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Just Say No to Debt

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Just Say No To DEBTMy last post, Retirement advice for young folks, received a good response and I think I should expand more on it. We have more young readers now and I would love to share what I did right and wrong in my early years. We all made some financial mistakes and it’s best to learn from others rather than experiencing those mistakes.

Avoiding debt is crucial to healthy personal finance, but Americans are terrible at this. We take on student loans, credit card debt, mortgages, and much more. Let’s take a look at these debts one at a time and see how I did.

Student loans

I went to a University of California and graduated with a Bachelors and a Master of Science in 5 years. I worked part time on campus, but my parent paid the bulk of the tuition and living expenses. Mrs. RB40 went to the same in-state university and also worked part time on campus. I realize that most kids don’t have that option and I owe my parents big for that. A college education costs more and more every day and it will be much more difficult to pay the whole bill in the future. We plan to help out baby RB40 as much as possible and are contributing to the 529 plan for that.

A college education is essential for future employment so I think it is worth going into debt for. For young folks about to enter a university and thinking about taking on a six figure debt, I suggest they consider some alternatives. You can save a lot of money by going to a community college for two years and then transfer. A public college is usually much more affordable than a private college and it won’t make a huge difference when you look for a job, so consider that as well.

Some ideas

  • Community college
  • Live at home
  • Work part time
  • Choose a public university over private
  • Apply for Financial Aid and scholarships

Car loans

I drove an old Toyota Cressida for about a year when I started my first job. Driving a junky car is the pits for a single guy so I decided to buy a new car. It was easy to get a car loan with a good stable job and I did. I purchased a ’98 Ford Escort ZX2 and I loved it. I think it cost around $10,000 and we ended up getting a lot of use out of it. I gave it to my brother in 2003 and he just sold it in 2011.

My advice to my younger self would be to pay for a vehicle with cash. If it is too difficult to save up for a new car, then consider a used car instead. I would avoid a car loan even with today’s low interest. I hated making those car payments and it’s a slippery slope. A luxury car might seem affordable with a $500 monthly payment, but the cost of driving really adds up over time. We don’t have any car payments now and it feels great.

Credit card and other consumer debts

I got a credit card when I was in college, but I don’t think I ever used it. I added a few more cards after I graduated, but the habit stuck. I always made sure to pay off the cards every month and never carried a balance. I never carried a balance on a store card either and stopped using them a few years ago. Some of my friends liked to take advantage of the 0% interest offers from furniture stores, but I think that’s a bad idea.

A credit card debt is of the worst debts you can have. The interest rate is very high and it is best to avoid building up a big balance on your credit cards. I would make it a priority to pay off the credit card debts first before investing.


This one is difficult to avoid. How many people can pay cash for a house? We purchased a house in 2001 and took out a mortgage loan. Luckily, we decided to go with a 15-year Fixed Rate mortgage. This enabled us to build equity quickly. We refinanced a few times to take advantage of the lower rates and this home is now a rental with positive cash flow. We still owe about $80,000 on this house, but our tenant is paying the bank for us so we are not making extra payments at the moment.

If I could go back, I would consider a duplex or triplex instead of a single family home. It would have jump started my part time landlord career and made more sense in the long run. It can be difficult to find a duplex in a good neighborhood though. I guess it really depends on where you live. Another alternative is to rent out the rooms in your house. We did this periodically and it helped with the mortgage.

Say No to Debt

I made some mistakes when I first started out, but I think I did OK overall. The best thing I did was to avoid credit card debt. The average household has over $15,000 of credit card debt. The interest alone will take up a big chunk of their paycheck. The car loan wasn’t a good move, but at least we got a lot of value out of that car. It’s important to avoid consumer debt when you are young so you can start building your net worth right away.

How about you? Did you hesitate to take on debt when you were young? What would you have done differently? If you are in your 20s, do you have a lot of debts?

Update: This is just the first post in the series – Retirement advice to young folks. So keep coming back for more posts over the next few weeks. 🙂

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{ 46 comments… add one }

  • First gen American August 29, 2012, 2:45 am

    I was always reluctant to tke on debt but early on it was difficult not to on the big purchases like a car, home, or schooling. I’d like to think I minimized those expenses though by buying modestly priced homes and cars vs what I could afford. It made
    Getting ahead of the debt that much easier because I had extra cash to put towards debt pay down vs maxing out on my minimum payments. My first new car was a corolla.

