credit rating is a scam

[justbroke]

I would think that you know that Dave Ramsey holds real property and even talks about how to invest in real property. His methods are more conservative, but he does not say to not invest in rental property at all. He talks specifically about rental property. Besides, there are ways to shield yourself through holding the properties in one or more LLCs.

(I'm actually using some of Ramsey's methods for holding rental property. So he's either playing both sides of the fence, or just showing us a better path and only warning us of how to keep from being over-leveraged. Ramsey, with his $150 million real estate portfolio, is not out saying that you shouldn't do this!)

[5yrplan]

He's big into real estate half his worth is in real estate but hasn't been in debt since his bankruptcy 30 years ago.

There is no shortcut to wealth. -Dave

[justbroke]

Exactly, but he built that after bankruptcy, and so am I. As I wrote, I'm using many of his tactics, combined with some others. I don't expect to get to $150 million in property, but $2-3 would be fine and is doable in 10-15 years. her people's money (bridge loans).

I also find it interesting that the people with $100 million+ in real estate say that it's easy. I think after the first $10 million it does become easier, as you leverage the properties and purchase more with no debt, but you have to get there in the beginning.

Some do this by doing a bunch of fix and flips until they have enough in earnings (30-40% per flip) to purchase a property 100%. That is the well-known shortcut but not everyone executes those fix-n-flips and I'm personally avoiding them. (I did almost get into a partnership for fix-n-flips but the first project done by the partnership, before I joined, was a disaster.) I am avoiding that strategy although I've done rehabs before working with family (they are licensed general contractors, plumbers and electricians). I can swing a hammer, do residential high and low voltage wiring, and may even fix a toilet here and there. But I'm not in the trades.

[5yrplan]

That's good your debt free including your residence.
Build at the speed of cash.

For most of us the point is the shortest path to financial wealth and or financial peace is to be debt free. Debt free people do not need a credit rating or credit of any kind.

[shipo]

That's good your debt free including your residence.
Build at the speed of cash.

For most of us the point is the shortest path to financial wealth and or financial peace is to be debt free. Debt free people do not need a credit rating or credit of any kind.

For "most of us"? I would argue the exact opposite; regardless, there is no hard and fast rule which should be applied to everybody.

[shipo]

One other area of "credit", or better said, "credit-card usage" for things which fall in to the category of, "needs, wants, and desires", which hasn't been discussed in this thread, is the aspect of Cash-Back or other Rewards.

The credit card I obtained this past June has such rewards; so far I have "charged" $7,728.37 for all manner of items and services, and against which no interest has been accrued; at the same time I've been "credited" an additional 15,873 reward points worth a penny per point. Said another way, by using my credit card versus my debit card, I now have an extra $158.73 in my pocket.

How is that a "scam"?

[justbroke]

I have a charge card as well, and I am making about $150 a month in cash (which they automatically include as a statement credit the following month). That's chicken-feed, but it is nearly $2,000 a year in "free" money (via a type of rebate).

[flashoflight]

This is a good discussion. I like seeing spirited responses from both sides. I'm also a fan of Dave Ramsey outside the topics of the religious stuff, almost all of his sponsors, and bankruptcy.

Here is my two cents. Credit cards are evil because they promote overspending by an amount far greater than the rebate. The travel cards are even worse because they prompt even more overspending once you get to the resort for free. It is a lot harder to empty your wallet of Benjamins than to use a debit card or credit card. It hurts inside when the Benjamins disappear fast at Costco. Psychology matters a lot more than rebates. Money doesn't seem to disappear psychologically when it's via a card. Don't get me wrong... I use rebate cards on recurring bills with no shop-a-holic danger like the water bill. But those credit cards can be evil in a retail shop far, far greater than the 2% rebate.

As far as car loans. Just say no with one exception. The new car or truck is a rapidly depreciating asset during the first three years and still quite a bit of depreciation over the follow two. 0% interest on a stable value asset is an outstanding deal. 0% on a rapidly depreciating new car is a very bad deal even at 0%. You won't get 0% on a used car. If you get a $5k cash car that needs a nickname like "Old Bessie", it won't depreciate much each year. If you stick with proven tried and true vehicles 10 years old like the Corolla and stay away from everything else, the repairs can be less than $1k/year easy. If you have a $500/month payment your whole life on various new cars, you are sacrificing several million dollars in your retirement nest egg that could have done to your 401k/IRA. Just say no. The one exception is a chapter 13 bankruptcy where you need the protection of a new car warranty over the 5 year plan and you have room in your plan payment to make the unsecured creditors pay for it. If you're going to do this for chapter 13, make sure you get the manufacturer's extended warranty financed in so you can make it through the entire chapter 13 under warranty.

