God, do I hate paying interest! To anyone. For anything.
I abhor paying interest, and I avoid it like the plague! You should too.
I think that most people who currently enjoy a life of financial freedom have this distaste of interest payments hard-wired into their brains. This trait must be present in any household CEO who insists on running her household like a well-run business. If the trait isn’t inherently present in the household CEO, then it must be learned. Otherwise, the odds of achieving a life of financial freedom will be long indeed.
And remember, just as it’s true that you don’t have to be rich to be financially free, it’s also a fact that wealth doesn’t guarantee financial freedom. The sad case of the late Ed McMahon is a prime example of a supposedly wealthy person who was actually far from being financially free. Most people like the late McMahon, who find themselves in the ironic position of being indentured servants despite their high incomes, can trace their predicament on a general apathy towards debt and the insidious interest that comes with it.
And before many of you start banging on your keyboards to say I am being too militant regarding debt, I will say that I do not avoid debt entirely, as I could not have bought my home without a loan. But that’s the only interest I pay.
To me, it’s perfectly acceptable to pay interest on a home loan. That is, assuming one does not buy more house than they can truly afford. That means your debt-to-income ratio for housing expenses does not exceed 28%.
I understand that there will be different circumstances for different people. After all, most of us need loans for education, a budget-appropriate automobile, medical emergencies, and other household needs. But the savvy household CEO understands that the power of compound interest cuts both ways. Therefore, they always think long and hard before agreeing to take on any additional debt.
In the end, those of you who are successful in minimizing the amount of interest you pay to your creditors will also be successful in managing your household finances and attaining a life of financial freedom!
Photo Credit: stock photo
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(Note: This is a reprint of an article originally posted on 4 January 2009.)
Don’t believe them when they say “NO CREDIT CHECKS”, they do credit checks as well as confirm your bank account is legitimate, open and in good standing. If you have a negative amount or a very low amount, they will deny. Please, try to stay as far away from them as possible. They are nothing but bad news!! Wolves in sheep’s clothing.But if you feel you must have a pay day loan try CashNetUsa. But only borrow what you need and pay it back as soon as you can and then forget about pay day loans.
I am somewhat puzzled. I read a few posts on your BLOG regarding when you purchased your new Honda (1.9% 5 year loan) and the above regarding interest. I can only assume this article predates that one. The case you made in you car buying article that the interest was 1.9% is quite valid. Yes, you can make more in a good investment over those 5 years than 1.9% so that is financially sound. Of course, I realize some will comment on the wonderful feeling of owning your car outright, but when one can really afford it (and is not shopping by car payment), an interest rate lower than your investment return is a SOUND financial vehicle–presuming you would have paid cash otherwise.
I state all that as it seems your own example of purchasing a new car for 1.9% has to soften your militant position on interest. Maybe the answer is to clarify GOOD interest versus BAD interest.
I enjoyed the article so far.
Thanks,
Tom
Great question, Tom. So much so that this will be the topic of next week’s main post.
Briefly, for now: There has always been good interest and bad interest — although it is more commonly known as good debt and bad debt.
That being said, since writing this article, our economic situation and domestic financial policy have become, shall I say, a bit perverted. So much so that traditional — and previously sound — money practices have been turned on their head in some instances.
As such, what made little sense a mere five years, now can be a smart move — and vice versa.
Great post. We have always operated in our house (and I am a retired blue collar wage earner) by not using credit. Once I bought some property using a home equity backed LOC because the cash on hand was tied up in term deposits and the term paid more than the LOC carrying costs. But when the term was up on the deposits I paid down the LOC using a simple cash transfer. Never bought a car on time. Never. Last year bought a new Nissan truck for cash which will be our last vehicle as we keep them 20 years, anyway. If we don’t have the cash we don’t buy, simple as that. And where does that mindset get you? Freedom and early retirement. Independence most of our working lives because we could always walk away from a job after age 40. There is a big difference going to work because you want to rather than have to. I have 2 children. One is prudent and the other uses debt to wheel and deal. They are in their early 40s. One will be mortgage free at age 44, and one I despair will always be heavily in debt due to his wheeling and dealing. Chickens coming home to roost in a downturn.
Years and years ago our company serviced a large logging contractor. The owner stated one day that it isn’t what you own that matters, it’s what you have paid for and own outright. Never forgot it.
Thanks, Paul. Surprised a large group of people out there can’t understand how debt leads to indentured servitude.
I absolutely hate paying interest. I pay off credit cards every month, and I paid cash for my last vehicle. The borrower is a slave to the lender, and I don’t want to be a slave.
Len, my brother used to brag that they could deduct their credit card interest on their income taxes. My dad used to feed him fruitcake when mother wasn’t around.
Wasn’t credit card interest tax deductible until the 1980s?
It was deductible until 1986 (I had to look it up). I never paid interest.
It was deductible to get you to charge and benefit the banks.