Is Debt Killing Your Financial Future?

Is debt killing your financial future and success? In this episode, we’re having an honest conversation about all forms of debt and how some of it may quietly destroys your future dreams and keeps you stuck in a cycle of stress and limitation. We’ll talk through which types of debt can be reasonable, which ones to avoid completely, and how to tell if you’re living beyond your means. 

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Chapters

• 0:57 Life Updates: Alaskan Cruises & Plumbing Issues
• 2:39 Why Debt Might Be a Dream-Killer
• 9:29 Are Mortgages Okay Debt to Have?
• 16:02 The Limitations of Car Loans & Vehicle Debt
• 23:09 Why Carrying Credit Card Debt is Never Okay
• 27:11 What About Zero-Interest Financing?
• 34:52 What to Do If You've Fallen Into Debt

Transcript

You are listening to The Wealth Mindset Show, where Hixon Zuercher Capital Management's team of finance professionals, portfolio managers, and a life coach, come together to tackle complex topics in finance and retirement planning, so you don't have to. From investment strategies and wealth management, to tax planning, retirement income, and aligning your money with your values and purpose, The Wealth Mindset Show offers the tools to thrive.

Austin Wilson:

All right. Hey, hey, welcome back to The Wealth Mindset Show, where the Hixon Zuercher team helps you manage wealth, navigate retirement, and make smart decisions for a secure, meaningful future. I'm Austin Wilson, Director of Investments at Hixon Zuercher Capital Management.

Josh Robb:

I'm Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. Today we have Jordan Shaw and Chase Rose joining us for a discussion on how debt can destroy your future. So we're going to be talking about debt, its uses, whether it's good or bad, and all things. And we have some people here that have opinions. So, it should be a good conversation.

[0:57] - Life Updates: Alaskan Cruises & Plumbing Issues

Austin Wilson:

So before we get started, what's going on?

Josh Robb:

Yeah.

Austin Wilson:

It's fall. It's hot.

Josh Robb:

I'll say I just got back from, my wife and I took an Alaskan cruise for our 20-year anniversary, and if you have never been to Alaska before, it's a beautiful state to visit. So, saw a lot of wildlife, and mountains and glaciers and all the things that don't exist here in Ohio.

Austin Wilson:

Correct.

Josh Robb:

So it was pretty sweet to see. So I just say, if you get the opportunity, it is a very unique world up there in Alaska.

Austin Wilson:

I heard Vladimir Putin was there one time.

Josh Robb:

I mean, you could with my binocular, scout mountain-

Austin Wilson:

Hey, Vlad. You're watching me, I'm watching you.

Josh Robb:

We were not there at the same time that he was visiting.

Austin Wilson:

Chase, the Dairy Whip is closed,

Chase Rose:

Dairy Whip is closed. Not for the wrong reasons.

Austin Wilson:

No, for the season.

Josh Robb:

For the season.

Chase Rose:

For the season, yep.

Josh Robb:

Again, here in Ohio.

Austin Wilson:

Ice cream seasons in the summer.

Chase Rose:

Yes. My wife gets a much-needed break, and we both now have weekends. Yeah. This is our first weekend away from the Dairy Whip.

Austin Wilson:

Jordan.

Josh Robb:

Jordan, just living life.

Jordan Shaw:

Living life.

Austin Wilson:

Tell him how you really feel.

Jordan Shaw:

Yeah, that's right. Yeah. Yeah. I'm a little backed up this week with my plumbing. At my house, to be clear.

Josh Robb:

Home issues.

Jordan Shaw:

Always issues. It's constant. But yeah, we'll get it fixed.

Austin Wilson:

Old houses.

Jordan Shaw:

Old houses, a hundred years old. Plumbing's probably a hundred years old.

Austin Wilson:

Yeah. You've scared me out of living in an old house. I'm deciding to move away from you and live across the street.

Jordan Shaw:

Yep.

Josh Robb:

We had the same it, well, it wasn't rocks like you found in here, but we had the same thing... and our home was only about 15 years old. So yep, it's just pipes and tree roots.

Jordan Shaw:

The worst time, yep.

[2:39] - Why Debt Might Be a Dream-Killer

Austin Wilson:

So, debt. First of all, I want to say this episode was inspired by one of our other advisors, Jessica Hinks, also known as the Everyday Advisor. This is a blog she wrote. This whole idea of discussing debt in this way. So we'll link them in the show notes, check that blog out, it's excellent. But she has some great other blogs on debt, financial freedom, all kinds of different topics, so be sure to go subscribe to that.

But let's just talk about debt. A lot of people have a lot of opinions on debt depending on who you listen to on the internet. They can be, what's the Kiyosaki guy who loves debt so much, he's like, "I'll take on as much debt as I can as long as it earns what needed to earn." And then you've got Dave Ramsey on the other side of the coin. These are both roughly billionaires. And he's saying, "I will avoid it like the plague. Not even a credit card that I pay off every month." So those are the two ends of the spectrum. Where's the truth?

