Too many people take on debt without a second thought as if it was the certain road to their better life. But to react against debt culture to the point of refusing to take on debt in any way, shape, or form is also short-sighted (the philosophy behind that choice could be called naive as much as it could be called noble).

I don't think a company should saddle itself with debt too early in the process, but at some point expansion will be necessary, and debt is a good prospect.

If your debt costs 8% and your investments (reliably) pay out 12% it's a no brainer.

But taking on debt when you have no income and can only expect the debt to grow? Or gambling with debt because you _hope _this investment will pay off? Best avoided if you can. Debt shouldn't be a replacement for income you don't have.

I used to be debt averse until I realised I was being irrational. If debt comes calling I have assets - good debt means not over-extending yourself, and if you stick to that it's just free money. My credit card debt is $0. On the other hand I have a mortgage. Not all debt is created equal.

If you can find an affordable, competent, trustworthy accountant then treasure them. Even if you can handle your own money, having someone more objective go over your finances is still useful.


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## neato (Mar 21, 2006)

I think a person can do without debt if he or she is wise and patient.

I've made the mistake of taking on debt for a business in the past. 5 years after the business was closed, I was still paying for it. No fun.

Currently, I have zero debt either personally or in the business. (Well, I do have a small amount on the Credit Card that I make small payments on to maintain good credit) Business is a lot more enjoyable when you only have to worry about coming up with a small paycheck every week and don't have huge loans and CC payments to make.

Also, I don't consider a mortgage debt. It's an investment.


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## Comin'OutSwingin (Oct 28, 2005)

Phillip, I think you bring up the point that most don't consider with the issue of debt, and that's the peace of mind factor.



Solmu said:


> But to react against debt culture to the point of refusing to take on debt in any way, shape, or form is also short-sighted (the philosophy behind that choice could be called naive as much as it could be called noble).


Could not disagree more. What's so naive about not owing anyone money? 
I think it's naive to think that debt is a necessity.

That's the mindset that has so many people trapped by the prison of debt. 
If don't properly, being debt free (no matter the circumstances) can be EXTREMELY rewarding.

I don't want people to think I'm just blowing smoke, either. I live it. I used to have automobile debt, credit card debt, etc. But getting out of debt and staying out of debt has been great.

The power and peace that comes with no debt, can't be described in words. Most people that would call it naive, don't know what I'm talking about because they've never experienced it. They only look at it from a numbers point of view.

They don't know what it feels like to wake up, and know that they could lose their job, and not have to worry about the mortgage. Or worry about what they have to sell in order to pay the mortgage, or make the car payment.

It's in incredible feeling when you don't have debt, and you start to save money like crazy because it's not going to pay for all of the debt that people tell you is necessary. Imagine having a home with no mortgage, nice vehicles with no payments. And because you don't have money going to debt every month, imagine how much you could save, invest, and help others.

When you don't have debt and you're constantly saving what would have been going out in debt, you don't have to borrow money because you have the money yourself to buy what you want.

Whatever you just imagined, the feeling is a billion times better than that, and can only be fully understood when you get there.

I don't want to make this into a long, drawn-out, debt-free story. But I've been there. I've sacrificed, and I'm telling you that it can be done, and once you've done it you don't have to ever worry about it again.

I'm 32, with 3 kids, completely debt-free. I own my home, my vehicles, and will never again go into debt FOR ANY REASON. You know why? Because I don't have to.

Naive? Hardly.

So for the question at hand. Expect debt? No, it's not a necessity. You can absolutely build a successful business without debt.

Fear it? Hell yeah! I would. I've been there. Like the ****ing plague!!!!


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## highstyleinc (Apr 4, 2007)

I think that all points given are good. I don't think everyone is able to live debt free but evryone does have the ability to acomplish living debt free. 

Don't take on debt if you don't have to. I don't think you should expect it because if you go into it with that mind set, you will create debt. Find creative ways to get what you need done. Set budgets and stick to it. 

I think most people make the mistake of stocking too much merchandie when they first start.


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## Solmu (Aug 15, 2005)

neato said:


> Also, I don't consider a mortgage debt. It's an investment.


All debt is an investment if you're doing it properly.


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## Solmu (Aug 15, 2005)

Comin'OutSwingin said:


> Phillip, I think you bring up the point that most don't consider with the issue of debt, and that's the peace of mind factor.


That's exactly why I hated debt; my mindset was the type that having debt made me anxious. Pay it off, I feel better. Eventually I realised it wasn't the debt I hated, it was the feeling of insecurity. Debt and insecurity don't have to go together, if your finances are properly handled you can have both debt *and* peace of mind.

Peace of mind is all about mindset, if you tell yourself debt is bad you'll feel anxious, if you don't take debt seriously enough you'll be a happy idiot until the bank forecloses; in between those two extremes is the happy middleground of making the most financially advantageous decisions, and not feeling bad about them.



Comin'OutSwingin said:


> What's so naive about not owing anyone money?