    • retirebyforty August 29, 2012, 4:49 pm

      It’s great that you can pay down your debt. Most people just pay the minimum. That will just drag the debt on for years. That’s the importance of earning more money. Many young kids do not earn enough to pay down their debt much.

      • The Chad September 3, 2012, 12:05 am

        RB40, I wouldn’t say that’s the importance of earning more money (though it helps) as much as I’d say that’s the importance of not spending more money than you make. 🙂

        • retirebyforty September 3, 2012, 6:06 pm

          I plan to write more posts on this series and will include those things. 🙂

    • samandgracie September 4, 2012, 8:00 am

      Love your blog!

      • retirebyforty September 4, 2012, 2:14 pm

        Thanks for stopping by! 😉

  • W at Off-Road Finance August 29, 2012, 6:04 am

    I think the exercise of figuring out how to pay cash for a home is a very good one. It gets people thinking about saving and current expenditures, maximizing their income, and how much home they really need. It’s all too easy to make bad decisions in any of those areas just because the mortgage makes it possible.

    The mortgage may be the most destructive financial instrument in the first world.

    • retirebyforty August 29, 2012, 4:55 pm

      That is a good exercise. I guess it depends on where you live. The housing here is Portland is quite expensive and I doubt many people can pay cash for it. Minimizing your housing expense is good though.

  • SavvyFinancialLatina August 29, 2012, 6:42 am

    I hate debt!!! Grr..

    Right now, the only debt we have is a 5K car loan. We are aggressively paying it off every month. I am trying to steer us away from loans as much as possible. When I bought my car, a lot of people told me to buy new, but I chose not to because I didn’t want to have a car loan. I am so glad I did! I am hoping my little used Honda Civic last a long time.

    A home mortgage scares the ^&**( out of me. I can’t imagine having a 150K+ loan. I think you should write a post about why you chose to go with a 15 year fixed rate, and how that helped you build equity.

    • retirebyforty August 29, 2012, 4:57 pm

      That car loan will be gone in no time. A mortgage will be much more painful to pay off.
      I’ll work on that 15 years fixed rate post for you. 🙂

    • 65aspiringyogini August 30, 2012, 5:16 am

      Hola, Savvy Financial Latina,

      I have a 12 year old Honda CRV and I believe that model sits on a Honda Civic chassis. This car has been the most dependable car I have ever owned. I hope that you get as much dependability and usage from your Honda as I have! I would like to get 250,000 and my mechanic thinks that I can! Viva mi Honda!

  • Chase Miller August 29, 2012, 7:29 am

    No debt here. I have a plan to get through college without debt. It involves living at home and going to community college but I think in the end it will be worth it!

    • Brick by Brick Investing August 29, 2012, 10:15 am

      Chase my hat goes off to you! A lot of your peers are taking on a crazy amount of debt in student loans that will cripple them for decades!

    • retirebyforty August 29, 2012, 4:59 pm

      That’s great to hear. Living at home and going to the community college is a great option. It’s much better than starting out a career with a huge debt like many people are doing. Great job!

  • Brick by Brick Investing August 29, 2012, 10:18 am

    Great article! When people ask me about investing, the first piece of advice I give them is to get out of debt while educating themselves!

    “When you get in debt, you become a slave”
    – Andrew Jackson

  • Young folks, learn from Joe. He’s RETIRED before 40! I agree with all of your advice. I wish you had been around when I was buying new cars and things on credit. We will never have a car loan or credit card debt again unless something crazy happens. Sometimes I see a new car and think that it looks nice, but there is no car that is worth having a payment. Good advice.

    • retirebyforty August 29, 2012, 5:00 pm

      It’s great that you manage to learn your lesson about debt. Most people seem to just put their head down and continue borrowing. I won’t sign up for another car loan either. If I can’t afford it, I won’t buy it.

  • Roshawn @ Watson Inc August 29, 2012, 4:49 pm

    Agreed. Avoiding debt is one way to ensure to have adequate funds to invest in the first place. There is too much to talk about on this topic, but I concur with you.

  • krantcents August 29, 2012, 5:49 pm

    I avoided debt except for a mortgage for almost all of my 20s! In those days, you could assume the existing mortgage on the home, if you had the cash. I was able to get a 5 1/4 interest loan when the prevailing rate was 7%. Savings was important for investing vs. squandered on debt or spending.

  • SB @ One Cent at a Time August 29, 2012, 7:52 pm

    Until recently I was satisfied with saving for a outright home purchase. Now it seems the coffers are not filling up too quickly. Thinking about taking some debt finally..

    • retirebyforty August 30, 2012, 8:02 am

      The interest rate is very low so you should take advantage of that. It’s tough to save a large amount to pay for a house with cash.

      • Brick by Brick Investing August 30, 2012, 8:07 am

        I agree, we recently just purchased a house and financed for 3.25% fixed! We plan on staying there for 10 years at the very least. If you aren’t planning on moving again, then purchasing a home at these depressed levels at the current rates is the best decision a family can make at this point in time.

        • retirebyforty August 31, 2012, 8:38 am

          That’s a great rate. Congratulation!

  • Little House August 30, 2012, 7:05 am

    I recently racked up some student loan debt that I’m now kicking myself for. At the time, I thought it was a solid investment; education = job. But now, I’m thinking I was a fool! My plan is to have it paid off in 8 – 10 years.

    • retirebyforty August 30, 2012, 8:04 am

      Good luck with the pay down. I think it’s still a good investment, but it depends on the major too.

  • min hus August 30, 2012, 9:58 am

    I too am very debt averse. I was lucky not to need to take out any student loans (through a combo of scholarships/grants/working/parents’ help). I did buy a brand new car after graduating college, but paid off the loan early and I still have it 12 years later.

    I’ve never had credit card debt and hope to never need to. My big debt is my mortgage. It’s a traditional 30 year, but I bought less house than I could afford (it’s TINY) and make extra payments. I hope to have it paid off well in advance.

    • retirebyforty August 31, 2012, 8:39 am

      You did a great job! I think a new car is fine too as long as you drive it into the ground. 🙂
      Buying less house than you can afford is a big deal. You put a lot more toward saving by living in a small home.

  • Kathleen @ Frugal Portland August 30, 2012, 12:52 pm

    NOW you tell me! Sheesh.

    • retirebyforty August 31, 2012, 8:39 am

      Sorry I’m so late. 🙂 See you in Denver.

  • Cassi August 30, 2012, 7:27 pm

    I am only 17, so i currently do not have debt, but with University starting next year, I know this will change soon. I plan on only letting student loans be my only form of debt for as long as possible. i am very hesitant from reading so many financial blogs, that I honestly don’t want to touch debt with a 10 foot long pole.

    • retirebyforty August 31, 2012, 8:44 am

      Good luck with College, you’ll have the time of your life. Have you considered living at home or going to a more affordable university? I think a college education is a great investment, but hopefully you don’t have to take up a huge debt to do it.

  • Cash Flow Mantra September 2, 2012, 12:21 pm

    I do think that debt is a major impediment to being able to retire or exercise choices in one’s life. I wish that I had learned this lesson at a younger age since I am now paying for the choices made earlier in life. But I am working hard to do what I can to rectify the situation.

  • Mimi September 4, 2012, 12:25 am

    This is my first time here and I will definately add this to my favorites. I am in my late 20s and have always dreamed of retiring early. As for debts, thank goodness college is not that expensive here(Tanzania, East Africa). I managed a full time job and paid for my first degree(yeah, lucky me!!). But then I took a loan to pay rent and start a small business which sadly didnt pick up. I was stupid enough not to pay attention to terms and conditions and the bank has been incresing their interest rates every year, from 18% to 21% and rumor has it that its going to 26% in 2013. But I have a plan, there is an organisation with very very low interest rates, so I registered with them and when am eligible I will take a loan from them to clear the mess I made with the bank. I worked the numbers and they look good. And YES, I read and re-read the T&Cs.

    • retirebyforty September 4, 2012, 7:55 am

      Good luck! Starting a small business is how many people get rich. That interest rate is very high and I hope you can get a better loan with the new organization. Thanks for dropping by.

    • Candi Kinn September 4, 2012, 10:58 am


      I have heard about the increasing interest rates on loans in Africa!

      An associate of mine funds relief efforts in Africa to build homes for underpriviledged folks in your area and has heard some real interest rate horror stories that sound very similar to yours!

      Best of luck with your new loan!!

      • Mimi September 4, 2012, 10:58 pm


        Yeah, it is crazy. We just started this mortgage thing (we never had any before). So, I called some banks to see about the interests and everthing else. What I found out is, if I go to a 15 yrs plan for a 50M house (about US$ 32,051) I will end up paying 150M (US$ 96,153). Currently, thats the only plan they offer. Well, I passed.

        Its a good thing what your friend is doing. Pass my thanks to him/her.

  • Brandon September 4, 2012, 3:20 am

    Great article! I’m a major opponent of debt. So much so that at 28, I’m still living at home with the parents. Luckily for me (and them), I saved every extra dollar I had and just last week purchased 12 acres of land, without a loan. I will actually live there in a travel trailer while I save for and slowly build my modest 1000 sq. ft. house. I own one vehicle which is paid for with cash too. The savings from living modest come from so many things, such as less utilities in a small home, no finance charges, less gasoline by not driving a big fancy gas hog, etc. Modest living is a mentality and a lifestyle and I truly enjoy it.

    I know my path is a bit extreme for most people, but I am totally debt free and feel so relieved because of it, so I refuse to change. Luckily, my fiancee is not a high-maintenance girl, which also saves me tons of money, perhaps more than the rest of the savings combined!

    • retirebyforty September 4, 2012, 2:42 pm

      I love it! Great job with your finance so far.
      I plan to buy some acreage in the future and do the same thing. Right now we are tied down due to Mrs. RB40’s job.
      Having a low maintenance girl is worth millions. 🙂

    • David Crawford March 7, 2015, 3:18 pm

      You so got it going on!! I am 47 yrs. old and have only $7K in debt to pay off. Own our house, cars, and have no credit cards what so ever. I am trying to educate my 24Y/O son on the importance of not getting into debt, and saving for retirement earlier.
      Curious to know where you reside. That is a huge accomplishment for a guy of only 28.
      I am fortunate to have a low maintenance gal also. Keep up the great work! Would love to hear from you.

  • Brian Tennant September 4, 2012, 10:38 am

    I graduated college in 2009 with 20k in student loan debt (not bad). I purchased a duplex in 2011 rent the downstairs and have 2 roomates. I diverted a little bit this past summer and bought all equipment necessary to run a powerwashing business that ive been involved with the past 3 years. I always work full-time as an auditor and have a couple part time jobs. Since i’ve had credit cards ive not paid .01 in interest I use the credit card as a debit card if youre going to spend might as well get cash back. My mortgage and all repairs currently being work on gets paid by the house so i only have to focus on paying down my student loan, car loan, contribute 8% + 4% employer match 12% each pay to my 401k, and general living expenses. But somehow i still come up short on cash flow each month. Is there a point to where you can be to agressive on paying down debt. What is a good balance between putting cash aside and putting cash towards debt? If i put it in the savings account i’m only getting a .015% Rate of return but if i put that same amount towards debt i’m getting whatever the loan rate is as a rate of return. Ive built up my credit lines and i would like to now build up cash reserves that equal the amount of availabe credit which at that point i’d feel flush on that part. I believe the next step would be to set up an account to purchase my next rental property. I personally feel im on the right track just looking for guidance and reassurrance.

    • retirebyforty September 4, 2012, 2:47 pm

      I think you are doing great! You have multiple income streams and it will only get better from here.
      Do you have an emergency fund saved up? I would build a 3 months emergency fund in the saving account first.
      This is in case your car break down or your house need repairs. Once you have the EF, then I would pay down the car loan.
      You can open a saving account at ING and get .8%. That’s not a lot, but it’s better than .015%.
      Let me know if you have anymore questions. Good luck!
      Alternatively, you can sell your car and buy a used car. Is that possible?

  • Candi Kinn September 4, 2012, 11:12 am

    I just discovered your site…. LOVE IT!

    I am a 20-something, college graduate (married with a new baby). While I wish I would have had access your information prior to college, I am comfortable with the “mistakes” I’ve made along the way….

