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Author: Acropora Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308882  
Subject: Credit debt, any suggestions... Date: 12/10/1999 5:43 AM
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I would like to thank everyone for all the interesting responses! Kinda amusing, actually... All I really wanted to know was whether the diligent use of a credit card could positively influence an otherwise negative credit report. It seems as if the answer is yes.

It also appears that most of you curse credit as one of the most evil inventions mankind ever invented, right up there with nuclear weapons. I've learned that the irresponsible use of credit can get one into trouble (and I will continue to be reminded of that fact for another 4.5 years), but I also believe that the responsible use of credit can be a blessing.

Purchase a house with cash? Yeah right! I don't think this is a realistic option for very many people at all. It's already a shame that so many non-middle/upperclass folk are wasting money on rent when they could be putting the money into building home equity. Online bill pay, convienence at the grocery store, internet mail order, the list goes on and on why credit cards are a godsend. The interest rate on a house or car payment might seem like money tossed in the toilet, but I look at it as a necessary expense for these types of larger purchases. Constantly carrying a $2000 balance on your 19% APR Mastercard is a waste of money. Financing a new Passat... I'd be hard-pressed to see the waste there.

Don't get me wrong - I plan on driving my beat-up Saturn for another three or four years, and 90% of my wardrobe is straight out of the Costco T-shirt and Jeans Catalog. Currently I am socking two grand a month into stocks. I live a very financially responsible lifestlye (except for frequent trips to the sushi bar) and I would cringe to think that financing a house or car would be a frivolous luxury!

Anyway, thanks for all the advice, and I'll check out those gas cards.

Acro
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Author: johnmoni Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21600 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 8:16 AM
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"Purchase a house with cash? Yeah right! I don't think this is a realistic option for very many people at all. It's already a shame that so many non-middle/upperclass folk are wasting money on rent when they could be putting the money into building home equity."

Acro,
While purchasing a house with cash is unrealistic for the typical wage-earner, the other extreme of maximizing the loan, and minimizing the down payment isn't smart either, in my opinion. Lenders, of course, want you to maximize the loan because they want to maximize the amount of their earnings. I still contend that by maximizing a downpayment to > 20% to eliminate PMI (even more if possible) will reduce the monthly payment, allow more $ to be diverted toward savings and investment, and as one's financial situation improves, will make it easier to pay the home off early. The problem is that it takes time and sacrifice to build up a substantive downpayement - unfortunately many people aren't willing to wait that long, and make the hard spending choices required to save those $. I believe that it is all about choice - anything is possible. Thanks for an excellent post.
johnmoni

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Author: don1941 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21606 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 9:47 AM
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Another thing to consider if you've already avoided PMI on your house note is waiving your escrow account. After a royal f*&^ up by Mellon Financial several years ago, I have always had escrow waived on my mortgage. I can easily pay the real estate taxes and insurance myself, get it done on time avoid paying late fees and the associated hassle. I also don't send some loser company several hundred dollars each month to hold until they feel like parting with it. I keep it in a separate account and pay it each month just like my house payment. Now I earn the interest on it instead of them.

I don't know if you can get an existing mortgage freed from monthly escrow but if you've blasted PMI, then I would spend some time investigating getting the escrow account closed as well.

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Author: johnmoni Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21609 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 10:40 AM
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"Another thing to consider if you've already avoided PMI on your house note is waiving your escrow account."

Don,
Excellent point. I got a mortgage without escrow right from the start; it required a larger than usual down payment, however. Interesting that many lenders told me outright that they wouldn't do that - regardless of the size of the downpayment. You are absolutely right. Why do I need some company to pay the taxes and insurance for me. My homeowners is billed annually, so we drop a check in the mail once a year. Property taxes are 1/4ly, so 4 times a year we visit the tax collectors office at town hall and pay in person. Not a big deal, and we are guranteed that it gets done, instead of hoping and praying the mortgage company does it for us. I've heard some real escrow horror stories which is why we went the "no-escrow" route. Thanks for your excellent post,
johnmoni

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21619 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 12:13 PM
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I got a mortgage without escrow right from the start; it required a larger than usual down payment, however. Interesting that many lenders told me outright that they wouldn't do that - regardless of the size of the downpayment. You are absolutely right. Why do I need some company to pay the taxes and insurance for me. My homeowners is billed annually, so we drop a check in the mail once a year. Property taxes are 1/4ly, so 4 times a year we visit the tax collectors office at town hall and pay in person. Not a big deal, and we are guranteed that it gets done, instead of hoping and praying the mortgage company does it for us. I've heard some real escrow horror stories which is why we went the "no-escrow" route.

I once spent a summer working for a mortgage company. They messed up escrow account left and right. Of course, since the majority of people live paycheck-to-paycheck, they got royally hosed when they had to repay the bank who covered the tax bill. The stories I could tell...