Nothing. But avoiding borrowing money due to an artificially constructed sense of moral superiority is naive. It's not a competition in which spectators will nod and chalk up a point for that decision. I understand that it's a personal decision that can make a person happy (and there's nothing wrong with being happy), but equally if they didn't have that mindset they could be happy and more successful. They don't have to be if they don't want to be, but they could be. Their decision is unlikely to make them miserable and in that sense I won't fault it - it doesn't mean it's the most rational decision they can make however.



Comin'OutSwingin said:


> I think it's naive to think that debt is a necessity.


Not a necessity for success (though it will be for some people), but it can certainly be a necessity to get from point A to point B. _*Especially*_ if you want to get from A to B in X amount of time.

But it doesn't have to be a necessity, it can simply be a _benefit._



Comin'OutSwingin said:


> That's the mindset that has so many people trapped by the prison of debt.


No, stupidity traps people in the prison of debt. Stupid decisions ruin lives. Debt is not _inherently_ bad. It's not inherently stupid or inherently trapping.

Whenever we make a financial decision (debt/no debt) without rational thought we are putting ourselves into a financial prison. One (debt) happens to be a lot more harmful than the other (no debt), but both bind a person to a course of action that doesn't make objective, logical sense. Both prevent them from being in their optimum financial position. If someone doesn't _want_ to be in their optimum financial position, then so be it.

Changing the part of your mind that is (un)comfortable with debt is not such a big deal, or at least it wasn't in my case. Like many things in life how we feel about it is a choice. For me it was a matter of realising that I had made an irrational one, and that I had an extremely naive view of how the world works. Most of it was down to mislabelling the debt as being bad, and not the lack of financial security.

There were a lot of people in my life who carried debt they didn't have to - why not simply pay it off and feel better? That's what I'd do. Why not pay it off? Because they made more money not paying it off, and because if that changed they could pay it off at any time they cared to. Ultimately they were going to live a happier life carrying that debt and maximising their earnings. A debt is only an anchor if you want it to be - a debt you can choose to pay off if you wish feels the same as not owing a debt if you let it.

In my case I'm simply not that wealthy. I carry debt (in the form of a mortgage) that I can't wave away even if I wished to. But my mind is sound because I know it's the financially sensible thing to do, and I know that _this_ debt is in no position to ruin my life.

Good debt. Bad debt. That's the difference everyone has to learn. It's the difference that the person paying off one credit card debt with another hasn't learnt, and it's the difference that the person who avoids debt like it were some great evil _even when it could improve their life_ also hasn't learnt.



Comin'OutSwingin said:


> If don't properly, being debt free (no matter the circumstances) can be EXTREMELY rewarding.


So can buying a puppy. What's your point? It doesn't have to be that way, it's a simple conscious choice. Along similar lines I feel 'rewarded' because I don't take drugs of any kind; I broke my arm, and I didn't take painkillers. The real reason is because I can't stomach them, but I tell myself it's some personal choice that somehow makes me better than those who give in (because if we're being honest, that's what we're talking about here).

It's the same psychological ploy. Someone chooses not to take on a perfectly rational, normal, amoral, desirable option available to them - then convinces themselves it's because this suffering through it makes them happier. Be that as it may, if one simply felt differently about the entire matter they could both make the sensible choice *and* feel good about it.

I understand this because I still buy into my psychological dysfunction while simultaneously realising the error of it. I know you'll think it's not the same at all, but if you think on it you'll realise it is. The choice isn't rational, so in order to prevent cognitive dissonance the mind supplies another reason for doing it - in this case, a sense of wellbeing.

I'm stronger because I don't take harmless over the counter drugs. You're stronger because you don't take on safe, financially sound debt. Meanwhile all the normal people are living their lives without headaches (metaphorical and real), or artificial roadblocks they have set themselves, and are better for it.



Comin'OutSwingin said:


> I don't want people to think I'm just blowing smoke, either. I live it. I used to have automobile debt, credit card debt, etc. But getting out of debt and staying out of debt has been great.


Again, there's a big difference between stupid debt and rational debt. Just as the recovering alcoholic can't touch alcohol, many recovering debtors can't abide debt - it doesn't mean it should all be tarred with the same brush.



Comin'OutSwingin said:


> The power and peace that comes with no debt, can't be described in words. Most people that would call it naive, don't know what I'm talking about because they've never experienced it. They only look at it from a numbers point of view.


I've never carried a serious debt in my life until I took on a mortgage. I've never paid interest on a credit card. I haven't known the joys of owning my own home outright, but up until this point in my life I lived my life debt free. I know what it's like, then I realised 1) I had artificially constructed this for myself, 2) What most separates the rich from the poor is not wealth but mindset; those who cross over despite a different mindset are the lucky few, 3) I thought that as someone in the middle class I wasn't a victim of the class system, but my debt-free mindset made me exactly that.

If I borrow $20 from a friend because I forgot my wallet, I won't lie awake at night wondering where I'm going to get that $20 from. Do you think the Murdochs and Rockefellers of this world worry about where the $50 million they need for their new hotel is going to come from? What power do they lack? What peace of mind do they lack? Why can't that scale, since it's purely just the way that an individual human being chooses to look at their life?



Comin'OutSwingin said:


> They don't know what it feels like to wake up, and know that they could lose their job, and not have to worry about the mortgage. Or worry about what they have to sell in order to pay the mortgage, or make the car payment.