Josh Robb:

Somewhere in the middle.

Austin Wilson:

Somewhere in the middle. Josh is going to say it depends or in moderation or something like that all the time. That's what he always does, but...

Chase Rose:

That's a safe answer. We're here to be bold tonight, Josh.

Austin Wilson:

I know. Well, we're going to get bold.

Josh Robb:

Safe and right could be the same thing.

Chase Rose:

That could be.

Austin Wilson:

So let's talk about a couple categories of debt. The first being consumer debt. Because there are other kinds of debt that we're going to get to which may be better, but consumer debt generally speaking, not favored. Josh, talk a little bit about consumer debt.

Josh Robb:

Yeah. So, consumer debt, those are us. We're the consumer, we're purchasing. So purchasing debt, you're buying things. So, a lot of times debt... We should probably define. Debt is when you purchase something and you don't have the money at that point, or maybe you have the money but you don't want to use your money, so you borrow from someone else, and you have an obligation to repay that borrowed money. That's what debt is. Most of the time it'll come with some sort of interest, because the person lending you money wants to earn something for not having that money available. So, the interest is what you pay on top of what you borrowed.

Austin Wilson:

And they're taking risk.

Josh Robb:

They're taking risk, because they don't have the money, yes. So that's debt to begin with. So consumer debt is, I bought something, I bought a TV, I bought a car, I bought a house, something, and I said I either don't have the money or I don't want to spend my money, so I'm borrowing it from somewhere else. You mentioned credit cards.

Austin Wilson:

That's one.

Josh Robb:

There's mortgages, are a form of debt. Car loans, you can get home equity line of credits, personal loans, all different ways of getting money. And the reason why they can be a problem is consumer debt has interest. Almost all consumer debt. We had some very low interest rates for a little while where there were some 0% interest rate debt, which we'll talk about in a little bit, but I'm going to use the general assumption that most consumer debt carries interest.

Austin Wilson:

True.

Josh Robb:

So, it's going to cost you more for the thing you're buying than if you would've just paid cash for. So that's one thing that can be an issue for it.

Austin Wilson:

And another component of debt in general is that it's instead of saving up as you want and as you can to buy something in a chunk of cash, you're laying out a bunch of money or however you're paying it off all at once, you are locked in for a long period of time at paying some chunk of that. So, it gives you a little less flexibility because you're continuing to have payments.

Josh Robb:

Yeah. And your income now has an obligation to it.

Austin Wilson:

Correct.

Josh Robb:

Whereas before, before you had that debt, what money you came in it was your choice what you wanted to spend on it. But once you have debt, you have to make those payments. And so less of your income is available for you to make other choices with.

And then along with that too, over that timeframe, things could happen. Your income could change. You still have that obligation you have to pay off. So those are the consumer debt issues people deal with. And they can compound, it can add to it. If I have a car debt and then I get a house, now I have a car debt and a mortgage, and so now I have two obligations. So your debt obligations can continue to grow.

Austin Wilson:

Absolutely. And this can be a risk for people with careers. This is definitely, I would say, even more of a risk for people without a steady income. That's where things get in trouble. So, what do you guys think about consumer debt?

Jordan Shaw:

I echo everything you guys are saying. Consumer debt in general, you say it limits the flexibility, yeah. When it's a matter of the two options of paying up front or some limited flexibility of paying down the road, if you can't afford it then don't pay at all. But if you can afford it, pay up front, I don't know.

Chase Rose:

I think we all agree with that. If you can't afford, well a rule of thumb I always have with the exception of I guess large purchases, so in excess of five digits, with the exception of that, if you can't afford to purchase something outright with cash, you should never finance it in the first place. Like I said, cars can be an exception, homes are certainly an exception because not everyone has that kind of cash sitting around. But no, I reiterate that point.

I've always had the perspective, I'm open-minded on consumer debt for one specific reason. If you truly believe that you can earn a higher yield than what you're paying an interest elsewhere, that's where I would be open to considering consumer debt. But unless that is the case, I am just like all you guys, anti consumer debt, if possible.

Josh Robb:

Yeah. I had the opportunity to do a 0% on something a while back when that was available. I had the money, I could have written a check for it, but I was earning more in interest than I was on 0% financing. So, I left the money in my high yield savings account, had 0% interest, knowing at any point in time I could just use that money and pay it off. But I ended up making money over that three-year timeframe, I had the 0% financing.

Chase Rose:

Absolutely.

Josh Robb:

But yes, you're right. It's instant gratification. It's people who say, ""I really want this now and I'm not willing to work and save the money to get it. And that's the trade-off. And most people who run into debt issues struggle a lot with this idea of delaying that gratification until I can actually afford it. It's more of a habit and that mindset and willpower than it is a spending issue in a lot of situations.