Leviathan

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Author: Leviathan Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21621 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 12:31 PM
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It also appears that most of you curse credit as one of the most evil inventions mankind ever invented, right up there with nuclear weapons. I've learned that the irresponsible use of credit can get one into trouble (and I will continue to be reminded of that fact for another 4.5 years), but I also believe that the responsible use of credit can be a blessing.

I don't think of credit cards as evil, but as a bad product for the consumer. Personally, I think the only responsible use of credit is not to use it.

Purchase a house with cash? Yeah right! I don't think this is a realistic option for very many people at all. It's already a shame that so many non-middle/upperclass folk are wasting money on rent when they could be putting the money into building home equity. Online bill pay, convienence at the grocery store, internet mail order, the list goes on and on why credit cards are a godsend. The interest rate on a house or car payment might seem like money tossed in the toilet, but I look at it as a necessary expense for these types of larger purchases. Constantly carrying a $2000 balance on your 19% APR Mastercard is a waste of money. Financing a new Passat... I'd be hard-pressed to see the waste there.

I'll agree that saving up enough cash to buy a house outright is difficult, but not impossible. At the very least you should be saving up to put at least 20% down to avoid having to pay PMI. I've heard the "throwing your money away on rent" argument a lot, but it's not a fair comparison to compare a rent payment to a mortgage payment dollar-for-dollar because of the extra costs you incur when you have a home. Most people are spending too much on rent, which really is throwing money away. As for financing a new car, that's probably one of the worst things you can do. The car will lose somewhere between 40% and 50% of its value within two years. Not only is that money that's lost to you, but you've been paying interest on that "lost" money the whole time. If you can save up enough money to purchase a car for cash, and then do so, you'll be ahead because you will have been paying yourself the interest on that money while you were saving it.

Leviathan

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Author: forumcap Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21623 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 12:40 PM
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Excellent point. I got a mortgage without escrow right from the start; it required a larger than usual down payment,
however. Interesting that many lenders told me outright that they wouldn't do that - regardless of the size of the
downpayment.


I have Foolish friends who had to fight for this, as well. But they got it. So It seems that persistence (out-and-out stubborness?) is a key component.

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Author: don1941 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21644 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/10/1999 9:28 PM
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If you've already plunked down enough to avoid PMI, you can usually waive escrow as well. My mortgage broker tried to charge me 1/4 point but I told him no. There's too much competition for lending to pay "extra" for less service from the mortgage company.

In my case, I already owned the land outright where I built my house so I had built-in equity of over 20%.

It never ceases to amaze me how many people won't demand to save several hundred dollars each year with this simple technique.

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Author: johnmoni Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21666 of 308882
Subject: Re: Credit debt, any suggestions... Date: 12/11/1999 5:00 PM
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"f you've already plunked down enough to avoid PMI, you can usually waive escrow as well. My mortgage broker tried to charge me 1/4 point but I told him no. There's too much competition for lending to pay "extra" for less service from the mortgage company. In my case, I already owned the land outright where I built my house so I had built-in equity of over 20%. It never ceases to amaze me how many people won't demand to save several hundred dollars each year with this simple technique."

I agree, Don. It takes a little work, but you can get the escrow waived. My attitude was that if one bank/ mortgage company wouldn't do it, I walked and went to another. It took some hunting, but I ultimately found a lender willing to do it, at no extra cost. It's still important to remember that the buyer/borrower is still in the "driver's seat" in these transactions - they need the borrower to make money, and there's plenty of lenders to choose from. I hadn't thought about your view of already having 20% equity because you owned the land - really good point! Thanks for your reply.
johnmoni

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Author: criscarson Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33645 of 308882
Subject: Re: Credit debt, any suggestions... Date: 5/13/2000 12:46 PM
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I plead guilty once more to the archived response....
disclaimer: I am NOT a "billy Bob Bailey" with 3 first names; I do however, live in Alabama, wher land is plentiful and fairly reasonable(around 4K an acre in Montgomery area).
Here is my dilemma: I have lived in apartments the last 11 years: I want to start building equity in something. Unfortunately, the sort of house I can afford....ahem...is not the sort of neighborhood I'm going to live in. It will take me, Barring(God forbid) a death in the family, another 3 years minimum to pay all debts off and raise enough capital to buy a house(single-family home.)I pose the question: Would a manufactured home be better/just as wellfor "poor" Fools on a budget? I strongly think about it, but
maunufactured homes, because of constant "bells and whistles" in the "trailer"(geez, I hate that phrase) industry(pretty soon there are gonna be some w/pools inside!), they depreciate almost as quick as cars do.
3
So, do I keep paying rent down a black hole until i can afford a house to build equiry in, or do I start to build equity( I can buy the Man. Home this year possibly) and see the value probably significantly decrease?

Comments appreciated...


cc

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