Nor do I worry - it's called living within your means. Sure if it carried on for long enough I'd be screwed, but that would be true whether I was renting or paying a mortgage. That's simply the difference between rich and poor.



Comin'OutSwingin said:


> And because you don't have money going to debt every month, imagine how much you could save, invest, and help others.


The cost of your debt does not have to exceed the money you make from it. That being the case, you can save even more because you have access to more capital.



Comin'OutSwingin said:


> I'm 32, with 3 kids, completely debt-free. I own my home, my vehicles, and will never again go into debt FOR ANY REASON. You know why? Because I don't have to.


And you think anybody could have done that? It didn't take luck, or skill, or intelligence, or hard work, or opportunity, or whatever it is that got you to that point - merely following the right debt free path?

The average person will not be in your financial position, and it's not because they racked up a $1500 bill at Macy's et al in their college years.

Most people simply don't have the earning power to do that, even if they make every correct decision.

And if they _were_ in the same position, then investing their money would shave a bit of time off.



Comin'OutSwingin said:


> Naive? Hardly.


You created a psychological reward for yourself (a feeling of wellbeing), then you achieved the goal that would trigger that reward (live debt free), then you reaped that reward, then you convinced yourself that the way you _choose_ to think, which has no objective basis in fact, is universally better and not just a product of your own chosen method of thinking. Yes, I'd call that naive.

Congratulations, you're happy. It doesn't mean you're right.



Comin'OutSwingin said:


> So for the question at hand. Expect debt? No, it's not a necessity. You can absolutely build a successful business without debt.


I agree that plenty have, and plenty will. But just like any relevant tool, if correctly used it will be easier to achieve your goals with it than without it (and dangerous if incorrectly used).


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## Comin'OutSwingin (Oct 28, 2005)

It's obvious that we aren't going to agree, so instead of a long drawn out post, I'll just hit some quick points.



Solmu said:


> Most people simply don't have the earning power to do that, even if they make every correct decision.


Yes, they do. If it's important to them. For most of the time I was getting out of debt I lived on 1 income of about $20,000, married with 2 kids. That's not much earning power.

What was important to me was not always living that way. Trying to drive the latest car, dress in the best clothes, eat at the fancy restaurants, and impress people with "STUFF" is what keeps people living that way.

It's about sacrifice.

I don't know about Australia, but this country is overflowing with people trying their damnedest (sp?) to get out of debt! Why? Not because they have some illusion about what it's like to be debt-free, but because they see what it's like to have debt and don't want it anymore.


Solmu said:


> You created a psychological reward for yourself (a feeling of wellbeing), then you achieved the goal that would trigger that reward (live debt free), then you reaped that reward, then you convinced yourself that the way you _choose_ to think, which has no objective basis in fact, is universally better and not just a product of your own chosen method of thinking. Yes, I'd call that naive.


If that's what happened, yes, I agree, that would be naive. But you are mistaken.

I lived in debt. I saw that making monthly payments and paying interest on debt was killing my ability to have what I wanted out of life. Namely spending time with my family, helping others, and achieving various personal goals. I didn't want to always HAVE to go to work. I didn't want to always HAVE to have a car payment. 

With no debt, the ability to save and invest increases exponentially. With those savings and investments, soon there is never a reason to have any debt whatsoever.

I didn't like living in debt because of those things and I did something about it.

Sorry, but that's not naive. You're wrong.

I'm sure if you took a poll, most people who have jobs and work do so because they HAVE to. I didn't want to HAVE to my entire life. Now I do what I WANT to because I chose to get out of debt.

The ONLY reason that I'm able to do that now, is because I made the conscious choice not to be in debt.

I also happen to believe that ANYBODY that wants to, can do it also.


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## lekx (Nov 27, 2007)

i think you guys both have good and VERY valid points there are pros and cons to everything depending on how you look at it and my feeling towards what you both are saying is like saying which one is better an apple or an orange. they both have their weak points and strong points and its up to you to decided which is the best route for you. with debt or without, that is the question!


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## TripleT (Apr 29, 2007)

Debt is a tool. For those who understand it and can use it properly, it's one more arrow in your business quiver, that can and should be used when needed.

For those who don't understand it and use it as a crutch, you might as well be dancing with the devil.

P.S. --- credit cards are not the proper way to fund debt


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## Solmu (Aug 15, 2005)

Comin'OutSwingin said:


> It's obvious that we aren't going to agree


Yep - I figure our back and forth will help anyone reading this thread who hasn't made up their mind yet, rather than you or me, stuck in our ways as we are 



Comin'OutSwingin said:


> I don't know about Australia, but this country is overflowing with people trying their damnedest (sp?) to get out of debt!


I'm pretty sure (but not 100%) that the average credit card debt here is lower than in the US, but the problems are much the same, it's still higher than it should be, etc. The evil that is pay day loan centres are a relatively new thing here though, and our social security is probably easier to get on, so overall there are some differences in the specifics. The same social problems though.



Comin'OutSwingin said:


> I lived in debt. I saw that making monthly payments and paying interest on debt was killing my ability to have what I wanted out of life.


