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Debt:Income
>=101%
15%
 15%  [ 3 ]
76-100%
0%
 0%  [ 0 ]
51-75%
0%
 0%  [ 0 ]
41-50%
0%
 0%  [ 0 ]
31-40%
0%
 0%  [ 0 ]
21-30%
15%
 15%  [ 3 ]
11-20%
10%
 10%  [ 2 ]
1-10%
15%
 15%  [ 3 ]
0%
45%
 45%  [ 9 ]
Total Votes : 20

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McGruff
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PostPosted: Wed Sep 05, 2012 6:02 pm    Post subject: Reply with quote

It all depends. Huge debt ratios could be justified or they might not. Going into to debt merely to spend on consumption is stupid. Spending more than you earn on something which will generate a return may not be.
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eccerr0r
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PostPosted: Wed Sep 05, 2012 6:07 pm    Post subject: Reply with quote

Income as in per year, debt as in absolute? As pointed out earlier, it's the norm of people in the US borrowing over 100% of their yearly income to fund for houses.

I don't think borrowing money is necessarily bad, it's practices that make the loan infeasible to pay off that's bad. Things like risky borrowing, which perhaps is the intent of this thread, needs to be stopped.

And honestly, though agreed that borrowing for pleasure is bad and borrowing for investment can be good, it doesn't really matter as long as it's all paid back.

I ended up doing an over 100% for a few years, but it dropped to near 0% (housing) ... Now I'm just milking my credit card "rewards"... till the day vendors charge more for CC payments...
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PostPosted: Wed Sep 05, 2012 6:09 pm    Post subject: Reply with quote

Debt for spending should be 0% of income (so 0% government debt). Borrowing to make more money is ok (and debt-to-income ratio can be pretty high at the beginning).
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PostPosted: Wed Sep 05, 2012 6:26 pm    Post subject: Reply with quote

John-Boy wrote:
juniper wrote:
(beach holidays in spain are cheap here, kids love them).


Don't need foreign holidays, there's the great British seaside !

Wasn't you who had some questionable^H^H^H^H^H^H^H^H^H^H^H^H charming signature loathing the over evaluation of foreign contributions to your culture or something like that ? :wink:
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PostPosted: Wed Sep 05, 2012 6:30 pm    Post subject: Reply with quote

pjp wrote:
sugar wrote:
I'm genuinely surprised that the poll options are only 100% or less.
>=101 is an option. Once you are over 100%, it becomes an entirely different beast IMO. Your Sydney example demonstrates debtor's prison irresponsibility by the borrower and gross negligence by the lender.


why?
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PostPosted: Wed Sep 05, 2012 7:06 pm    Post subject: Reply with quote

pjp wrote:
sugar wrote:
I'm genuinely surprised that the poll options are only 100% or less.
>=101 is an option. Once you are over 100%, it becomes an entirely different beast IMO. Your Sydney example demonstrates debtor's prison irresponsibility by the borrower and gross negligence by the lender.


Why is this arbitary "100%" limit based on annual income? What's the basis for that? Why not your monthly income? Or 5 yearly?
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PostPosted: Wed Sep 05, 2012 7:55 pm    Post subject: Reply with quote

Ah... was wondering why people were alluding to government.

All non-human entities (government, business, etc.) should have a debt-to-income ratio of 0.

Since they cannot really "suffer" if they don't pay back...
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PostPosted: Wed Sep 05, 2012 8:20 pm    Post subject: Reply with quote

aCOSwt wrote:
Wasn't you who had some questionable charming signature loathing the over evaluation of foreign contributions to your culture or something like that ? :wink:


:D - Celia Fiennes ?

Quote:
which would ‘form such an Idea of England, add much to its Glory and Esteem in our minds and cure the evil itch of overvaluing foreign parts’


She was an interesting lady - the quote was apt as well, there's a lot in our backyards (wherever they maybe) that we undervalue.

I was thinking of happy childhood memories in my response to juniper you see.
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PostPosted: Wed Sep 05, 2012 8:55 pm    Post subject: Reply with quote

eccerr0r wrote:
Ah... was wondering why people were alluding to government.

All non-human entities (government, business, etc.) should have a debt-to-income ratio of 0.

