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Why would you want to be debt free? You often can make more money by having debt than paying in cash. Fixed rate 30 year mortgages are at ~3.7% right. Go buy so

by smabie 7y ago

Why would you want to be debt free? You often can make more money by having debt than paying in cash. Fixed rate 30 year mortgages are at ~3.7% right. Go buy some corporate bonds or stocks and you will easily net more than ~3.7%. Another great strategy is to get as many credit cards as you can and create a credit ladder than defers payment (and interest) as long as possible. If you manage to get 12 credit cards and your interest free period is a month, you can literally defer payment for anything for year, netting you that sweet sweet interest (T-notes if you're risk adverse, or equities if want some better returns). But if you think it's "wrong", well you do you I guess.

war1025 7y ago
I am debt free. Paid cash for my house. Don't own a credit card. I think technically my wife has one. There are a lot of ways I could make more money. I have enough money as it is, so what's the point? The rest of my money is in stocks, etc. I make enough of a return on it. Basically, being debt-free gives me peace of mind that is worth whatever marginal return I may be getting otherwise.
- smabie 7y ago
  With mortgage, that’s not unreasonable. After all, you will always be bearing some risk as your APR will never be below the risk-free rate. But for credit cards, if you just store the money in the risk-free rate (3 month T-notes), you will be strictly making more money without bearing any extra risk. In affect, it’s a free lunch: it is strictly superior. You could probably even program such a system and never have to think about it. Here’s an example using 1 credit card that charges interest after a month: 1. Initially, buy 3 month T-notes equal to your max credit limit. 2. At the end of the month, transfer the dollar amount of your current credit balance and pay off your card. 3. Top off your T-bills to maintain the max credit limit amount. 4. Profit! You just scammed the credit card companies out of a month of interest! The strategy looks even better with cash back or airline miles or points or whatever.
  - projektfu 7y ago
    As with all things in economics, it’s not a free lunch. The cost of credit has already been priced into everything you buy. In this case, you can choose to make a small amount of money in exchange for some headache of making sure payments go on time, or leave it alone. If everyone eventually takes 2% rewards, instead of using debit cards and plain cards, the cost of credit in your purchases will rise from about 1.8% to 2.8%.
    - smabie 7y ago
      You make a really good point. What one is actually doing with my strategy is arbitraging between my behavior and everyone else’s.
      - throwaway35784 7y ago
        What is the dollar value of that behavior relative to other behavior? In other words don't neglect to consider opportunity costs.
  - war1025 7y ago
    I already view the 1.8% or whatever I'm making on my emergency funds as basically inconsequential, so a percent or so on several thousand dollars doesn't really pique my interest enough to go to the bother. As I heard somewhere or another: "Get the dollars right and the pennies will take care of themselves" In case anyone is interested, the "war1025 guide to wealth accumulation": 1. Decide a reasonable checking account balance based on your pay frequency and expenses. (I get paid weekly, so I've found that $2,000 is a good number for me.) 2. Every week when you get paid, transfer any amount in excess of amount (1) into index funds. 3. The index funds are not to be added to and never withdrawn from. (I made an exception to this rule to buy our house) (Obviously have the correct emergency funds to handle unexpected events. Also you may at times choose to instead transfer the money into savings to work towards some known upcoming expense.)
    - smabie 7y ago
throwaway35784 7y ago
I agree with war1025 the overhead of managing the churn isn't worth it. Better to invest the time and brainwaves into a SaaS business or designing and building a home.

by smabie 7y ago

war1025 7y ago

I am debt free. Paid cash for my house. Don't own a credit card. I think technically my wife has one. There are a lot of ways I could make more money. I have enough money as it is, so what's the point? The rest of my money is in stocks, etc. I make enough of a return on it. Basically, being debt-free gives me peace of mind that is worth whatever marginal return I may be getting otherwise.

smabie 7y ago
With mortgage, that’s not unreasonable. After all, you will always be bearing some risk as your APR will never be below the risk-free rate. But for credit cards, if you just store the money in the risk-free rate (3 month T-notes), you will be strictly making more money without bearing any extra risk. In affect, it’s a free lunch: it is strictly superior. You could probably even program such a system and never have to think about it. Here’s an example using 1 credit card that charges interest after a month: 1. Initially, buy 3 month T-notes equal to your max credit limit. 2. At the end of the month, transfer the dollar amount of your current credit balance and pay off your card. 3. Top off your T-bills to maintain the max credit limit amount. 4. Profit! You just scammed the credit card companies out of a month of interest! The strategy looks even better with cash back or airline miles or points or whatever.
- projektfu 7y ago
  As with all things in economics, it’s not a free lunch. The cost of credit has already been priced into everything you buy. In this case, you can choose to make a small amount of money in exchange for some headache of making sure payments go on time, or leave it alone. If everyone eventually takes 2% rewards, instead of using debit cards and plain cards, the cost of credit in your purchases will rise from about 1.8% to 2.8%.
  - smabie 7y ago
    You make a really good point. What one is actually doing with my strategy is arbitraging between my behavior and everyone else’s.
    - throwaway35784 7y ago
      What is the dollar value of that behavior relative to other behavior? In other words don't neglect to consider opportunity costs.
- war1025 7y ago
  I already view the 1.8% or whatever I'm making on my emergency funds as basically inconsequential, so a percent or so on several thousand dollars doesn't really pique my interest enough to go to the bother. As I heard somewhere or another: "Get the dollars right and the pennies will take care of themselves" In case anyone is interested, the "war1025 guide to wealth accumulation": 1. Decide a reasonable checking account balance based on your pay frequency and expenses. (I get paid weekly, so I've found that $2,000 is a good number for me.) 2. Every week when you get paid, transfer any amount in excess of amount (1) into index funds. 3. The index funds are not to be added to and never withdrawn from. (I made an exception to this rule to buy our house) (Obviously have the correct emergency funds to handle unexpected events. Also you may at times choose to instead transfer the money into savings to work towards some known upcoming expense.)
  - smabie 7y ago

throwaway35784 7y ago

I agree with war1025 the overhead of managing the churn isn't worth it. Better to invest the time and brainwaves into a SaaS business or designing and building a home.