And then you concluded the debt you lived with is the same as living with any debt.

Your debt made your life worse, some debt can make your life better. Really, that's all I'm saying.


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## karlking85 (Sep 26, 2007)

I agree with you both, all good points. And Lewis you're definitely right that if used properly, debt can make reaching your business (and personal) goals much easier, esecially if you have set a certain timeframe on that success. Unfortunately alot of people don't understand how to use debt to their advantage, and do back themselves into a corner that is tough to get out of. 

I must say that I only have a small amount of debt right now, which is entirely riding on my business projectives, but I would be much happier with none at all. But at this time, I am content with some debt, knowing that I am not in over my head, and that month by month, that debt is lowered as my business begins to grow. 

Someday I would love to be debtfree, like Greg, but it for me, is probably several years off. Mainly because I plan to grow my business as far as possible, and I don't want to bring in investors, when I can fund the venture myself. Even if it does mean holding onto one revolving line of credit, at least I know that it is trading one asset (being debt free) for another (seeing my goals come to reality.)


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## Oritron (Feb 26, 2007)

My little answer to the question:

I should preface this with the fact that I'm just a student, not a professional business-person... but I do want to bring this back to the question asked.

If you are thinking about your business as a "control volume" of money, it will at points have debt. Right away when you decide to start a business, you are putting time in, and not getting anything out right away. However, it's all investment! Like what you can read above, smart debt is investment.

I used to print shirts for friends and family for free. That had debt written all over it - they'd give me the shirt to print on, but I was paying for screens, ink, squeegees, etc., and putting my time in for free.

Now I'm starting a business. Someone in this thread knows the details, because he's printing for me*  Of course, that means a lot of debt - I am putting money into shirts, and money into prints. Higher quantities mean lower costs, so that's a balancing act in itself... you can risk more (ie, buy more shirts), but then your potential return is higher too (ie, you will get more profit per shirt if they do sell).

My friends that I've made shirts for in the past now want to formally buy something from me, and I think they would regardless of what's on the shirts. Will the shirts sell to a broad market? I don't know... the designs are alright, but I am not formally trained in art or anything like that. It's just stuff that I would wear. Right now I'm just getting three designs made, and that cost a whole lot - but I doubt I could expect web sales with only three designs (if you consider one of the designs that'll be available on multiple colors, then it's five designs! But no one falls for that  ). People expect to see more than three designs on an online store. As a result, I know I'll be making more designs and investing more money before I start to _come close to_ breaking even.

It's an investment - if my shirts sell, I'll be getting a return on that investment. If they don't, I'll definitely learn from it, and in the absolute worst case... I'll have a few hundred shirts with robots on them sitting around, and my wallet will be lighter. I'd be lying if I said that it doesn't make me a bit nervous, but it's certainly not the end of the world. I'll still be better off than easily 90% of the world's population. I could go fly a kite, or take a walk in the park. I'm still going to have my friends, my health, and so many robot shirts, that I could probably go quite a while without needing to do laundry. Overall, I'll still be smiling!

Any business has investments. I don't believe in skimping on those investments - buying lousy equipment and goods may mean less debt, but it also means less potential return on the investment. As always, there's no such thing as investment without risk.

The fortunate thing for me is that I'm just spending money that I've been saving up. I don't particularly need it. I think it still counts as debt if you are spending thousands on t-shirts, but I know that the above discussion has been more about spending the bank's money.

Beyond that... I guess i can say, best of luck to you, Derek!

*Question: Am I allowed to say who it is and what a nice guy he is to work with, and not have that removed as promotion?


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## Matto (Sep 28, 2007)

I look at it this way , If you use CC then ok thats fine just make sure you can pay them off every month. CC are a good way of tracking your spending and create a paper trail for your business. Affordable debt is ok but if your debt keeps you working long hours to make minimum payments then your in too deep and need to resolve the situation asap. No amount of debt is worth the anxiety it creates. My shirt business is debt free and I intend to keep it that way.


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## prometheus (Oct 19, 2006)

This is an intersting discussion. I understand both sides, but I tend to side more with Greg. I believe that a business should do all it can to avoid debt. Why? Cause most of the time you'll end up working for that debt. There is an old saying "the borrower is slave to the lender". I've been in a lot of big companies that will buy stuff that they run around like crazy trying to pay for it. What if they outright bought it? What if you owned your own building instead of paying rent? What if your machines were paid for? You would have freedom. If business was slow, so be it. 

Now I understand that there are certain things that you just can't go out and buy right off the bat. Maybe you have a small screen shop and your business is doing well and you want to move up. New shop, new machines, etc. It's a lot of dough to swing. BUT what if your first shop was all paid for? Then you wouldn't have to borrow that much. 

I'm running my business on the principle that everything will be paid in cash. If I need something and don't have the cash, then I'll wait till I do.


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## rrc62 (Jun 2, 2007)

I'm also debt free, but for a lot of people, debt is not an option. I know people who need more to live than what they make. Housing, kids, gas, insurance, food, utilities...Just basic necessities can add up. If you had a credit card and no other means of feeding your family, you'd use the credit card. I'm glad I'm not there, but I understand how easy it is these days to get into credit trouble.