Austin Wilson:

Yeah. Also keeps you in survival mode, right? So when you take on, like your example, you have a mortgage, then you bought a car on a loan, then you have a credit card payment that you're not paying off every month, so you have an ongoing payment there, you just are looking at things with, "Oh, well, I can afford this payment because this is my income," not, I can afford the whole thing, like Chase said. And then just using that as a way to rewards, or interest, or however you want to do.

So, it kind of keeps you in survival mode. And it just limits your flexibility. We like flexibility when it comes to finance. So, here's where we're going to get maybe controversy. I like controversy. This is going to be a good topic here. We're going to talk about good or okay, we could say maybe tolerable debt, and maybe not so good debt that we would avoid at all costs, right? So first example: mortgages. Who here paid for their first couple houses with cash?

[9:29] - Are Mortgages Okay Debt to Have?

Josh Robb:

Nope.

Austin Wilson:

Oh, okay. So I guess the financial people in the room would say that mortgages may be okay, that might be an okay form of debt. Now, why would that be, Chase?

Chase Rose:

Well, I would actually expand this to say that purchasing an asset that historically does not depreciate. Now, houses have depreciated.

Austin Wilson:

Yeah, they fluctuate.

Chase Rose:

But over the long period.

Austin Wilson:

Take the GFC out of that picture.

Chase Rose:

Purchasing assets such as real estate, if you're an aggressive investor and you finance a business purchase as opposed to just starting your own, that is a tolerable debt. It's something that can and will appreciate, provide income, all the things that you can use to pay that debt off. And that's the biggest thing, is when you end up paying, let's just say you have a 30-year mortgage and you pay this mortgage off, you spent 30 years making payments, you probably paid a good amount of interest during the term of that loan. But when you're done, you have this asset that hopefully has appreciated a value that is worth something to if you want to sell it someday, or downsize, or upgrade, or something along those lines.

So that's why I personally am fine with mortgages. There's always the big analysis that a lot of clients ask us. "Should I pay off my mortgage or should I keep the money in my retirement portfolio?"

Austin Wilson:

I bet Josh has a great answer for that.

Josh Robb:

Guess what? It really depends on your situation.

Chase Rose:

Exactly. And most often, especially coming out of the whole 2020 area where interest rates were so low, more often than not the answer is to keep the money in your portfolio, because historically it's going to earn more-

Josh Robb:

Two and half percent mortgage rate, and you've historically grown your account by five, keep the money invested.

Chase Rose:

Exactly. But that is only one part of the equation. What a lot of people don't like is the psychological aspect of just carrying debt in retirement, or even not in retirement.

Austin Wilson:

And I actually have heard that someone, maybe it was a Dave Ramsey thing, and now we got to be careful, because I just mentioned earlier, he has the most anti-debt human alive maybe next to Jordan.

Jordan Shaw:

Possibly.

Austin Wilson:

So therefore, take that all with a grain of salt. But he said he is never talked to someone who regretted paying off their house early.

Josh Robb:

Sure. I would say that's true.

Austin Wilson:

I guess from a psychological standpoint that makes sense, because yeah, you pay off your house regardless of what the math will say. We know what the math says. You still have no payment. You can do what you want. You're free. You're not tied to that payment every time.

Josh Robb:

Agree. There are people who understand the numbers or are okay with keeping that debt like Chase was saying, but those that do pay it off early, they don't end up regretting it. They don't. Even when they look at the, "Oh look, I could have grown it," they still grew everything else at that rate, and they were debt free. So yeah, I would agree: no one regrets it. And that's not a bad decision. But between the two, the numbers tell you that more growth, keeping more assets in the higher growth thing is a better deal.

Austin Wilson:

So, guidelines on mortgages. Commonly in America, so we're speaking to Americans. If you're an international listener, thank you for listening, but we do our mortgages a little bit different here. We have typically, we have other options, but most people get either a 15 or a 30-year fixed rate mortgage. Those are the by and large the most common things that we see. We would say, if you can, put 20% down. If you can't, put at least five down. If you get 20%, you avoid private mortgage insurance, which is a nice additional fee that you'd pay every month in terms of ensuring your mortgage because you don't have a lot of equity in the home. But ideally 20, at least five. A lot of people on the front end when they're younger, probably doing about five.

And then look at your payment. This is where you have that 300,000 house, you can back into what's a 15-year payment look like, what's a 30-year payment look like. Try to get that under 30% of your gross income. And these numbers can move a little bit depending on who you are, what your income looks like. But that's kind of a general rule of thumb, and that's including things like taxes and insurance and all these things.

Josh Robb:

Yeah, that 30% number is the key. If you're just looking to buy a home and you're looking, "What's my budget?" The industry says that 30 percent's kind of that threshold. And like you said, you're all in number. The property tax insurance and mortgage payment, that number needs to be below. 30% of your gross, take home pay.

