debt

You knew debt was bad. 

Maybe worse than you even thought.

But here’s the good news – the thing that makes debt worse than you thought can be the very thing that can make your situation better than you could imagine.

Most of us are familiar with interest rates. That’s what a lender charges a borrower for the privilege of using their money over a period of time. 

So a mortgage company charges a home buyer 4% to borrow money for 30 years to purchase a house. A car buyer may pay a bank 6% over 5 years to buy a car. A shopper pays a credit card company 18% to make consumer purchases. 

Other than the credit cards, most of those interest rates sound pretty low.

But now we need to consider another perspective on interest – interest volume. 

The volume of interest is the amount of interest charged during any specific interval of time. This is not the same as the rate of interest, as we’ll see.

The problem with the conveniences of a short cut are the consequences in the long-term. 

Reese and Kyle were one of the 40% of first time home buyers who hadn’t saved any money (at all!) for a down-payment. What to do?

No problem! Crowd sourcing to the rescue! HomeFundMe showed them how to solicit donations from parents and friends (online, so it was cool) so they wouldn’t actually have to go through the yucky process of saving money. 

Another option they had, according to the Wall Street Journal story about them, was borrowing the down-payment from Loftium. All they had to do was agree to rent out a room in their house on Airbnb and share the income. 

Is it just me, or does anyone else remember what happened ten years ago when we let a lot of people buy houses with no skin in the game? What happens when hard times come and they cannot (or no longer wish) make the mortgage payments? See ya!

Most important things in life cannot be crammed.

You remember cramming. It was a skill I learned well in high school.

I would ignore learning any relevant material outside of what was required for day to day academic survival, until an appropriate interval prior to a big test. The interval may be 30 minutes to 24 hours prior to a big test, depending on the teacher. Having procrastinated as long as possible, I would read the high points of the material, perhaps including some Cliff Notes if it was a big test. Usually the items I was seeking to cram into my short-term memory were factoids I had identified by that time-honored method of academic inquiry…asking the teacher, “Is this going to be on the test?”

So cramming works…in some situations, most of which are not very important or beneficial over the long-term.

In fact, cramming is usually a short-term solution that simply delays or anesthetizes a long-term problem.

Vladimir smirks at a computer screen, furiously typing as he chain-smokes one cigarette after another.

He is hacking into your bank account.

Green numbers flash across his screen, indicating the systematic draining of your bank account into his off-shore account, all accomplished from his dingy apartment building somewhere in upper Siberia.

From a hot and humid internet cafe in Cameroon, dozens of teen-aged online scammers send out email after email, each pretending to be a long-lost Nigerian prince, heir to a tanker of oil if he can just get a $10,000 bank account open…with your money. And…wonders!...he promises to split the money with you once he sells the oil!

We buried my father-in-law last week.

Ninety-four years is a long time to live.

In so many ways he was an American success story. Born into a family of ten children, he was raised in northern Webster Parish during the depression. Milk and eggs were taken to market weekly on a horse and wagon, and when he got old enough to attend LSU, he had to walk ten miles to Springhill to begin the hitchhiking journey to Baton Rouge.

He earned a forestry degree from LSU, fought his way across Europe with the U.S. Army during World War II, started a family in the 50s, a forestry business in the 60s and all along the way bought as many tracts of land and LSU season tickets as his budget and his bankers would allow.

Just the other day, one of my son’s friends, Grant, called me with a business question. I got to know Grant during his undergrad years, and quickly saw that he would make a sharp businessman. Not too long after graduation, Grant went into business with his father. He was excited about the prospect of building a family business and optimistic about their success.

However, he soon realized that he and his father had different views on debt. On the one hand, Grant’s father was totally against it. But on the other hand, Grant believed there was nothing wrong with debt if they could afford it.

“So where does debt fit into business?” Grant asked me, struggling to choose the next right step.