I know people who make their house payment on a CC, then what that CC gets maxed, they get another. Their way out is bankruptcy, but with the new laws, that no longer dismisses the debt, so there really is no way out.

IMO, those of us not burdened with debt make a very small percentage of the population. Frankly, I don't see how a young person just starting out today can afford the basics without debt.


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## Comin'OutSwingin (Oct 28, 2005)

prometheus said:


> What if they outright bought it? What if you owned your own building instead of paying rent? What if your machines were paid for? You would have freedom. If business was slow, so be it.


That's my point. What's so good about debt? Think of the position you could be in without it.

I guess there aren't many people who think that they would be much better off owning the things they have, rather than paying someone else for the privilege to use their money to get what you need/want.

Debt is used as a means to get what you want NOW! It's the microwave society that we live in. You want what you want now, but if you got out of debt, saved, invested, you would be able to get WHATEVER you wanted from that point forward.






prometheus said:


> I'm running my business on the principle that everything will be paid in cash. If I need something and don't have the cash, then I'll wait till I do.


That's the way I did it, and continue to do it.


rrc62 said:


> Frankly, I don't see how a young person just starting out today can afford the basics without debt.


It can be done. People do it everyday. People just starting out in life. 

Frankly, I think that's the mindset that get's them started off on the wrong foot. They think that the ONLY way to get any thing is to go in debt. It's just not true. 

Most people are in debt most of their adult lives. If they started with notion that I can sacrifice now when I'm starting out, have no debt, then later be in a position where I NEVER HAVE to have debt, then more people wouldn't be in debt.

Once you start the debt cycle, and the mindset that whatever I get I need to borrow money for it, it is EXTREMELY hard to stop that.

But it can be done for people today, just like I did it. Sacrifice now, for something better later.


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## T-BOT (Jul 24, 2006)

sometimes it does NOT make financial sense NO TO go the debt root.

using someone elses money to make money is actually a good way to go when the cards are played out right. 




:


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## Comin'OutSwingin (Oct 28, 2005)

T-BOT said:


> sometimes it does NOT make financial sense NO TO go the debt root.
> 
> using someone elses money to make money is actually a good way to go when the cards are played out right.
> :


Yes, it CAN be. But it's like playing with fire. With home foreclosures and bankruptcies as high as they are, there aren't many people that can do that effectively.

Why not put yourself in a position where you don't have to use someone else's money? I think that's a much more advantageous position to be in.

The problem with doing as you suggest, is what I eluded to earlier. You start the debt cycle. The more you use someone else's money to make money, the more you get dependent on that, and the farther away you are from not having to rely on it.


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## T-BOT (Jul 24, 2006)

Comin'OutSwingin said:


> Why not put yourself in a position where you don't have to use someone else's money? I think that's a much more advantageous position to be in.
> 
> The problem with doing as you suggest, is what I eluded to earlier. You start the debt cycle. The more you use someone else's money to make money, the more you get dependent on that, and the farther away you are from not having to rely on it.


 
I understand what you are saying. After a while its like IT is the norm to be below zero with the line of credit.

I too like to pay for what I need when I can. IT is the best way, no doubt. Thats why everything I own is mine.  

But there was a time when I did RISK it to make money. There was no other way because opportunity knocked, needed funding to fulfill that goal, so I took the chance/risk. I mean, there are always risks involved in business, be it loan debts or bad debts, right?


:


:


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## Comin'OutSwingin (Oct 28, 2005)

Of course there are always risks. There are risks walking across the street.

If someone feels that's what they need to do, then more power to them.

But don't fool yourself. When you're using other people's money to TRY and make money, there is always a BIG risk involved. When you don't have to do that, there is no risk.

I've been there before, and know what you mean. I just chose not to risk it. Does that mean I'm a bad business person because I didn't pay someone to use their money so that I can make money? Some may think so. But I chose to not take "advantage" of debt, but I also chose not to take the risk of it also.

What did that do? It meant that I had to pass up what seemed like an incredible opportunity, but by doing so, I continued on the path that put me in the position to not have to ever have to use that risk.

If I'm going to risk money, I would much rather have it to risk, than risk someone else's and STILL have to have the money to give them when it goes bad.


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## karlking85 (Sep 26, 2007)

That's an excellent way to look at it. I will admit, I am carrying one personal loan over into my new business to help get started, but that is a loan that I already had revolving and never truly needed. I took it out only to build credit because I am young and at my age, you do what you can. I have since obtained credit cards (which I pay off every month) and once this loan is paid off, I will NOT be renewing it. 

For the most part, I plan on tackling my business with my own capital. I am going in with myself as the only investor, and I plan on the company's sales funding its own growth, ideally. 

So for the most part, I do not NEED debt at all to get started, nor to carry on the day to day, but for now, it will make my life a little bit easier in the short term. Most likely, the loan I am renewing will actually be spent on my personal finances, so it will probably never touch the business in the first place, but that still frees up capital to pour back into my startup. 