    Post-College I was $45k deep in student loans (Parents paid only my first semester, I funded the rest by working through school and every summer.) I had the “need a cool new car now that I’m a responsible adult” phase — add an additional $24k (put $7 down on a brand new vehicle, financed the rest at 3%). And luckily I had learned from others’ mistakes on credit card debt pre-college — I NEVER carried a balance.

    Today (6yrs post graduation) I owe $25k on the student loan, I OWN my car, and (thanks to the money-pit I call home) I now have around $10k in various interest-free credit card debt (used to finance a remodel of our house).

    Even though we have all of these payments, we have never lived beyond our means — we can always make the appropriate payments and then some on all of our debts. (Which brings up another great topic, bi-weekly mortgage payments!!! Saves you tons and tons of money just by paying your monthly payment in two installments throughout the month!)

    While I’m thrilled to read your guidance above to young people, and agree with all of it whole-heartedly. I am proof that there are some young adults who get into this debt mess, but are responsible (and determined) enough to devise a plan for paying them off!

    • retirebyforty September 4, 2012, 2:49 pm

      Many bloggers got started writing about paying down debts. Keep working on those debts and everything will get better soon.
      Good luck!

  • Hartman September 9, 2012, 2:15 pm

    I have managed things quite differently than most. I was able to graduate from college without any debt through my own work, no help from parents. This was 20 years ago. I take pride in learning new things and one of them is car mechanics. We have 3 used cars all bought for less than 3000 bucks and i maintain these vehicles. If you look just at the cost of interest on a car loan @6% (which is fantastic if you can get it) on 10 grand, you could nearly replace the engine every two years (don’t forget taxes on 10 grand!). There are great deals because people don’t or aren’t willing to fix things. I have focused completely on paying off debt. I bought an older home and fixed it up (40000$) and paid it off. Lived there a while, then sold it and upgraded and paid it off. This has freed up my income and has allowed me to buy a farm to generate income, which we have paid off. I refuse to put money in my 401k (2 out of 12 years) at work because i was scammed at my previous job out of 30000(all my savings at 25) through some type of mutual fund holder going bankrupt and lost it all! I quickly realized the susceptibility of investors to the white collar criminals, devaluation of the dollar and the power of inflation and needed a large hedge against this headwind. My father greatly regrets not buying land or realestate in the 70’s. Its tough for someone to steal a 100 foot tall white oak tree! Don’t get me wrong, I LOVE investing, but beware! I would never put more than 50 percent of any retirement savings in cash, bonds, or stocks. The other fifty percent should be in rental, realestate, gold, something you can put your fingers on. I do have money in our 401K becaused they matched for 2 years out of 12 of my employment and I could not let that pass! The company has also added more because we were an ESOP company. You need to tell your readers about the SEPP program which enables you to withdraw, penalty free, an allotted amount from their 401K each year until they are 59.5. An excellent way to get some money to buy rentals, and diversify into real capital. The only problem is the Government keeps lowering the prime lending rate and the yearly calculations keep dropping. They are greatly discouraging the American saver, and encouraging debt. I seriously worry about the great push to invest heavily in 401K. I live in the southeast US, and living expenses are much cheaper than other areas. My wife teaches and i do manual labor at a factory and our income is modest at best. We have three children and could probably retire now at 41 and live modestly. I would like to affirm that people really need to diversify outside of their 401K.

    • retirebyforty September 12, 2012, 8:28 am

      Thanks for your input. I agree that diversifying outside of the retirement account is necessary. We also invest in rental real estates and that’s a big part of our plan. I haven’t paid much attention to the withdrawal side of the 401k because I don’t plan to touch it until I’m 60. I’ll research it more.

  • Pichirino October 31, 2013, 3:15 pm

    Still in debt age 27,
    made the mistake of getting a personal loan for a used car (and an tablet)
    I still owe about 5000$ on it and i’m really focused on paying it off a year early since I want more room in my savings to achieve the 65-70% savings rate I will aspire to from ~50%.I get bonus’s from work,1 of which I use every year to pay on my student loan debt the other bonus’s go towards paying off the loan.

    When focusing on Financial independence these debts really put things into focus because any debt is too much debt when you want to go forward a couple(or alotof) hundred thousands.

    Still it’s sites like this that keep the motivation strong looking towards the future.

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