When people think that debt isn't debt.

andyfromotley

You need to learn to just smile at that person and say 'oh well lucky you'.

They are looking to make themselves feel better by running you down. Dont join in thier game.

FBaby

bearcat16 wrote: »

Imo a car lease (actually "contract hire") isn't debt, it's more like a rental. You hire the car for 2 or 3 years and pay a rental fee every month. Then you hand it back. There's no interest, as long as you keep to the terms and conditions, and you never own the car.

If she actually means a PCP (personal contract purchase) then that IS debt, as you are charged interest and have the option to buy with the balloon payment at the end.

That's the reality. It sounds like what she is doing in relation to the car is indeed 'renting' it and just like you wouldn't consider renting your home a debt, neither is it with the car.

As for the house improvements, it sounds like she has worked out she has more equity than the size of the loan, and therefore sees herself in the plus and therefore not in debt.

I suppose her argument is that she has a debt to repay, but because she could repay it pretty quickly if necessary (selling her house), then she doesn't see herself in debt.

CalumHeath

FBaby wrote: »

That's the reality. It sounds like what she is doing in relation to the car is indeed 'renting' it and just like you wouldn't consider renting your home a debt, neither is it with the car.

It's a formal agreement between two parties and until she's paid all of it, it remains a debt.

FBaby wrote: »

I suppose her argument is that she has a debt to repay, but because she could repay it pretty quickly if necessary (selling her house), then she doesn't see herself in debt.

It comes back to what I was saying about people changing the definition of the word to make themselves feel better.

The definition of a debt is something (let's say money) owed. Just because you can pay it doesn't mean it's not a debt; it stops being called a debt when you actually pay it and stop owing it.

Muhren

So renting must also be a debt then, which therefore makes it impossible for the majority of people not to be in debt.

I've said this before but I think it is important to categorize your debts, some are 'good' such as a mortgage and some are 'bad' such as a credit card that you have racked up gambling debt on.

thegrind

Something to ponder,

If someone gave you £10k and said spend it on what you want. I will not charge you interest or ask for any more than you want to pay back for the rest of your life. Would you consider it a priority debt?

Most probably wouldn't.

If someone gave you £10k and said spend it on what you want, but I want a minimum of £265 a month and will charge 20% APR for 5 years. Im betting you would feel a lot different about how you treated this debt and would want to clear it down ASAP.

No one in their right mind would lend someone money on the terms of option 1.

This is why the credit card companies love racking up peoples debts with BT transfers as they know a high majority of customers will not pay it back apart from the minimum payment and be left with a nice juicy balance to whack at least 20% APR onto. With that the really stupid ones spend on the card that they cleared with the BT removing any chance of shifting that debt back onto a cheaper rate, thus enslaving themselves into a life of interest and making ends meet.

You can run into debt but you have to slowly crawl out of it. I think your friend probably doesn't know how much it costs to borrow money from her future self. I do and it absolutely pains me to have any debt I pay interest on.

takman

Muhren wrote: »

So renting must also be a debt then, which therefore makes it impossible for the majority of people not to be in debt.

I've said this before but I think it is important to categorize your debts, some are 'good' such as a mortgage and some are 'bad' such as a credit card that you have racked up gambling debt on.

I wouldn't say renting is a debt because you are paying upfront to use the house for the next month. So if you move out at any point you won't owe any money because it's paid upfront.

Sanctioned_Parts_List

Muhren wrote: »

So renting must also be a debt then, which therefore makes it impossible for the majority of people not to be in debt.

When you take a loan from a bank or spend on a credit card, the bank/CC gives you the use of their asset (cash), and charges you for the use of that asset for as long as you've used it (interest). You are in debt to them to the value of asset+interest. If you want to close your account, you have to give them back their asset and all their interest.

When you rent a house from someone, they give you the use of their asset (house), and charge you for the use of that asset for as long as you've used it (rent). You are in debt to them to the value of asset+interest. When you want to move out, you have to give them back their asset plus all its interest.

There's no huge difference.

So renters are actually phenomenally in debt, because they owe their landlords one house. But because legally they aren't in full control of it and can't dispose of it the way anyone can do with cash, there's no point in keeping a record of it the way banks do with money, so it becomes an invisible debt. But default on your rent, though and bad things will happen, just the way they do with banks.

(Some older books on book-keeping referred to cash interest as "rental", which makes the association far more obvious).

Muhren

takman wrote: »

I wouldn't say renting is a debt because you are paying upfront to use the house for the next month. So if you move out at any point you won't owe any money because it's paid upfront.

You usually have to sign a contract for a set amount of time, say 6 months and therefore going by the car leasing example you are classed as being in debt.

sourcrates

Sanctioned_Parts_List wrote: »

When you take a loan from a bank or spend on a credit card, the bank/CC gives you the use of their asset (cash), and charges you for the use of that asset for as long as you've used it (interest). You are in debt to them to the value of asset+interest. If you want to close your account, you have to give them back their asset and all their interest.
.

Here's where I start getting picky, the "money' the bank lends you, doesn't actually exist.

Banks can create money through the accounting they use when they make loans. The numbers that you see when you check your account balance are just accounting entries in the banks computers.

These numbers are a ‘liability’ or IOU from your bank to you. But by using your debit card or internet banking, you can spend these IOUs as though they were the same as £10 notes. By creating these electronic IOUs, banks can effectively create a substitute for money.

So they effectively loan you money, that does not exist !!!!

takman

Sanctioned_Parts_List wrote: »

When you take a loan from a bank or spend on a credit card, the bank/CC gives you the use of their asset (cash), and charges you for the use of that asset for as long as you've used it (interest). You are in debt to them to the value of asset+interest. If you want to close your account, you have to give them back their asset and all their interest.

When you rent a house from someone, they give you the use of their asset (house), and charge you for the use of that asset for as long as you've used it (rent). You are in debt to them to the value of asset+interest. When you want to move out, you have to give them back their asset plus all its interest.

There's no huge difference.

So renters are actually phenomenally in debt, because they owe their landlords one house. But because legally they aren't in full control of it and can't dispose of it the way anyone can do with cash, there's no point in keeping a record of it the way banks do with money, so it becomes an invisible debt. But default on your rent, though and bad things will happen, just the way they do with banks.

(Some older books on book-keeping referred to cash interest as "rental", which makes the association far more obvious).

I don't fully agree with that because when you rent a house you are just paying to stay there. They arnt giving you the house, its just like when you stay in a hotel.

If you rent a house you can't choose who lives there, it has to be people named on the contract. So this just shows you have no control over the asset at all. Then when you consider you pay in advance of the period your staying it would be very difficult to class it as a debt.