Since they cannot really "suffer" if they don't pay back...

Your purely affect argument is warmly welcome.

However, you certainly know this is not possible.
At first because any private company starts with an infinite debt-to-income ratio as they get no icome yet and a non null debt because it's shares are debt.
Of course it is an infinite term debt because shareholders are not supposed to come and ask for their money back.
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PostPosted: Wed Sep 05, 2012 10:47 pm    Post subject: Reply with quote

aCOSwt wrote:
eccerr0r wrote:
Ah... was wondering why people were alluding to government.

All non-human entities (government, business, etc.) should have a debt-to-income ratio of 0.

Since they cannot really "suffer" if they don't pay back...

Your purely affect argument is warmly welcome.

However, you certainly know this is not possible.
At first because any private company starts with an infinite debt-to-income ratio as they get no icome yet and a non null debt because it's shares are debt.
Of course it is an infinite term debt because shareholders are not supposed to come and ask for their money back.


Yes this is very true. I don't necessarily agree with this kind of debt either (stock/corporations)... there's nobody to blame when something goes wrong.

But it's even worse when companies/business borrow even more money through non-stock/bond funding operations...
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PostPosted: Wed Sep 05, 2012 11:02 pm    Post subject: Reply with quote

sugar wrote:
why?
Why is it irresponsible and negligent? It is negligent because the loan is too high a risk. Why not a $5M home loan under the same terms? 30yr@10% = 5265.43/mo. @7% = 3991.81/mo. Income isn't guaranteed, real estate bubbles cause people to think they shouldn't have to pay according to terms agreed, etc., etc.


bbe wrote:
Why is this arbitary "100%" limit based on annual income? What's the basis for that? Why not your monthly income? Or 5 yearly?
Annual income is based on monthly income, sometimes even weekly or bi-weekly, so the distinction seems to be yours.

The farther out you look, such as 5yrs, you're basing it on something which is less and less certain. So much beyond 1 year seems foolish. If you're in a growing field during a boom economy, you can flex that some. But if your field is shrinking and the economy is doing poorly, you probably ought to reign in the belief that tomorrow is guaranteed.

In general terms, income is usually referred to on a monthly or annual basis when discussing topics of finance. Theoretically, even the US budget is limited on an annual basis (5yr budgets aren't possible). Then there is the issue of just using common discussion terms.
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PostPosted: Thu Sep 06, 2012 4:57 am    Post subject: Reply with quote

pjp wrote:
sugar wrote:
why?
Why is it irresponsible and negligent? It is negligent because the loan is too high a risk. Why not a $5M home loan under the same terms? 30yr@10% = 5265.43/mo. @7% = 3991.81/mo. Income isn't guaranteed, real estate bubbles cause people to think they shouldn't have to pay according to terms agreed, etc., etc.


The risk happened because banks were lending to people without proof of income or assets. This is risky, not lending someone 5 times their income to buy a house.
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PostPosted: Thu Sep 06, 2012 2:19 pm    Post subject: Reply with quote

I don't believe most US banks agree. By a large margin. So I'd need to see something demonstrating what made 5x to be reasonable.
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PostPosted: Thu Sep 06, 2012 7:16 pm    Post subject: Reply with quote

Well for the housing loans, it's not nearly as risky, it's not like it's an unsecured loan - the property is collateral. These can go much larger I'd say.

Loans such as student loans and credit cards that are unsecured, these the ratio probably needs to be lower. For student loans that's even a special case... the implication is that there is no income either...

ugh... too many types of loans to consider here...
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PostPosted: Thu Sep 06, 2012 8:21 pm    Post subject: Reply with quote

pjp wrote:
sugar wrote:
why?
Why is it irresponsible and negligent? It is negligent because the loan is too high a risk. Why not a $5M home loan under the same terms? 30yr@10% = 5265.43/mo. @7% = 3991.81/mo. Income isn't guaranteed, real estate bubbles cause people to think they shouldn't have to pay according to terms agreed, etc., etc.


bbe wrote:
Why is this arbitary "100%" limit based on annual income? What's the basis for that? Why not your monthly income? Or 5 yearly?
Annual income is based on monthly income, sometimes even weekly or bi-weekly, so the distinction seems to be yours.

