Archive for June, 2009

A few words of wisdom…

“Money is fungible, but a general guideline is to match the term of the debt with the useful life of the asset. A 30 year loan for a house. A 5 to 7 year loan for a car. Pay cash for lunch.” – Calculated Risk Blog

Well that certainly makessense. For those that live below their means, taking on debt is a choice and the length of that debt is something we can use to our advantage. Debt is not always bad… and in the right amounts and uses,can be very beneficial. I have gotten 0% financing on new carpet for 12 months and put the $5k in the bank for the year, I made my $140 bucks or so in interest and paid it off in full at the end of the year. 5 year car loan at 2.9%? Sign me up. 30-year mortgage at 4.75%??? absolutely, where are you going to get 30 year money for under 5%?

Financing clothes, vacations, etc… not such a good idea… these are short term unsecured items and as such you pay higher rates of interest.

Interest rates… looking back

I was watching Brewster’s Milllions today on HBO. Is “$30 Million” was in some random bank and the bank manager said “We will be giving you our special 24% interest rate, reserved for our very best clients”… its amazing how far rates have had to come down over the last 30 years and how much credit had to be created to fuel the “prosperity” of the last 3 decades. This picture says a lot: