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Old 14th March 2012, 15:34   #31
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Default Re: Debt free life?

I don't think loans for buying a house can't be termed as debt. I would not look at a housing loan as a debt, but rather as an investment. I know it is a loan and all but it is an investment first.

Edit: @carbookie - How about some finance lessons to us lesser mortals?

Last edited by vikram_d : 14th March 2012 at 15:55.
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Old 14th March 2012, 15:44   #32
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A guy who wants to go for higher education and doesn't have money, should he opt for a debt free but inferior life/profession or should he take a Education loan an fund his education, get a better job and later re-pay it?
Lets not demonize Credit/debt, debt is necessary to create money in the economy. Credit makes many of the capital intensive businesses possible.
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Old 14th March 2012, 15:44   #33
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^^There is another take on that, if one continues with the home loan for the its entire tenure, which in case of home loan is usually long (read 5-20 years), the amount of interest take the repayment to such level that appreciation in the cost of property is offset by that.
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Old 14th March 2012, 16:04   #34
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Default Re: Debt free life?

Quote:
Originally Posted by carbookie View Post
At this point I had been working for 6 years. Still never bought a bike. Travelled by BMTC bus.

In 2005, I went to buying spree for myself as I got married. I got a car, moved into my own apartment. Furnished the apartment with lavish money. This was the year I spent like King of Dubai. But all this from my money of shares and mutual funds. Still no loan.
Priorities are different for people. Its like deciding where one wants to be on the scale between the ant and the grasshopper (the story where the ant finally asks the grasshopper to dance the winter away)

You give the example of people who took loans for vehicles. They have obviously done this for their convenience over BMTC buses. Something non negotiable for them perhaps.

Lets take the hypothetical example if you had taken a home loan in 2001. Instead of the 2L property your purchasing power could have bought a property worth 15L. Which could have bought an apartment in Indiranagar or Koramangala at the time (my knowledge of Bangalore is limited, so substitute with your choice of location). This property could be valued closer to 1 crore now, maybe more. Any local can validate that. Properties in Pune that were worth 20L in 2006 are valued over a crore now, so I am assuming Blr would see similar inflation if not more.
And wait.
Assuming you paid average annual interest of only 50K a year, you would have also saved at least 10K a year (20% tax, fair assumption?) for the last 10 years. So thats a lakh over and above the money you would have made from the property appreciation. If you paid more interest and your income was higher (in 30% tax saving bracket) you would save more money every year.

While I appreciate the need for frugal living in today's times, I dont see how this is feasible for all of us. After all, we all have different priorities. Even in your case, you chose to spend money after you got married. Thats your personal choice. Some of us choose to do that regardless of our marital status, just that the extent for all of us is different.

The point I am trying to make is that some debts out there are actually making or saving money for us (sometimes both). So instead of deriding debt altogether, we should classify the debts and take what is beneficial to us.

Edit: Before someone jumps on me, I would like to clarify that I am a self made person too. And no, I did not get any money/ inheritance when I began working. On the contrary for the first few years, I was repaying some inherited loans. So I can very well imagine the stress loans can create, especially if not thought through wisely.
And no, I dont own multiple properties but whatever little savings are invested in such a way that I get better returns than I would from renting out any property. In any case my savings are not deep enough to buy a property in time of such inflation.

Last edited by selfdrive : 14th March 2012 at 16:10.
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Old 14th March 2012, 16:30   #35
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Default Re: Debt free life?

All i can say is someone living a Debt free life is (1) Lucky, and (2) Knows living within his/her means.

I also have a house Debt and a Car Debt. As i see it, i could have never bought the house or the car if i wanted to fund it myself fully. Don't have Credit Card Debt though.

Would love to be Debt free, and that's what i am working on towards now, to become Debt free in 3 years time.

I guess some lessons from @carbookie can help .
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Old 14th March 2012, 16:33   #36
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Default Re: Debt free life?

Only 1% genuine janta will be living debt free life otherwise it is nearly impossible to survive without loan especially when you want everything like big car + big house + big tv and so on.

IMO house loan is a compulsion for salaried people who don't have any thing to sell from inheritance and buy something new.

If someone has to stand on his own without any support and without doing any 420 case then loan is a compulsion.

Even if a fresher gets 1 lac per month I doubt how he will buy a apartment flat in Gurgaon which costs over 80lacs to 1 Crore (ready to move in) - there is no choice except the loan.

With this thread please don't demoralize those people who have taken loan as there was no choice, they took loan for survival. But people should take loan considering their repayment power. People should judge their needs and ignore the wants. I know many people who take loan to buy a new car just because his neighbour has bought a big car or he has done new type of construction in his house. I know people who take loan to buy new imported marbles as the neighbor has just done with his home renovation.

PS - Taking loan is much better than borrowing from relatives and friends.

Last edited by bluevolt : 14th March 2012 at 16:37.
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Old 14th March 2012, 16:36   #37
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Quote:
Originally Posted by selfdrive View Post
Lets take the hypothetical example if you had taken a home loan in 2001. Instead of the 2L property your purchasing power could have bought a property worth 15L. Which could have bought an apartment in Indiranagar or Koramangala at the time (my knowledge of Bangalore is limited, so substitute with your choice of location). This property could be valued closer to 1 crore now,
So you are saying, hypothetically I could have purchased a property of 15 L on EMI, instead of investing 2 L I had. 2001 was a bust period of industry. So hypothetically I could have also lost my job during those times, defaulted on payment of EMI and lost everything. That 15L property would not have sold for 12 L in the recession times.

And you think I am imagining scenarios, Let me give you a real life example. Remember I said in 2009 I bought an apartment as a distress sale. The person from whom I had bought had followed a similar line of thinking and booked a apartment from Sobha in 2008 (The height of real estate boom) for 72 Lac. In another year he had lost his job. He sold me the apartment for less than 60L. That is a loss of 12 Lac, and I have not even counted the pre-emis he had paid.

Yes hindsight is 20-20. I can always justify debt saying I could have bought apple stock with 40 Lac loan in early 2000. I would be living in a gold palace now. But we call it leveraging. And investments using leveraging are risky.
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Old 14th March 2012, 16:58   #38
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Quote:
Originally Posted by carbookie View Post
I did not want to share these details publicly, but what the heck. Here you go.

I graduated in 1998. I was joining software industry in Bangalore. I came to the city with 10 thousand rupees given by father so that I can pay deposit for rental house. For next 3 years, I kept saving money. By that time most of my friends had bought costly bikes or cheap cars. I had only bought shares, mutual funds with my savings.

In 2001, I bought my first property. Total money required was less than 2 Lac. I still kept saving. No bike, no home, nothing.

In 2002, I bought my second property. Total money required was less than 2 lac. I still kept saving. Still no assets.

In 2004, I bought my first apartment in Bangalore with my savings. Still kept saving.

At this point I had been working for 6 years. Still never bought a bike. Travelled by BMTC bus.

In 2005, I went to buying spree for myself as I got married. I got a car, moved into my own apartment. Furnished the apartment with lavish money. This was the year I spent like King of Dubai. But all this from my money of shares and mutual funds. Still no loan.

In 2009, at the height of recession, I bought my second apartment in Bangalore from a distress sale.
The savings mindset has to get instilled in one's mind to achieve this. For most of the young people now, saving money is an unknown skill, because they lived in luxury or their parents made them to think that money comes easily. In other words, they never try to make them realize the value of money and the difficulty in earning it.

I never got any pocket money for my entire schooling till 10th standard. Now I am thankful to my parents for that. If one has grown up in the abundance of pocket money and money for each and every needs, they will not learn the value of it, and when they start earning, the expenditure will shoot up exponentially.

I graduated in 1999. I also kept saving for the initial years of my career without any major expenditure. That really worked for me when I needed to buy a property, much later. I could have bought a property earlier but I kept shifting from Tvm->Gurgaon->Blr->Tvm. Some of the cash investments I had made during the initial years of my career worked like a lottery for me when I was in good need of money for this major buying decision. I still have a good portion of savings left after buying the property. This hopefully can form the basis of house construction and ease up the loan I have to take significantly.

Last edited by clevermax : 14th March 2012 at 17:14.
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Old 14th March 2012, 17:01   #39
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Default Re: Debt free life?

No Loan+No Credit Card = How will your credit rating be generated?

God forbid you need to take a loan someday, then you might not be able to get a loan to the amount you need. This is something a close businessman friend of mine had to face as he had not taken a loan all his life!
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Old 14th March 2012, 17:02   #40
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Simple buddy, may be you have everything paid through cash and have no loan, but in bargain, I believe you have had a lot of compromises?? Well, there are those who are not ready for these compromises and would want to live every moment, have cash or not!! Now that's some spirit too! At the end of the day, you live just once!!!
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Old 14th March 2012, 17:07   #41
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Quote:
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No Loan+No Credit Card = How will your credit rating be generated?

God forbid you need to take a loan someday, then you might not be able to get a loan to the amount you need. This is something a close businessman friend of mine had to face as he had not taken a loan all his life!
I recently requested my Trans credit score from CIBIL, because my wife insisted everybody should get that report. I applied the report online and CIBIL took my money and kept trying to find my report. Two and half months later they returned my money. They told me that they cannot score me.

Not having a score is not a negative If you want a loan in future. No score means you are not in their system. If you have income proofs, you can get a loan without CIBIL score.
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Old 14th March 2012, 17:09   #42
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Quote:
Originally Posted by carbookie View Post
So you are saying, hypothetically I could have purchased a property of 15 L on EMI, instead of investing 2 L I had. 2001 was a bust period of industry. So hypothetically I could have also lost my job during those times, defaulted on payment of EMI and lost everything. That 15L property would not have sold for 12 L in the recession times.
Not really, but in terms of real estate all bases need to be covered. Which is why we have insurance policies that take care of EMI defaults in case of job losses etc. The idea is to invest your 2L as the downpayment and take the other 13L as a loan. It is necessary to compare with both sides of the coin. And as you brought up the vehicle loans taken by your colleagues, just showing the other side of what could have happened if you had taken a maxed out home loan in 2001. Not saying you should have done this or that. Just a what if scenario with a type of debt that you did not consider in your comparison.

Quote:
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Yes hindsight is 20-20. I can always justify debt saying I could have bought apple stock with 40 Lac loan in early 2000. I would be living in a gold palace now. But we call it leveraging. And investments using leveraging are risky.
Exactly my point. Some debt is useful in Indian context, especially homeloans. I dont deal in equity so cannot comment on that.
And as for investing in real estate too, there was a golden period which is now gone for most of us. Unless we are already on the property ladder and have existing properties to sell, in order to buy other properties.

I am glad that you are doing well and happy with being debt free. I wish we all get there sometime sooner rather than later. But as said by @bluevolt, no use making debt ridden people feel bad for taking debt. its all a matter of timing and circumstances.

Some people did well during that 8 year period, some others exceedingly well. While some of us were still in school and saw the property prices flying past the window.
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Old 14th March 2012, 17:10   #43
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Quote:
Originally Posted by praful View Post
No Loan+No Credit Card = How will your credit rating be generated?

God forbid you need to take a loan someday, then you might not be able to get a loan to the amount you need. This is something a close businessman friend of mine had to face as he had not taken a loan all his life!
Good question... But won't your IT return statements for all these years work? Have never thought about ending up in such a situation.

But you won't be in a position to take a heavy loan when you have savings! So I guess it shouldn't be a big problem.

Anyway, I have a clean credit card history with over 6000 credit points.. but since I always linked the CC to my savings account for autopay, it was never a real debt.

Last edited by clevermax : 14th March 2012 at 17:17.
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Old 14th March 2012, 17:26   #44
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Debt is a convenience when used diligently. I use my Credit cards as charge cards only and its that much easy to audit expenses especially fuel bills etc. I have bought all 3 cars on loan and paid them off. If you really realize what your capacity is I think loan can work to your advantage. As one ages it better to live a 'debt free life'.
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Old 14th March 2012, 17:27   #45
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Quote:
Originally Posted by carbookie View Post

And you think I am imagining scenarios, Let me give you a real life example. Remember I said in 2009 I bought an apartment as a distress sale. The person from whom I had bought had followed a similar line of thinking and booked a apartment from Sobha in 2008 (The height of real estate boom) for 72 Lac. In another year he had lost his job. He sold me the apartment for less than 60L. That is a loss of 12 Lac, and I have not even counted the pre-emis he had paid.
It is risky to take debt based on PERCEIVED future income. The recent recession was a great learning in terms of how insecure our jobs and market conditions are. The debt provided by banks are interest based, where the risk is not shared. It is always better to save and buy rather than getting into agreement based on PERCEIVED future income.

Nobody expected housing bubble in US. Those who bought properties there expecting the party to continue for ever are stuck with a less valued property and high EMI which they had committed. The people who lost jobs or unable to service loans did not have any choice other than abscond.
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