Yesterday, I wrote on the low mortgage rates. There is a strong benefit to buying a house right now. Prices are low compared to what they were a few years ago and rates are low. If you aren’t buying a house for investment purposes (to rent, fix up and sell, etc.), then buying a house is buying a consumable good. Spending more on a house is not necessarily a good financial move. But taking a vacation to the Alps is not necessarily a good financial move either. There is nothing wrong with buying your dream house or just a house with a little more than needed, but you should be able to afford it and you should not consider it an investment.
While there is a good argument to buying a house right now with a fixed rate mortgage, it does not mean that goes for everything else. You need to live in a house (or some kind of shelter) and although it should depreciate over time, in most cases they appreciate because of the land and because of inflation. There is also a good argument that with a fixed rate mortgage, you will be paying back the loan in depreciated dollars.
Although inflation benefits borrowers, it doesn’t mean that you should collect debt. If you need a car right now, then of course you need to buy one for transportation. But cars depreciate, so it is the opposite of an investment. The investment is the transportation part of it (getting to your job, to the store, etc.). Anything beyond the transportation part is really a luxury. It is not to say that you shouldn’t get certain features that you may want, but it is to say that you are making a bad financial decision if you buy a $30,000 car while your net worth is not even that much.
Debt is a bad thing, generally speaking. You are wasting money on things that you don’t need. You should only go into debt for something like a house or an inexpensive car that you need for transportation. You should never go into credit card debt unless you need to in order to put food on the table.
Stay away from the bad debt.
This is something I’ve wondered about for a long time now, I was wondering if I could ask your advice. My only debts are a reasonable car loan, student loans, and a mortgage. The mortgage I have decided I will simply make the minimum payments, and reap the benefits of inflation. However, I’m torn at the end of every month as to what to do with my extra income. Do I throw more into paying off car/student loans? Or do I put money in gold/silver and other investments? The interest rate on my car loan is fixed, and about half of my student loans are fixed.
Not really sure what to do…
One thing I would say is that you don’t need an all or nothing strategy. Consider taking half of your savings to buy small amounts of gold/ silver when you have enough. Take the other half of your savings and pay down your debts.
You will obviously want to pay down the debt that has the highest interest rate, at least in most cases. You are right to pay the minimum on your mortgage, at least until all of your other debts are completely paid off.