The farther out you look, such as 5yrs, you're basing it on something which is less and less certain. So much beyond 1 year seems foolish. If you're in a growing field during a boom economy, you can flex that some. But if your field is shrinking and the economy is doing poorly, you probably ought to reign in the belief that tomorrow is guaranteed.

In general terms, income is usually referred to on a monthly or annual basis when discussing topics of finance. Theoretically, even the US budget is limited on an annual basis (5yr budgets aren't possible). Then there is the issue of just using common discussion terms.


So your objection is that beyond 1 year things are too uncertain to know that you can pay off debt? Therefore you shouldn't take on any debt over this amount because you might not be able to pay it back, i.e. you take zero (or very small) risk. I am surprised by this train of thought as it is counter to how a capitalist economy should work, is it not? People need to take risks and one of those is borrowing money in an attempt create more wealth in the future. Sure it doesn't always work which is why banks spread their risks by lending to a lot of people and they know overall they'll get their money back (and some) even though a few default. For mortgages the risk is even lower hence the large multiples and longer terms because you purchase an asset that by and large retains its value (at least compared to say a new car or tat). This means that even before you get to the end of the term most people can repay their entire mortgage by simply selling their home.

Now the real problem is how some products were sold relative to the risk of default in recent years. The risk in the system was not well calculated, but all this has been discussed before I am sure.

Consider this reverse situation. Is an annuity provider for a pensioner (age 70) negligent or irresponsible because they will provide you with a guaranteed income for a fixed price even though you might live to 120, and the income they give you is much larger than your lump sum/50?
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PostPosted: Thu Sep 06, 2012 9:44 pm    Post subject: Reply with quote

pjp wrote:
I don't believe most US banks agree. By a large margin. So I'd need to see something demonstrating what made 5x to be reasonable.


ok, fair comment. I guess I'd have to find some loan vs income vs default rate statistics somewhere? I'll have a look, but I don't like my chances.
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PostPosted: Thu Sep 06, 2012 10:01 pm    Post subject: Reply with quote

Well the banks are working over time to get you to take on debt, at very cheap rates too. I have 20 balance transfer checks sitting to my left, all of which expire any where from 9/13/12 to 10/8/12. The terms are 3% balance transfer fee with a 1.99% interest rate for two years. That's dirt cheap money. Although, the rate has gone up. Two years back it was a 3% balance transfer fee at 0% interest for 18 months. I'll burn another 11 of them on 9/17, and will probably get another 11 in the mail by the time I have burned them. The banks never give up, even if you never use the things.
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PostPosted: Thu Sep 06, 2012 10:47 pm    Post subject: Reply with quote

Do we also count in the default rate, those who choose to default because they're upside down?
I really don't know what to do with these strategic defaulters. Really, they need to burn... Not any more than the banking industry though...
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PostPosted: Thu Sep 06, 2012 11:31 pm    Post subject: Reply with quote

eccerr0r wrote:
ugh... too many types of loans to consider here...
I think it is less a financial issue and more of a mindset. I never want to be in debt again.

If I can't afford it, I don't need it. Used cars don't lose nearly as much value as a new car, and it really doesn't take that long (with a decent income) to come up with ~$15-$20k. If you aren't willing to write a check that big, then maybe you'd spend less. Assuming I'm able to pay off my house, I won't buy a different one unless I can do so with no debt, or very minimal debt. If I ever get into the slumlord business, similar "rules" would apply.


sugar wrote:
ok, fair comment. I guess I'd have to find some loan vs income vs default rate statistics somewhere? I'll have a look, but I don't like my chances.
I think in the US, the rule of thumb is 2-3x income. I don't think any bank actually publishes how it decides. So the $120k income you suggest would max in the $360k range. And since banks want to make money, I'm sure they calculate the odds in their favor.


