hey guys it's Joseph and Tasha from one big happy brace yourself
we are going to be talking about debt myths specifically debunking debt myths
in this video
believe it or not debt is not evil like most things in life if you
over indulge it can lead to disastrous consequences
kind of like sugar but that doesn't mean that you should avoid it entirely for
most people most people can learn how to use debt in moderation how to use debt
responsibly now don't take this wrong and say that we're oh we're definitely
advocating that everybody be in debt or something like that that is not the
issue here we are not saying that at all this is just some misconceptions about
debt that are definitely being spread around and we're hoping to get
some better information out there so number one debt is dumb and only dumb
people are in debt so first off before we even touch on the debt part of it the
idea that you that we have to name-call and shame people as part of personal
finance is just horrendous like horrendous would you tell your child
that they are dumb for doing something of course not would you tell your spouse
that they are dumb is that how you treat someone that you know you value of
course not so let's just mix that kind of
moron stupid like we're not using those kinds of words to refer to how people
manage their finances there's no reason to money shame people definitely not and
we don't advocate that and if somebody has a disagreement about anything that
we say here you know we expect that you can disagree constructively and say well
this is where I'm coming from these are my facts this is this is the issue that
I take and we will respond to that now in terms of whether or not debt itself
is dumb there are a lot of good reasons and good ways to use debt to advance
your overall financial position for example taking out mortgages on rental
properties absolutely it can be used as a tool to leverage and you know obtain
assets that you couldn't otherwise get at the time or something a little less
tangible like taking out six figures worth of debt to go to law school
so that you can then increase your earning potential [phone vibrating water pouring sound] in the long run it's
time for you to drink water Tasha yes I have a water at my phone guys sorry but it
reminds me to drink water every hour alright number two debt is stressful
well I know lots of you are saying it absolutely is but so let's think about
it why is debt stressful at all well do you
stress about your utility bill and so maybe sometimes you do right when when
it's in the winter but but it's usually not the only time you stress about a
thing is if you're worried that you won't be able to pay it but somehow we
are all perpetually or most of us are perpetually comfortable with paying an
electric bill the rest of our lives right not many of us are going out there
saying all right we need to get up we need to go off the grid right so we're
comfortable with this electric payment existing for the rest of our lives but
somehow the idea of having a debt payment is uber stressful and that's
really odd and it's just a matter of perception and peer pressure and just kind of this
repeating this rhetoric that we hear when it comes to debt and so basically
debt does not have to be stressful having debt doesn't have to be stressful
it's just another payment that you have all right the best way to look at it is
to make sure of course everybody has a budget by now right but have your plan
look at it look at the terms of your debt say okay well if I follow this I'm
gonna pay it off then well once you have your plan in place then there's really
no use to worrying about it because because you've got your plan I mean the
other thing to think about is don't let anyone else tell you you should be
stressed about your debt you've got a lot of debt oh you should be stressed
about it that peer pressure is unproductive no, what's more important
is that you have a plan and that you are on track to be where you need to be
financially when you want to get there myth number three you will never pay off
debt guys that is basically impossible the way debt is structured if you make
the minimum payments on your debt you will pay your debt off by law that's how
your debts have to be structured the problem comes in when you're constantly
taking on more debt or if you're missing payments and incurring a lot of fees
those are the only ways by incurring a new debt and owing more money that your
debt won't go away eventually you pay the minimum payments even with
ridiculously high interest rates you will be out of debt the issue is though
if you pay the minimum payment you may end up paying way more in interest than
you actually want to pay but you will eventually get out of debt so that's a
complete net number for all debt is bad well that's not entirely accurate so
let's say that the easiest example is very low interest rate or 0% interest debt
well and also let's go ahead and add the caveat that there are no fees associated
with it like a credit card that gives you an intro zero percent in offer well
if you use that card and buy something and then pay it off within that time you
just borrowed money for nothing and if you had the corresponding amount let's
say you had $1,000 you charged a thousand well you pay a thousand dollars
a year later you could have had some interest you could have invested that
money now definitely put it in something safe in that scenario not like the stock
market but you come out better you come out ahead and so does that mean that
that's bad well I would say no it's not bad debt is bad when it becomes
overwhelming when it is your go-to source to make ends meet so basically
it's the misuse of debt that is bad and not debt itself and while and it's
important to separate those two because again debt can be used in ways to
increase your overall financial well-being or alternatively like we've
shown in our should we follow Dave Ramsey video focusing like tunnel vision
on paying down debt could actually harm your overall financial trajectory if you
haven't seen that video check it out we'll drop a link up above and down in
the description box to show how just focusing strictly on debt payoff at the
expense of other things like amassing asset could harm you in the long run
number 5 if you are debt free or your house is paid off you are financially
secure well it sounds good and it is good but that doesn't mean that your
work is all over because remember to be financially
secure you need enough passive income enough assets to cover your daily
monthly yearly living expenses for as long as you live well so that means you
need to cover your utilities your insurance you know if you've got . . Tasha: Taxes.. . to eat.