So as far as house loans. The mortgage is not the lender's bet on your house's value. It is the bank's/government's bet on your income for the next 15-30 years or until you refinance/sell it. So a super low 2% mortgage still threatens your net income until it is paid off no matter what happens to the house's value. Dave says 15 year loans only. I'm ok with 30 paid on a 15 year amortization. Sure you can make money as an RE investor but your increased leverage mortgage payment is tied to your job income AND your rental income. If either goes poof, you go poof.

Dave's premise is to go gazelle intense solely by getting two jobs or even three jobs temporarily to get rid of your non-mortgage debt. You don't invest your way out of debt. Once you cut down all the debt including the mortgage on a 5-15 year timeframe, you don't need side gigs or side investments anymore to live a good life. Spend Benjamins instead of debit/credit cards. You save like a mother in the meantime to fund your main retirement fund. If you want RE investments, greatly increase your income (2nd job or higher paying career) until you pay cash for your $60k real estate in Cleveland and make it cash flow positive with no mortgage. If the investment goes south, you won't lose much from your job income and you can unload the property without worrying about a mortgage's principal balance.

Thanks for bringing up this topic. It's pretty controversial and I can see benefits from both sides.

[justbroke]

Here is my two cents. Credit cards are evil because they promote overspending by an amount far greater than the rebate. The travel cards are even worse because they prompt even more overspending once you get to the resort for free.

I agree. I don't get the travel cards and don't want to chase "points" through spending. I only have cards with cash rebates especially my charge card. Hopefully those that filed bankruptcy and went through a Chapter 13, learned to live without credit. Hopefully we also learned to budget and not depend on credit cards to supplement cash.

So as far as house loans... a super low 2% mortgage still threatens your net income until it is paid off no matter what happens to the house's value. Dave says 15 year loans only. I'm ok with 30 paid on a 15 year amortization. Sure you can make money as an RE investor but your increased leverage mortgage payment is tied to your job income AND your rental income. If either goes poof, you go poof.

I agree on the 15 years. Get them amortized over 30 and commit to pay them on a 15-year amortization scale. Too much leverage will not be good when the proverbial stuff hits the rotating wind device.

If you want RE investments, greatly increase your income (2nd job or higher paying career) until you pay cash for your $60k real estate in Cleveland and make it cash flow positive with no mortgage. If the investment goes south, you won't lose much from your job income and you can unload the property without worrying about a mortgage's principal balance.

Rentals only and that is a good topic. I'm not buying in Cleveland, but in a major Florida city. I just saw a fix-n-flip on a 3/2 condo, built in 2006, for $59K but didn't do it because I don't have the cash and don't want to leverage anything. The other units are all around $114K and selling for $105-$114K. (Looks like the people stripped the place before moving so it's a rehab and I'm not really into the fix-n-flip scene.)

Credit is not bad, evil or a scam. The issue is in how we use it and waste money on interest payments and fees. The other issue is that we buy things we don't need. But, credit can be used and balanced. The kicker is, as flashoflight writes, that the ease of compulsive spending and "overspending" is the downfall of even the best laid plans.

As Kevin O'Leary says... think of your $$$s as soldiers. You send them into battle and they should always come home. With any luck, they bring back prisoners; hopefully many of them. I also make sure I keep a bunch of my soldiers home and keep them safe from other predators (spending on interest). I know, that's corny but it works for me.

So use a combination of investment and wealth strategies. I think of it no different than stock investments. Whether you put all your money in very conservative money markets and treasuries, or you venture out and put 25% (or more) in the medium to high risk portfolios, the strategies should be a blend. The blend should be commensurate with your risk profile. Personally, I'm not looking to just live in a paid off home and be happy. I am looking to build a passive income stream and assets.

I will leverage credit where it works for me (brings back prisoners for me). The banks know that there are customers like this, but they are not worried about us. We are not their target customer.

[shipo]

Hmmm, regarding the whole car loan thing; I suppose that's okay if you don't mind driving an old appliance (imho, Corolla = toaster or blender; not rewarding to drive). My premise is, if you are intent on buying enjoyable to drive, say an off-lease 2018 BMW 340i, yanking $36,000 from your investments versus a low interest car loan, the latter is more financially advantageous.

[shipo]

Here is my two cents. Credit cards are evil because they promote overspending by an amount far greater than the rebate. The travel cards are even worse because they prompt even more overspending once you get to the resort for free. It is a lot harder to empty your wallet of Benjamins than to use a debit card or credit card. It hurts inside when the Benjamins disappear fast at Costco. Psychology matters a lot more than rebates. Money doesn't seem to disappear psychologically when it's via a card. Don't get me wrong... I use rebate cards on recurring bills with no shop-a-holic danger like the water bill. But those credit cards can be evil in a retail shop far, far greater than the 2% rebate.