Don't get me wrong though, as soon as this loan is paid off, and I am streaming cash from my operation, then I will not be taking on any more debt. 

And I will sleep well at night.


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## Solmu (Aug 15, 2005)

Comin'OutSwingin said:


> Why not put yourself in a position where you don't have to use someone else's money? I think that's a much more advantageous position to be in.


Greed, I suppose.

In the example of owning your own building, you can then proceed in one of two ways to a new goal:

1) No debt: Keep making money, eventually purchase a second building
2) Debt: Buy a second building now, keep making money, eventually own it.

-or-

1b) No debt: Invest extra in savings, buy off the back of that 
2b) Debt: Invest extra extra in savings, buy off the back of that

(it doesn't really matter where your money is; anything you can do to your advantage with your own money, you can do to your advantage with someone else's money as well)

Path two will lead you to owning that building quicker.

More of a gamble perhaps, but it doesn't have to be an irresponsible one. If you're not borrowing beyond your means, a downturn (such as dropping property values, or a decrease in sales) won't bankrupt you.

Maybe people don't like to gamble, but it's gambling like insurance is gambling, not gambling like Vegas is gambling.

There is a _chance_ you'll end up worse than if you hadn't taken on the debt (hence gamble), but it's not very likely _if you're responsible_. That is key; I'm the first to agree that most people take on stupid debts, it just doesn't make debt stupid.


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## Girlzndollz (Oct 3, 2007)

My pal Suze Orman would say, *"FICO, FICO, FICO.* "

Greg is living the American Dream, who wouldn't want to be living comfortable and debt free and able to handle all expenses in cash?

But folks, sometimes life throws a curveball, and you have to swing. If one day, God forbide, you were in a car accident say, and you could not be at the helm of your business producing the level of income you are accustomed to, you are in a coma, not dead (sorry to be so frank) so there is no life insurance for your family, only the income from the biz. If you are instrumental in its success (sales marketing adv -all that it takes to remain solvent and productive) and sale slip because someone else is doing your job, or worse, no one can step in for you. Your savings begins to deplete as wife/husband begins to cover expenses from it, remember, you do maintain a certain lifestyle at your income level and that will adjust slowly. Spouse is staying at your bedside, bills are late, fees adding on. You remain is coma for a long time, friends to watch kids are less frequent, sitters become hired people. Medical expenses become personal debt as your coverage becomes depleted. No one is safe from the above scenario. Somewhere in the US, this happened today.

If you should ever find yourself not in the good fortune of today, you may need to comforts credit can bring.

In times of being financially independant, I would strongly suggest one maintains an ongoing credit record and maintains a high FICO score so that if things ever turn ugly, you have this invaluable asset at your disposal. 

I think it was Bill who said he is debt free but maintains a small balance that he pays off on a credit card to maintain his credit score. BILL is the model to follow. Both Greg and Bill are debt free, but it sounds like Greg does not maintain any credit score or FICO, thus Bill is keeping assets at his disposal that Greg cannot tap into if life turns not so kind. No one is immune from hard times, it is best to be prepared and not need it, than to need it and not be able to get it.

Dear OP, no debt you cannot afford to carry is good. It leads to bankrupcy, and more closed doors. 

How come no one is mentioning buying assets with business loans and the depreciation aspect. How about the "belly up" factor. If you used your own money and not the banks, you're now broke, instead of the bank? Can anyone elaborate on the value of taking "losses" through the business?


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## Girlzndollz (Oct 3, 2007)

Sorry - it is Neato Phillip who is handling his credit situation very Neato. Suze Orman (very rich woman) would be proud!!!


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## rrc62 (Jun 2, 2007)

Just out of college, new job starting at 30-40K a year, house, car, furniture, bills = a big credit hole that takes years to dig yourself out of. I was making more money in the 80's than I am now and cost of living, housing, everything was a lot less.


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## Comin'OutSwingin (Oct 28, 2005)

Girlzndollz said:


> Both Greg and Bill are debt free, but it sounds like Greg does not maintain any credit score or FICO, thus Bill is keeping assets at his disposal that Greg cannot tap into if life turns not so kind. No one is immune from hard times, it is best to be prepared and not need it, than to need it and not be able to get it.


My dear friend, life insurance is not the only insurance there is.

There's medical insurance that helps pay the medical bills. There is disability insurance that pays you when you can't work. I would suggest everyone take advantage of those things.

I used to sell insurance, and am well insured for the scenario you just proposed. It's called being responsible. If the above scenario were to happen, all would be fine.

You are correct, no one is immune to hard times. But if my house is paid for my vehicles are paid for, and I have saved and invested, even without insurance, the above scenario is not catastrophic for me.

That's why getting out of debt is good, but it does you no good if you don't save and invest, which is what I've been pointing out. IMAGINE what you could save if you had NO debt payments!



Girlzndollz said:


> Your savings begins to deplete as wife/husband begins to cover expenses from it, remember, *you do maintain a certain lifestyle at your income level and that will adjust slowly.*


Not if you live below your income level. I've always lived under my means. Again, it's part of the overall wealth-building strategy.