Austin Wilson:

I think we live in a world where houses are very, very, very expensive now compared to where they ever have been. Usually, houses appreciated by an average of about 3% per year, right? But since Covid things have appreciated at double-digit rates, and the whole market's very, very different. So, it's very hard for some people to find that as an option. So, one thing you can do is delay buying that house a year or two to save a little bit more and have a little bit more down payments and make yourself more comfortable, or your income would grow. But we would just caution against buying too much house that it makes you house poor.

Josh Robb:

That's the biggest thing, is it's a big asset, it's not guaranteed to sell quickly. If you're stuck with payments, and you can't make them, losing that asset is not a great situation to be in. And so you never want to extend yourself with the idea that, "I'll eventually be okay with this." And that's what we saw in '08, '09. 2008, 2009, and that housing crisis that happened then, a lot of people bought a home thinking they could quickly sell it. And when they couldn't make the payments and no one wanted to buy it, there was a lot of issues.

So don't think that, "Oh, these payments, it'll be hard, but I'll eventually be okay." You can't count on raises, you can't count on appreciating how all those things lowering interest rates. Some people say, "Well, I'll buy now because interest rates are going down." We don't know. It's not guaranteed. So don't overpay for a home. Make sure you could afford it today with where you're at.

Austin Wilson:

Exactly. So guys, thoughts on mortgages?

Jordan Shaw:

Yeah, real quick with that, the whole 30% thing.

Austin Wilson:

Yes.

Jordan Shaw:

I believe that 30% is a max, and also should include other expenses that come with the home. If you're looking at 30% of your gross income, gross household income, and maybe that should even be smaller if you've got more people under that roof, because more variables, more things that could go wrong in personalized, and then things that could go wrong with the house, depending on how old the house is, things go wrong and then you have to dip into savings. And that should all be part of that 30% of your income, because if 30% is just your mortgage, you're going to outdo that really quickly with home repairs and things that can come up.

[16:02] - The Limitations of Car Loans & Vehicle Debt 

Austin Wilson:

For sure. So another topic: car loans, as Chase alluded to earlier. This is kind of over the category where it's oftentimes hard to have this much cash on hand, because cars, just like houses, more expensive than ever. In fact, I was writing a blog post recently, and I've looked up the value of the average new car, or the cost of an average new car. $48,000. That's a lot of... I remember, maybe I'm aging myself now, but I was like, "Oh yeah, cars are $25,000." Cars are not $25,000 anymore. So not many people have 50 grand laying around to go buy a new car. And that's an average, right? There are so many cars above that, and some cars below that, but 48 is kind of an average.

So car loans, a lot of people use them. A lot of people take on a car loan. This is a loan that is secured by the car. They will come take your car if you don't make the payment. And of course, there's interest involved with that. These loan terms typically a lot shorter than houses. We're talking two, three, four, five. Now they're getting up to six, seven, and eight. We would not recommend going that long, but they are. So, when you think about that, what do you guys think about car payments?

Chase Rose:

Yeah, cars are definitely in it. I would consider cars being a category of their own, because not often outside of just simply putting balances on a credit card, if you're taking a card loan out, not often are you purchasing an asset, because it's technically an asset, that depreciates as quickly as vehicles do.

Austin Wilson:

Correct.

Chase Rose:

If you buy most other assets, if you finance, let's say you buy a nice watch, that watch is not going to depreciate like a car does. If you buy a home, your home typically appreciates. So cars are definitely in their own category. But I can't remember, and I feel bad that I'm not going to be to give the right person this reference, but I heard someone say one time, "You're either saving up for your next car, or you are paying off the one you have."

So I, taking that into perspective, and I'm less against car payments as I used to be, however, if you feel like you need to get into the situation where you're extending the term of that loan to afford the car, that should absolutely not happen. My own rule of thumb for, it's same with mortgage, as we talked about earlier, if you can't afford to put 20% down on a car, you probably shouldn't buy that car. If you can't afford to pay that car off five years at the max, you probably should not buy that car.

Josh Robb:

How long do you own a car? You don't need to get an eight-year loan if you don't think you're going to have that car eight years.

Chase Rose:

Yeah. Exactly.

Austin Wilson:

It's always crazy when someone sells a car they still owe money on. Then you have lots of banks involved, and it's really wild. I think that cars are interesting because, yes, they're a depreciating asset. So you're paying, for example, you buy the $48,000 car. You're paying interest on top of that, which by the way, is more than a mortgage, interest rate wise, right? So you're paying seven, eight, nine, 10% on these car loans, for five, six, seven years a lot of times. So you're paying a lot more than the car's worth when it was new. But by the time you're done paying it off, it's worth 40% of what it was when it was new.

So the math is not great for car loans. It's the same I guess when you look at used cars. Financing a used car is the same thing. However, you typically do avoid a little bit of the depreciation hit. But the interest rates are higher, right?