anyNiXwilldo wrote:
The banks never give up, even if you never use the things.
Of course not. They want to make money at an acceptable risk.
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PostPosted: Thu Sep 06, 2012 11:50 pm    Post subject: Reply with quote

bbe wrote:
you take zero (or very small) risk.
Risk is the issue, but you're looking at it from a risk perspective. I'm looking at it, on a personal level, from a freedom perspective. The more I owe, the more I'm trapped. If you're in a great job, it might be tempting to go into heavy debt, but it really isn't rational. You could just as easily save the money and buy stuff you need when you have the money. And if by some unlikely reason you lost your job, you aren't freaking out about how to pay your bills.

bbe wrote:
I am surprised by this train of thought as it is counter to how a capitalist economy should work, is it not? People need to take risks and one of those is borrowing money in an attempt create more wealth in the future.
Investment risk is about using your own money to make more money. It would be really foolish to get a secured or unsecured loan that you turn around an put into a high risk investment. Low risk probably isn't going to pay the interest on the loan.

bbe wrote:
For mortgages the risk is even lower hence the large multiples and longer terms because you purchase an asset that by and large retains its value (at least compared to say a new car or tat). This means that even before you get to the end of the term most people can repay their entire mortgage by simply selling their home.
Unless it is overvalued, like recently. Also, that isn't much of an investment. It is, but it isn't Investment. You live in it, and it will make money some day, most likely.

Buying property as an investment is usually done with little debt by people who can afford it., not people living paycheck to paycheck.

bbe wrote:
Consider this reverse situation. Is an annuity provider for a pensioner (age 70) negligent or irresponsible because they will provide you with a guaranteed income for a fixed price even though you might live to 120, and the income they give you is much larger than your lump sum/50?
I'm not sure exactly what you're talking about, but it would be evaluated on risk. The annuity provider would calculate what they expect to earn vs. risk and act accordingly. They'd lose some, but they'd win more often than not. Unless they were stupid. (It was recently on NPR, so you could listen to the broadcast -- I think it was on This American Life).
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PostPosted: Thu Sep 06, 2012 11:54 pm    Post subject: Reply with quote

pjp wrote:
sugar wrote:
ok, fair comment. I guess I'd have to find some loan vs income vs default rate statistics somewhere? I'll have a look, but I don't like my chances.
I think in the US, the rule of thumb is 2-3x income. I don't think any bank actually publishes how it decides. So the $120k income you suggest would max in the $360k range. And since banks want to make money, I'm sure they calculate the odds in their favor.


well, to follow this up, sydney has a terrible reputation for home affordability. I doubt very much that a couple on an average income would be able to buy an average house in Sydney.
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PostPosted: Fri Sep 07, 2012 3:56 am    Post subject: Reply with quote

Well, no, it sounds very unlikely. The same is true of numerous places in the US.

I'd love to move to California for the climate, but I'd likely live in something unpleasant. Alternatively, I'd have to live some place with few or low paying jobs, likely to eliminate owning as an option.
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PostPosted: Fri Sep 07, 2012 4:32 am    Post subject: Reply with quote

It depends on your definition of debt. I have a home mortgage which would put me over 100%, however, I would never find this amount acceptable in the form of credit card debt.

0% is a retarded answer. Without debt, businesses wouldn't exist and nobody would ever be able to buy a home. debt is required to create items which never existed previously, that's the idea of investing... that company is indebted to you for the amount that your stock is worth.
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PostPosted: Fri Sep 07, 2012 6:03 am    Post subject: Reply with quote

0% is very possible, just risk money that you have. I've saved $xyz, let me start a company by buying this and doing that... it works. Just that it precludes big risks like hiring workers and buying large machinery to get things done... but maybe the original intent of this thread was to not make risks when they can be avoided...

And I lived out in CA for a year a while ago... I kind of missed the four seasons since I've always been somewhere where it was hot in the summer and snowed in winter. But I guess I didn't miss having to shovel... :p (and... no earthquakes here, unless the Yellowstone Caldera is included...)
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PostPosted: Fri Sep 07, 2012 12:57 pm    Post subject: Reply with quote

John-Boy wrote:
juniper wrote:
(beach holidays in spain are cheap here, kids love them).


Don't need foreign holidays, there's the great British seaside !


don't be such a scrooge. you know the spanish need it!

We take vacations in Britain as there are lovely places to go here as well. But we do miss summer, so we get that in Spain (23C just doesn't cut it in my books).
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