I get what you're saying, but maybe I didn't make myself clear before. You don't just get out of debt so you don't have any payments, getting out of debt helps with so many other areas. And the proposed bad scenario does not mean you have to keep a good credit rating because things may go bad. It means that not having debt AND getting prepared for bad things is part of the plan.

One of the first things Dave Ramsey says when getting out of debt is to build what's called an "Emergency Fund" of 3-6 months of expenses, just for  when bad things happen. Over time that 3-6 months worth of emergency fund turns into 6-12 months, then 1-2 years.

So going without income is almost "expected". You prepare for it. 

I keep saying "imagine". Don't imagine. Run the numbers. See what you could save yourself, if you didn't have a mortgage, car payments, credit cards, etc. Look and see exactly what you could be paying YOURSELF. Savings add up extremely quickly when you don't have debt payments going out. Also, you may be surprised at how very little money it takes to live, when you don't have debt obligations.

I don't have a "regular" full-time job at the moment, and neither does my wife. The profits from my business goes directly back to my business. So really the proposed scenario above is not much unlike what I'm living now.
And was able to achieve this on a moderate income. I know I'm getting very personal now, but I've never made more than $35,000/year. I tell you that to show you that the position I'm in, lots of others could be in, also.

So, it can be done. 

Being debt-free is only part of the answer. Be smart. Invest. Save. And you won't have to worry about the catastrophic events. You prepare for them.


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## MotoskinGraphix (Apr 28, 2006)

I will go with Greg on this topic as well. Debt free if doable is my choice. Problem with taking on debt even for the best reason or plan relies on past economic performance. Future economic performance is a projection at best and things can change very quickly.


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## mystysue (Aug 27, 2006)

I hate paying bills.. so we pay for things when we purchase them 99% of the time..... Its hard enuff starting out a business and making enuff money to live on.. let alone if you had to pay off loans first.. We do of course have a morgage on the house.. and we did lease our versacamm..(the versacamm lease was at our accountants suggestion)..
That being said.. we do have credit available if its needed.. OUr business has an open amount we can get at any time for any reason.. we just havnt used it.. 
My thoughts on debt is that what your are buying with that money when its business related should be proven to be able to pay off the amount of the loan plus generate income... We didnt buy our versacamm untill we were certain that not only would it pay for itself but also make us enuff to make the purchase worthwile. 

as for insurance.. check out business group plans.. My better half was getting insured privately.. for over 700.oo a month (he is a cancer survior) and we switched to a business group plan that is only 500 a month and it covers both of us.. and there are only 2 of us working (not like its a big company)

I would hate to have to work at one job to try to pay off loans for a business that i am starting.. Its just not a good way to start off..


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## txmxikn (Jan 16, 2007)

I'll have to agree with Greg on the whole attempting to live debt free concept.


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## Girlzndollz (Oct 3, 2007)

I can see both the $20,000 and $200,000 as investments with differing rates of return (with proper management.)

Both have interest rates attached so both are similar there.

Not every cc has 18% interest rate - none of mine are over 7.9%, that's close to a mortgage rate. (One of my balances is at 2.9% for the life of it- I wish my mortgage was like that! ) This just to say a cc and mortgage can be very close in what it costs you to use the money. 

I am not making a debate/discussion over which is a BETTER investment, that is each persons personal choice and gut feeling.

I am only saying in my minds eye, I can see both the $20K and the $200K as an investment. 

If I can borrow (which is the same as buying the money) $20K at 8% interest and turn that stock around at 400% (even 100 or 200%) mark up in a year, I am happy with the cost of doing that business. 

Real estate is always a great investment, even the folks at a disadvantage now should end up okay in time (for the folks discovering they now owe more on their houses than they are worth). I wonder how much monopoly money kids will need to pay for our small houses in 20-30 years - haha. Won't seem real.

I don't mind spending to make money, as long as I am not losing money in the process * and that includes covering the cost of what it cost me to use that other money. *


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## MotoskinGraphix (Apr 28, 2006)

ImageIt said:


> My definition of debt seems different than most. I don't consider the purchase of a house as debt as long as i'm able to sell the house and walk away not owing.
> 
> Debt is the owing of money than you have assets to cover. Wealth is having more assets than you have debt. In most cases, banks do not loan enough to create debt, they just stake their claim on hard assets like houses and cars.
> 
> ...


Your definition of debt is wrong. If you have the assets ie money to cover you should have paid cash. Banks loan more than enough to create debt...it happens every day. Look at the mortgage problem right now. Debt and investment are two completely different subjects.


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## RoboLove (Oct 15, 2007)

You have to spend money to make money in most cases. We started off by spending about £200 and didnt really get anywhere so we took out a loan to get things moving and made double the loan amount back but invested that back in and so didnt pay back the loan but if we hadnt reinvested we wouldnt be making as much as we are now.

so expect to go in to some debt before you come out of it with some money.


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## MotoskinGraphix (Apr 28, 2006)

ImageIt said:


> The reason the mortgage industry is in crisis is because real estate has performed worse than projected. Most people loosing their houses are backwards in the loan. At the point the real estate is foreclosed, the debt goes with it.
> 
> Debt and investment might be different, but the subjects are hopelessly intertwined.
> 
> fred


No sir...the problem is the banks loaned way more money than the credit was worth. The credit being what the folks could actually pay per the economy.