So yeah, car loans not ideal. That being said, I understand that people need to have safe and reliable vehicles to get to work. That's just a fact of life. But people will push back on me on this, but I know for $5,000 you can go get a used Honda or Toyota from 15 years ago that's still running great, and get anywhere you need to in the continental US for five grand. So, don't say, "I can't afford a car." You can afford a car, you just have too big of a pride issue.

Josh Robb:

Well, and I think that's where it comes down to for me, is I think debt on a car is bad, but I think if you need a car to get income to continue taking care of your family, getting out of debt and all those things, then maybe that has to happen. But you don't need to go buy a new car to do that.

Austin Wilson:

Correct.

Josh Robb:

You may need to get a loan for a $10,000 car that's reliable and what you need. But that's getting out of a situation. It's not, "Hey, I'm doing pretty good, but here's this really nice car I want," like Chase was alluding to. If I can't afford it, just because I really want it, doesn't mean I should finance it. But you're right. When it comes to just straighten up, "Hey, we had some life situations and I need a car and I don't have cash right now," this is the only option. But don't go out and get a brand new car.

Austin Wilson:

No.

Josh Robb:

Go find something that the most reliable of what you can afford, and go there. Because losing your income is the worst thing. And if you can't get to work to get the income, that just cascades everything else. And so that's the one spot where I've always said, "Why would you get a loan for a car?" But there's situations where you need to.

Austin Wilson:

If you need a car.

Josh Robb:

But if you're just sitting there like, "Hey, I saw this ad for this new brand new car, I really like," "Oh, look at this," that's not the loan you should be looking for.

Austin Wilson:

And typically, if I'm going car shopping right now, I'm shopping like a two to three-year-old car. The big chunk of depreciation is cut off already, but you still have a new and reliable car that's very low miles at that point, typically. So that's kind of the sweet spot that I've found, and a lot of people I know do too. Jordan, any thoughts on cars before I move on?

Jordan Shaw:

Yeah. Don't do it. Ask Aunt Sue when her 2010 Subaru Outback is going to be moving on from her and...

Austin Wilson:

Work out a deal.

Jordan Shaw:

There you go.

Josh Robb:

There's a lot of times where, again, finding a nice used car that has miles on it, but it's still going to get you where you need to go is the answer, right? A lot of people think that they got to go get the new deal because there's better financing. No, get the cheaper car.

Austin Wilson:

Yeah. I am biased, because I drive a really old Honda with almost 200,000 miles on it, but that's why I'm saying. You can go find an old car that will still work fine. It'll need a thing here or there, but it's just fine.

All right, this is the fun-

Chase Rose:

Austin, vehicle interest is deductible now. Does that justify my purchase?

Austin Wilson:

Do the math on that. It's like you have to buy $150,000 car to be able to take...

Jordan Shaw:

Must be assembled in the US.

Chase Rose:

You mentioned that in a previous podcast episode.

Austin Wilson:

Don't count on that, don't count on that.

Josh Robb:

Before we get back to today's topic, I wanted to take a quick moment to share something that could really help you on your retirement journey. At Hixon Zuercher Capital Manag.., we're all about making sure your financial life aligns with what truly matters to you. That's why we created the assessment, "Are you retirement ready?" It's over at hzcapital.com/quiz. It's a quick and easy quiz that helps you figure out how prepared you are for retirement. It only takes a few moments, and you might discover what you need to do before you retire, both in the financial and non-financial aspects. Head on over to the website and check it out. Again, that's at hzcapital.com/quiz.

Now, let's jump back to our conversation.

[23:09] - Why Carrying Credit Card Debt is Never Okay

Austin Wilson:

All right, here's an easy one. Credit card debt, and I'm going to say credit card debt with interest rates.

Chase Rose:

Okay.

Austin Wilson:

What do we think?

Chase Rose:

Credit card debt without interest rates, still bad.

Austin Wilson:

Yeah, yeah, I'm talking about, yeah, but we're going to talk about zero interest stuff here in a second, but credit cards typically have really high interest rates.

Josh Robb:

Yeah, 20%.

Austin Wilson:

20, 30, 40% interest rates, don't ever carry a balance. Now, I am not with Dave Ramsey on the anti-credit card train, right? I use a credit card for every single purchase I can. And he will say that you use more psychologically, spend more if you have that. And I say, "No, I'm cheap still with a credit card.", but as long as you pay it off every single month, you can get some decent rewards, and I like my cash back. And that I feel like is arbitrage, because they are saying, "Austin, you're probably not going to pay this off, so here's some cash." And I'm saying, "Ha ha ha, sucker."

Josh Robb:

And they're also-

Austin Wilson:

I'm paying it off.

Josh Robb:

... money on the trade transactions. So even for you, they're going to make money off of, and they're willing to pay you that cash back because they're making money on the transaction.