Taxes. you can't keep a house if you don't pay the taxes they will take your
house exactly so and also when it comes to the houses you've got. you've got
to keep it up to code if you have a gigantic hole in your roof well your
neighbors have been called the city on you and it'll and a lot of localities
they can foreclose on your house for code violations
so taxes insurance all those things you've got to have assets to pay for
them if you don't it doesn't really matter if your house is paid for or not
you can lose your house and you're definitely gonna have to keep working or
find some other way to pay your regular living expenses so debt-free is not
financially secure debt myth number six if you do not pay off your debt your
heirs will have to or your family members will have to so that's not
exactly correct for some debts so some debts actually die with you like student
loans for example especially federal student loans private student loans that
depends on your servicer but federal student loans if you die all of your
loans are discharged that's one of the reasons why Joseph and I aren't
prioritizing trying to pay off our student loans quickly the second being
that we're gonna take advantage of a different loan discharge option which is
public service loan forgiveness but basically if one of us were to die
$200,000 of worth of debt would just go poof because those are the terms of the
loan the next thing is our credit cards the mortgage it would attach to the
estate which means that so the mortgage would be attached to the house the
credit cards would be attached to whatever like cash was in our you know
bank accounts similarly with our car payments the car
loans would be attached to those items so what would happen is those things
would be subject to creditors but you know what it doesn't what none of that
would attach to our 401ks for example which is where our two hundred and
almost now almost forty two hundred and forty thousand dollars worth of assets
completely immune from creditors also our million dollars each in life
insurance completely immune from creditors so this idea that you
us being in debt or you being in debt would have necessarily have a negative
impact on your children that's not necessarily true so that's a complete
myth right there or at least a partial myth that's like a white white lie myth
I don't know but just so you guys have the information now and that rolls
perfectly into our last number seven if you're in debt
you should not save for attainment this one is huge for your financial security
in the future we do not believe that now there are some caveats there but your
retirement accounts like Tasha just said almost completely immune to predators
and so let's say yes you've got lots of debt but you go ahead and say well I'm
gonna put some away for retirement and super high interest credit card debt
that that's the thing that you're most concerned about there and so that could
be a toss up but if you've got employer matching even then you put in up to
employer matching for sure yeah it's always worth it so let's say you carry
that debt and things get terrible well you have to file for bankruptcy
so if it goes that direction maybe you get all of your debts wiped clean you
know what those creditors can't touch it's that 401k almost completely there
are some there's some very very high limit that things over a million it's
super high so for your average person your retirement accounts are safe safe
safe safe so it doesn't make sense to pay off your debt especially if you can
get a 100% return immediately through an employer match there was no interest
rate out there that's 100 percent the highest you're gonna get is maybe thirty
six forty percent something like that which still does not beat
100% exactly and so do not skimp on retirement thinking oh well I'm gonna
pay off my debts instead because you need that compound interest you need to
be investing from from the early years so that it pays off in the long run
because what is universally true is you can't borrow in retirement there is no
other way to fund it if you haven't planned for it and the one other thing
I'll say on this that's not a debt myth but completely related to saving is
saving is a lot harder than paying off debt it absolutely is because with
saving you have to know that you have this chunk of money there that you're
not touching paying off debt is the same as buying things you have money come in
you have money come out and so it's just a lot a lot easier to develop the habit
of paying off debt than it is to develop a habit of saving so we would rather see
you start saving smaller amounts earlier even at the expense of paying a little
bit more in interest because you've slowed down debt payoff so that you can
develop the habit of saving because that is the only way to become financially
independent to save a large enough nest egg to support your living expenses
indefinitely that is absolutely right remember that name of the game is wealth
building not anti debt or debt freeness wealth financial independence
that's what matters as usual let us know your thoughts and comments down below
and in the description box and we'll see you guys in the next video bye