I've been thinking about these comments all morning; I'm not going to get into the psychology the Credit-Card vs. Debit-Card thing, some folks have an issue, some don't. That said, on a purchase by purchase basis, there is a clear and non-debatable advantage for using an award type of Credit-Card (especially those with the Cash-Back type of award) versus a Debit-Card. For those of us without shopaholic tendencies, it makes literally zero sense to use a debit card for anything but fetching a little cash out of your friendly neighborhood ATM.

In my case, ten years ago as our two small businesses were failing (details elsewhere in this forum), we did survive on credit cards, which in hind sight, was a bad plan; had we filed for bankruptcy earlier along in the process it wouldn't have been as ugly. That said, I stopped using my credit cards in early 2013, filed for Chapter 13 in early 2015, and received my Discharge early this year; between the arrival of my first credit card this year after a 7-year hiatus and now, I can tell you my usage compared to how I employed the use of my Debit-Card in the early 2013 through early 2020 timeframe is identical. The only difference is there is another $150 in my bank account I wouldn't otherwise have. To extend this argument a bit further, beginning with my first Credit-Card in 1981 through the stress the 2008 Recession put on our businesses, my credit card usage was virtually identical to what it is now; basically make charges during the month for normal stuff, and then pay it off at the end of the cycle. I think the only times I ever carried a balance was when we took trips to Europe or Asia and then took a few months to pay the cards back down to zero.

I know there are those who like to vilify Credit-Cards, but I think doing so is disingenuous.

[5yrplan]

Using Credit Is always a risk, no matter what it must be paid back. The borrower is slave to the lender. eliminate the risk by paying cash. Those points never made anyone wealthy. If there's credit available it will some day bite you in the $&@. A 3-6 month of monthly expenses in cash is a must emergency fund so when $&@& Happens and it will you don't go in to debt to cover the emergency.

[shipo]

Using Credit Is always a risk, no matter what it must be paid back. The borrower is slave to the lender. eliminate the risk by paying cash. Those points never made anyone wealthy. If there's credit available it will some day bite you in the $&@. A 3-6 month of monthly expenses in cash is a must emergency fund so when $&@& Happens and it will you don't go in to debt to cover the emergency.

I'm sorry, your argument doesn't hold water for many folks, myself included. Look, I get it, you have a problem with credit, the thing is, your negative opinions regarding credit and FICO are spoken in absolutes, like "Credit Rating is a SCAM", and the truth is, while that may well be true for you, that that is utterly and completely false for the next person. If you were to state your case as, "For me, my lifestyle, and my earning potential, credit is more damaging than living on a cash basis", then I would have no argument with your assertions; stating your case in absolutes invites a lot of blowback.

Using the example I posted back in November; say I decide to buy a car worth $36,000 next year, new or used is irrelevant, my two options would be to pull money out of my investments and pay cash for it, something which I can EASILY do, or to get a low interest car loan for it. What you apparently do not understand is, paying cash for a car versus say, taking out a 48 month loan means at the end of those 48 months, you own the car either way, but 95 times out of 100, you'll have far more cash on hand if you leave your investments alone thus allowing them to continue earning you money, and borrow the money for the car.

[justbroke]

I think that leverage credit is key and shipo brings up a good point. There are vehicle deals where you can but a vehicle at 0% down and with an APR of 0.00%. There is nothing that can beat that. Using cash will never beat that deal. If you can use and leverage someone else's money (the bank's) and preserve your cash for your (much better) investments, it's always an easy decision.

Here's another example. Real estate investors that flip homes do use a mortgage, but they flip the home so fast that they don't even make the first payment. (In most closings, a period of interest is paid up front so no interest is even due on sale.)

If -- and only if -- you can make credit work for you, and not against you, then it's a great tool!

[5yrplan]

90% of the time it doesn't work. With cars the depreciation is the loss that most people can't afford. 50% of a new cars value is gone before the 0% loan is paid off and if murphey comes and payments are miseed the interest could be added into the loan from payment 1 on. That's to big of a risk of interest and depreciation loses. Using credit is risky no matter the interest rate. Debt free with 3-6 months of expenses in cash (not invested) is the shortest path to be wealthy. Anything with engines and tires should not be purchased with credit because you can't afford the depreciation if you want to become wealthy. Once you are a net worth millionaire you then can afford to throw money out the window on depreciating items. Yup live like no one else to live like no one else. Normal people are broke. It's your money do what you like.