Austin Wilson:

So I'm team, have a good credit card with great rewards, use it all the time, pay it off every single month, never miss a payment. Set up auto payments and you'll never have an excuse.

Josh Robb:

There's safety built into credit cards that debit cards don't have when it comes to fraud and those fraudulent transactions, because it's not money out of your bank account directly. So I'm also a fan of credit cards, if they're paid off every month. But credit card debt, if you're running into tough situation, don't use your credit card. Find other ways, because that's the worst debt to have when it comes to interest rates.

Austin Wilson:

Think about the compounding interest on the wrong way. We like compound interest when it comes to growth. Well, you get compound interest when it comes to debt. 30%.

Josh Robb:

The wrong way. Yes.

Austin Wilson:

That's bad.

Chase Rose:

Yeah.

Austin Wilson:

Credit cards?

Jordan Shaw:

I actually like credit cards, because of what you were saying with the points. With a lot of discipline, as you're saying, the auto-pay works great. I'm going to take it a step further. I pay my credit cards off twice a month, because I'm that terrified of one day being missed even on an auto-pay system with 28 days in the month of February, and how is it going to... I'm insane about it, because I don't want even a penny to be carried over. But I do like my discover points at the end of the month. And with kids to feed, that's a meal right there.

Austin Wilson:

Right.

Chase Rose:

Yeah. One thing I'll add, I think, Josh, you mentioned it earlier, or maybe it was you, Austin, I can't remember, whoever. When you're swiping that card, that credit card company is charging a fee to whatever that point of sale system is, they're collecting a fee on that, right? If you are using a credit card, be mindful, because almost all businesses are letting-

Josh Robb:

Passing it on.

Chase Rose:

"By the way, if you use a credit card, we're going to charge you 3% more than what the actual cost is." And so me personally, I carry a credit card with me, and my wife does the same everywhere we go. But if that fee is posted, they're never going to pay you more cash back than what they're receiving on the other side. So I always carry cash.

Austin Wilson:

So on that, Chase, this is a pet peeve of mine small business owners around the world. Build it into your price. Never put it on there as a line item. It makes you look cheap.

Josh Robb:

Even if you price for it.

Austin Wilson:

Yeah, I will never complain. If you build it into the price tonight, I will swipe my card. But if you put a line that says 3.5% or whatever, I am going to be like, "You cheap, whatever you want to say."

Chase Rose:

Correct. But I would also say that if you build it into the price you're collecting more than you probably should. Then you're increasing your margins at the expense of the customer. I say this as-

Austin Wilson:

It's a good business.

Chase Rose:

... as a business marketing, offer people the cash discount. Market it as a discount, not a increase.

Josh Robb:

That's the new way to do it. Yeah. If you pay cash, we'll reduce it. Because they've already priced it.

Chase Rose:

Exactly.

Austin Wilson:

Nothing keeps me more than that line at the bottom. I'm like, "Really? You're charging me?"

Chase Rose:

Don't be mad at the small business, be mad at the credit card company.

Austin Wilson:

No, as a credit card company shareholder, I love it.

Chase Rose:

Exactly.

Austin Wilson:

Maybe my shareholder price increases and dividends will offset my expenses going to...

Chase Rose:

There you go, maybe.

[27:11] - What About Zero-Interest Financing?

Austin Wilson:

Yeah, exactly. All right. Zero interest financing, the moment you've all been waiting for. Where are we standing on that? And I'll go first.

Josh Robb:

Yes.

Austin Wilson:

It depends.

Josh Robb:

Ah, there you go. That's why you wanted to go first.

Austin Wilson:

I know. On one hand, if I can get like an Apple's, for example, you buy an iPhone, if you can finance it over 24 months, zero interest, and you get like three to 5% on your Apple Card cash back on the iPhone by using your Apple Card, that seems like the math makes sense. That being said, I don't think you should...

Josh Robb:

Drop and break it into 24 months?

Austin Wilson:

Yeah, that's a bad idea. 0% is okay sometimes. There's not a lot of 0% deals anymore. There was a long period where those were very common. They were even common for cars. Now we're starting to see some of those, but that's usually a sign that the economy's pretty weak when that happens. So yeah, I'd say it depends. I don't use them a lot, but I've done it for a phone here and there. And I could pay it off, but if I can get 5% or whatever on it, I will.

Josh Robb:

Yeah. I'm the same ways. If I'm already considering purchasing something and that's an option, I'll consider it as one of my options. So, if I'm already done the math and I'm saying, okay, I'm buying whatever this thing is, and let's assume I had the cash to pay for it, I'll just say, "Do I want to set up an automatic payment and just have that stretch out for X amount of time or just pay it off?" I'll consider those two, because what can I do with that cash if I don't use it right up front? So, I'm open to 0% financing, but you have to have discipline, because there's rules in there.

Austin Wilson:

Those payments add up too.

