05-04-2008, 05:43 PM
My understanding of what Dave Ramsey says is that he takes one extreme to wake people up who are not financially responsible.
Using a computer analogy, it's like shutting off all ports on a firewall, then slowly open up the ones the network needs to function.
It's also important to note that there are different ways to define "debt." Some call it "good debt" or "bad debt." There's "unsecured debt" and "secured debt."
What most will agree on is that it's okay to have debt if it's secured in an asset.
I really question anyone who says "take out their equity before it is all gone and reinvest." That's worse than a credit card. If you know your property is going to devalue past the point of what you owe on it, now you're paying ~6% interest but that's worse than most credit cards because it's compounded over the term of the loan.
So while many say not to have any debt, a mortgage often isn't considered "debt" because your net of the situation is positive and therefore not debt.
Depending on the market, I think keeping a minimum of 20% equity is a good idea. Take the rest of the equity and diversify. Either in other properties or other investments.
Using a computer analogy, it's like shutting off all ports on a firewall, then slowly open up the ones the network needs to function.
It's also important to note that there are different ways to define "debt." Some call it "good debt" or "bad debt." There's "unsecured debt" and "secured debt."
What most will agree on is that it's okay to have debt if it's secured in an asset.
I really question anyone who says "take out their equity before it is all gone and reinvest." That's worse than a credit card. If you know your property is going to devalue past the point of what you owe on it, now you're paying ~6% interest but that's worse than most credit cards because it's compounded over the term of the loan.
So while many say not to have any debt, a mortgage often isn't considered "debt" because your net of the situation is positive and therefore not debt.
Depending on the market, I think keeping a minimum of 20% equity is a good idea. Take the rest of the equity and diversify. Either in other properties or other investments.