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## imburne (Nov 16, 2007)

Bottom line is if you are careful and smart about purchases, you should be fine.


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## rrc62 (Jun 2, 2007)

ImageIt said:


> Most people loosing their houses are backwards in the loan.


Exactly, which is why foreclosures are rarely a good deal. Most people who default have refinanced until they just can't do it anymore and owe 30% or so more than the property is worth and the bank wants to recover what is owed.

The real crisis is the credit card industry. There is billions in credit card debt that the credit card companies consider high risk.


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## Girlzndollz (Oct 3, 2007)

Ross,

What do you think the widespread impact on the ecomony would be should that high risk debt go bad? Do you think it would be possible the cc co's would call in the other card holders debt to cover the losses of defaulters?


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## rrc62 (Jun 2, 2007)

Girlzndollz said:


> Ross,
> 
> What do you think the widespread impact on the ecomony would be should that high risk debt go bad? Do you think it would be possible the cc co's would call in the other card holders debt to cover the losses of defaulters?


The widespread impact is probably higher interest rates for everyone. Look at the insurance companies. Premiums should be based on risk assessment, but they are not. One billion dollar loss, say a hurricane in FL, and everyone in Idaho is paying more for insurance to cover that loss. 

Would they call in existing debt? I don't think they can. If they did, I'm not sure how far they would get. I'll bet 75% of the population who is carrying a balance can only make minimum payments.

I have no idea what would happen if the CC companies started going belly up. My guess is that that would make such a dramatic economic impact that the government would feed them money and we'd never know about it. The government wants us to trust the economy so we'll spend money and CC companies folding publicly does not exactly instill trust. That's the problem right now. People don't trust the economy so they aren't spending money.


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## karlking85 (Sep 26, 2007)

That is a very interesting and thought provoking way of looking at it Ross. I think you are absolutely right about the government trying to "protect" the image of the economy by any means neccesary. The only trouble with that is the government is in debt up to its eyeballs as well right now.


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## monkeylantern (Oct 16, 2005)

I suspect 2008 is going to drag many in the West into the sharp end of debt, given the dot-com bubble of the 90s was transfered into a housing bubble, which many believe the correction will come this year, fo 20-40%.

Which is a good thing. House prices are currently wildly inflated, the market has cut off its feet, and the sooner house prices are slashed by a third the better.


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## rrc62 (Jun 2, 2007)

karlking85 said:


> The only trouble with that is the government is in debt up to its eyeballs as well right now.


And they always will be. It's a "do as I say, not as I do" mentality. What is amazing is they don't seem to understand that the American taxpayers pay their bills. They are, or at least they were, offering tax incentives for US businesses to source labor overseas and to this day, they hand out H1B work visas like candy. Every job that goes overseas is another taxpayer not paying taxes. A lot of people who used to be in high paid tech jobs are now working close to minimum wage to pay the bills. We make less, we pay less tax, the government goes further into debt.


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## karlking85 (Sep 26, 2007)

It's a vicious circle, and it's spinning in the wrong direction entirely.


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## phillipevans (Jun 28, 2010)

Debt is unavoidable in business. 

The key is using debt and turning that into working capital and then that working capital into profitable sales. 

Remember boys and girls... volume is vanity... profit is sanity !!


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## thutch15 (Sep 8, 2008)

phillipevans said:


> Debt is unavoidable in business.
> 
> The key is using debt and turning that into working capital and then that working capital into profitable sales.
> 
> Remember boys and girls... volume is vanity... profit is sanity !!


Wrong... debt is avoidable. There are MANY companies that do not work off debt.

USATODAY.com - Companies with no debt fly high

Debt is added risk. You read through these post and see people say things like "dont consider debt on homes as debt, because I can sell the house"...WRONG debt is debt and it creates risk because you MAY not be able to sell the house.


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## Flitterfly (Nov 18, 2008)

If you owe me, pay me.
Fast pay, fast friends.
There's no substitute for horsepower.

That was my grandfathers advice that has served me well in life. Avoid debt where ever you can.


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## esmoli (Jun 27, 2010)

This is an interesting thread. I think personally I prefer to avoid 'debt' in that I try to invest in things when I have the money available to buy it. However most new businesses run in the black for some time without even realising it. For example, if a person adds up all of their existing overheads in the research period, factored against a lack of income from that business whilest researching and setting up, then you as a business are already making a loss. This is a conversation I have repeatedly with businesses who think that they are breaking even when in fact they aren't accounting for their expenditure properly, or are taking no salary but are in fact working 30 - 40 hours per week in their spare time, alongside advertising and subscription fees etc.

So where does the line get drawn when factoring business debt out? It seems that unless you are incredibly lucky and have investors who can shoulder the hit for you, then there has to be some degree of risk taking in setting up business? Even if those risks are small managable risks i.e. the cost of hosting a website...until you have earned that money back then you effectively have business loss/debt. The main difference is how a person perceives the amount not yet met, and whether they can 'manage' it without much loss of sleep? 

Moli


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