Josh Robb:

Well, not only that, but if you miss it most of the time they'll go back and grab all the missed interest, and then you're really stuck. So, it's one of those, you got to be disciplined, you got to know and understand exactly what you're getting into. But to me, it's another tool of just being as smart as you can about purchasing something, if it's an option there.

Jordan Shaw:

I'm going to have to say that I completely disagree.

Austin Wilson:

I like it. I knew we were dissent.

Jordan Shaw:

Now, when we're looking at the math behind it, I don't have much in ways of arguing that. And I think looking at a spreadsheet and cold calculations, zero interest of course makes sense. I think we all would say I shouldn't be sitting around here with a team of financially minded people if I didn't say that. So, where I have a big issue with this is because it is so blatantly preying on behavioral cues for people that are looking into this.

Now, you mentioned that if you've done all the research and you know that you're going to buy something going in, most people, when they see this, it's thrown out. Why? Because the business wants to make whatever it is more attractive. So you're seeing this and you go, "Oh, okay, well, what am I getting for the zero interest? I wasn't planning on buying that nice watch, but they're practically paying me, because I can get 3% in my savings account." How can I afford not to? How could I afford not to get this budget buster item, whatever it is, just because that zero interest finance sign is out there? So that is my biggest problem with it.

And the other piece of it is, we've already talked about this a little bit prior, but if you're going in, you're saying, "Okay, even if I do have the money set aside, I'm going to go into a zero interest financing contract for whatever amount of years." If that money is still sitting in my bank account and then I have the nice watch on my wrist, there is a larger temptation to spend that money now that I've already spent. So, it is harder to track, and like you said, discipline. Really the behavior that goes into it is just, if there's something that you want to buy and there's the price tag, you're not losing anything, in my opinion. Write the check, you're not tempted to spend any more than you have. And if you have buyer's remorse, "Well, I shouldn't have gotten that nice watch," or they just roped you in with that zero interest sign.

Josh Robb:

Yeah. And you are absolutely right. It's all behavioral. And if you don't have that discipline, then you're right, that is a trap that, "Oh, that's 0%," "Oh, that's 0%." And maybe you've already double counted that money you have sitting aside to pay those things. You're right, that's the big one.

My example, my wife and I was some home furniture. And we were already going to buy it, and we had been saving up, but that was the option. "Let's go for it." And that money, I just set up an auto payment to that account and it was done. But you're right, you have to be disciplined, or else you're tempted to also use that money for something else. And, "Oh, I'll have more money in the future, it'll be fine." That's what you have to avoid.

Austin Wilson:

I think what's crazy is you're starting to see this all over. You can see on Amazon, Klarna. "Spread this a hundred dollars thing over four payments." Why are you buying something for a hundred bucks if you're going to put four payments of $25? That is the consumer side of things that I think it is taking advantage of people, because yeah, maybe they can only afford the $25 this month, but they're going to buy it anyway, which is not good for them. And I think that that's a little bit sketchy.

I saw a crazy example that was like, you can now, it was a food delivery app, it was like Uber Eats. You could spread your Uber Eats order with 0% interest.

Josh Robb:

I'd still pay for it.

Austin Wilson:

Six months or something like that. I'm like, "Come on, people."

Josh Robb:

As long as the time period only lasted as long as my heartburn, I would consider that.

Austin Wilson:

That's right.

Josh Robb:

But if it's any longer than that, it's too long.

Austin Wilson:

Well, with some things that could be at least a day or two. Chase?

Chase Rose:

I'm fully on board with the behavioral side of things, and I'll touch on that in a second. I am a left-brain analysis paralysis type of guy. So when I run the numbers, almost always if you have the cash available to make a purchase and 0% financing is an option, it makes sense to finance mathematically speaking, yes. But when we talk about 0% financing, the most common form of that, in my opinion, from what I see, is you have credit card companies who are offering you 0% APR on the first 12 months, 15 months, 0% on balance transfers, all that kind of stuff. And so the behavioral side is, "Oh, I can spend more than I can pay off on my credit card this month because I'm not paying any interest for the next year." And then you do that the month after, and then you do it the month after that. And then all of a sudden, you have balance transferred your way through every credit card company on the market, and you have nowhere else to go. And then you are in a bad situation.

Austin Wilson:

And you have to pay the piper.

Chase Rose:

Correct.

Austin Wilson:

At some point.

Chase Rose:

At some point. So that is where I do not agree. I don't think zero interest financing is a good thing, if you are carrying a balance on spending that you didn't have to spend in the first place. So, that's just the way to dig yourself in a hole.

Austin Wilson:

And on those balance transfers, there's almost always a fee. It's usually a percentage, sometimes it's a minimum. But they're not paying interest right now, but they're getting paid somehow to transfer that. So, just keep in mind. That's not something we'd recommend.

Jordan Shaw:

One more bone to pick with that too.

Austin Wilson:

I like it.

Jordan Shaw:

If you have the option of the zero interest financing, whatever vendor you're going through, I would ask, if you're going to completely disregard everything that I have to say about it, I would at least ask, at least ask to see the comparison, "What if I write you a check today?" "What if I zero interest finance?" And see if it actually lines up, because there might be some other fees built into this that they're raising the price on the zero interest, and they're saying, "Okay, your price up here is this, and then it's spreading out." But in reality, yeah, they're actually building in some of those other fees upfront.

[34:52] - What to Do If You've Fallen into Debt

Austin Wilson:

All right. So let's wrap this up by talking about action.

Jordan Shaw:

All right.

Austin Wilson:

The action from this episode is, I don't know, take some debt on, don't take some debt on, do what you want. It's the wild west, man. But no, for real, what do you guys think? What are the action steps here?

Josh Robb:

I think the first one is evaluate where you currently are. Look at what current debts you have, what is the interest rate on those and do, "I still believe those are good debts?" So again, going back, looking at your mortgage, "Do I still think?" Yeah, again, we're on pretty much a good agreement here. That's an okay debt. Now, as the payment, right? Maybe I bought this house before I heard about, maybe not stretching myself too far, but evaluate all your debt and saying, "Am I still comfortable with all of these?" And if not, create a plan to start reducing them. And there's different ways of doing that, which we've talked about in old episodes. But that's the first step in my opinion, is evaluate where you're at. What am I currently obligated to pay? And do I agree with still carrying those on?

Austin Wilson:

What do you guys think?

Chase Rose:

You have a stronger opinion than I do, Jordan, you go ahead.

Jordan Shaw:

Yeah, I like that idea of evaluating where you're at, seeing how it fits the budget. I think if there's anything out there that you are willing to go into depth for and you can't afford it out of what you have, then it's not the right... The Lord isn't opening that window to you or that door to you. It's just a window that you're looking through and you don't actually have the ability to go.

Josh Robb:

Contentment is a big thing to master. If you can be content, you're going to be a lot happier of a person.

Austin Wilson:

Chase? Actions?

Chase Rose:

Yeah. So do the math, first and foremost. Understand what your options are. But a life with no debt, it's freeing. The psychological benefits of not having that next bill coming up the next month is a great feeling. I wish I knew how that felt, because I'm just the young, just getting started. But through people that I've talked to, that is definitely the life that you want to work towards.

Austin Wilson:

Yeah. I think overall there's a handful of types of debt I'm cool with in moderation. Things like a mortgage, things like a fixed rate mortgage. We were blessed in the United States to have fixed rate mortgages. Most places in the world do not. So that is something that historically has been very good and gives your family a very nice place to live, hopefully, better than most people would have.

Josh Robb:

Yes.

Austin Wilson:

Another one is buy a piece of a growing business. I think that that's an okay use of debt. As long as it's fundamentally sound, and run well, and doing well. Know everything you can know about it before you buy it. It's the same way we would say about stocks. Yes, exactly. That's what you're doing. Do your research.

Chase Rose:

Should I be buying stocks on margin?

Austin Wilson:

No, don't get me started.

Chase Rose:

Another.

Austin Wilson:

That's another episode. And another one would be education.

Josh Robb:

Yeah.

Austin Wilson:

I think that it is okay to take on student loans within reason. I'm not talking about getting a hundred thousand dollars of student loans for a basket weaving degree, but if you have a degree that can generate great income for you to provide for your family, for your life, that's worth it.

Josh Robb:

It goes back to appreciating asset. Education increases earning potential, which is increasing the long term. So that's a valuable debt to have.

Chase Rose:

And I also think there's a lot of pressure to enjoy the traditional college experience, whereas you can obtain a degree in a much more cost-effective manner than what society would say.

Josh Robb:

Totally. Or based on what you want to do, you may not even need a degree, you may just need licensing, or credentialing, or even just-

Austin Wilson:

Trade school, yeah.

Josh Robb:

... opportunities.

Austin Wilson:

Absolutely. So, that's kind of what I have to say. And otherwise, thank these guys for looking around the debt bush with us today. It's been fun. That was probably our rowdiest episode in a while.

Chase Rose:

Yeah, go check out Jess's article though to go.

Austin Wilson:

It was really fantastic. So again, we'll link that in the show notes. If anything sparked thoughts or helped you understand debt or money a little bit better, hit that subscribe button on your podcast player. We'd love it. If you'd continue to follow us as we put out these episodes every couple of weeks. And check out our social media. We're pretty active on there, and we'd love to interact with you there. And you're always welcome to check out hzcapital.com. You can learn about our firm, Hixon Zuercher Capital Manag.., and a little bit more about us. And maybe you have questions about your financial situation. So you can check out the Invest with Us tab there as well. Otherwise, thanks for listening, and we'll talk soon.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Bye.

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Thank you for joining us at The Wealth Mindset Show, where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today's conversation provided value and clarity as you navigate your financial journey.

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