Owing is not owning

FB @ FabulouslyBroke.com

– July 26, 2010Posted in: Money

If you purchase things, and don’t pay them outright in cash, you don’t own them.

Got that furniture on credit? Paying $50 a month?

The furniture store that lent you that credit in the first place, owns that furniture.

Bought a house? Paying $2500 a month on your mortgage?

If you haven’t purchased it in full, technically, the bank owns that house and can foreclose on you if you don’t make payments.

The same goes for cars, and basically anything you’ve purchased on a credit card or line of credit.

Owing is not owning.

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Tags: Money, Owing, Owning

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.

http://frugalzeitgeist.blogspot.com frugal zeitgeist

Back when I had a mortgage, I never felt like I owned my home. It felt like the bank owned it.

Since It's been paid off? I've never felt so freeeeeeeeee!
Aurora

Michelle Singletary once said while talking about credit, "Would you get a bank loan for bath beads?" Her point being that we can hand over the card without thinking, but we really ought to consider what we're buying before we do it. I remember that when I'm about to charge something I don't need and haven't planned for. While I do pay off my card every month, "things I don't need" have shown up less frequently since I started asking myself that.
http://www.randomanny.com Anny

I completely agree
http://www.theoneinpink.com Sarah Smith

So true! I just read Dave Ramsey's Total Money Makeover this weekend and kind of had this wake-up call that I do not own my car and it is still debt as long as it's not paid outright. So that's my next goal!
http://frugalscholar.blogspot.com frugalscholar

Even if you are oversimplifying…it's a good message. Don't pay interest on depreciating assets–like most furniture.
http://mogulsintraining.blogspot.com Young Mogul

This is a message people definitely need to hear, especially with homes. People tend to say, I'm a home "owner" when they still owe a mortgage. Like you said, the bank technically owns the home until the mortgage is paid.
Meg

I agree. I feel weird when people ask if we "own" our home because I know that they usually mean as opposed to renting and we'll usually say something like "Well, not for a few more years, but that's the plan!"

And maybe it is simplifying things a bit, but there is a difference between buying stuff with money that isn't really yours and buying something outright. I know that the credit card companies really don't care about the stuff I bought on credit so long as they get paid and even if I didn't they probably wouldn't be interested in the physical stuff. I don't think anyone at Chase thinks that they "own" the stuff I bought years ago. But it doesn't feel fully mine, either.

I can't wait until I'm completely out of debt, house and all.

@ Aaron

Debt is debt is debt. There are pros and cons depending on the situation, but people take the risks if it's worth it to them or they don't. I don't see "good debt". I have friends who are deep in student loan debt that they didn't think would be such a problem because everyone said it would be "good debt". So, they didn't think it over like they would have if it had been another purchase. What they didn't realize at the time was how big a gamble that debt was — and always is. And now, they have to pay it just as if they bought a television with the money. Some of them have benefited from the education they got and I think $1k spent on education tends to be smarter than $1k spent on a television, but it can still be a waste of money and some people don't reap the benefits they thought were such a sure thing.

So, again, I think people do have the choice to get into debt or not and maybe it can be useful in some situations. But there are often alternatives and except in rare circumstances it's a choice that does carry risks which are anything but "good".

Aaron

Nobody's saying there isn't a risk/reward trade-off to every investment.

I'm just saying that this website gives a lot of advice that tends to be good-natured and well-intended, but poor financial advice for most people to follow as a rule.

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

Aaron, then I respectfully ask you to start your own blog and “Educate the masses” the way you’d like to.

This is my blog, and clearly my biases and opinions. We can argue until the cows come home but I will never change my stance. I don’t HATE debt or credit, as I do find it necessary at times, and I am a fiend for using my credit card for the points, but I think a lot of people forget that owing money to anyone doesn’t mean you own the item. Period.

If you have a $500,000 mortgage on a $600,000 house, you own $100,000 or 1/6 of it. But not 100%.

It’s very simple math.

Serendipity

Here here! I always say this to people and they get snippy with me, but really? Why would you even charge these things, like furniture when you can simply save for them? Or electronics? I've never heard of somebody dying because they couldn't get a new 60 inch or a new couch set.

Serendipity
http://500amonthorless.blogspot.com/ Annie

Amen! You tell them girl! This is so true!
Aaron

Not true–you're oversimplifying. There's a difference between secured and unsecured debt. Your home–secured by a mortgage, which is a debt instrument. Credit cards and debt owed to a store–unsecured debt.

There's nothing wrong with debt. There's "good debt" and "bad debt". Good debt is productive and many times allows you to use other-people's-money or OPM to leverage your wealth, bad debt is just payments. Don't vilify all debt…it just makes people complacent.

http://www.FabulouslyBroke.com FB @ FabulouslyBroke.com

Oversimplifying is what I do. Debt is debt to me. If you we someone money it means it is not yours to keep and resell if you wanted. I do not deal with marketing strategies of banks and other people who want you to borrow to buy something. I understand that people cannot buy a home for 300k in cash outright, but it means it is not theirs until they pay off the bank from whom they borrowed from to do so. It is as simple as that.

http://intensedebate.com/profiles/belleinthenorth belleinthenorth

However, good debt raises your credit score and bad decreases it.

I am pretty excited though…. I currently have $530 left on my car loan; I pay $69/mo and should be done in January. However, I am crunching numbers and plan on paying it off in full next month.

Meg

@belleinthenorth

The debt you use to buy a t.v. you don't need will raise your credit score, too. Is that "good" debt? Or is your definition of "good debt" simply debt that raises your credit score?

I, for one, could care less about my credit score because I have no intention of using it again. Though, I should say, it is currently stellar — nothing like getting into lots of debt and making regular payments for a LONG time to give you a wonderful credit score and many offers to keep getting more in debt.
Aaron

"Bad debt" only decreases your credit score if you're not paying it. Without debt, you HAVE no credit score. It's a smart financial move to carry some debt–even if that debt is credit card debt. Your credit score is not determined by your total debt, its determined by your debt utilization ratio (total debt owed / total credit available).

Nobody should fall for the Dave Ramsey's in the world that tell you that not having a credit score (like him) is sensible. It's ignorant to the way the financial world works–even POST-financial crunch.

It's hard enough to get a loan right now–to buy a house, to start a business… Try getting one without a credit score…they're not going to "manual underwrite" you based on your merit and good looks. They're going to deny you because you haven't proven that you're capable of paying your debt back.

Aaron

But the fact is, finance is not simple, and it's not meant to be broadly construed to every individual in the same manner. Fundamentals are great conservative principles (and don't get me wrong, I'm a conservative), but there are no "one-solution-fits-all" fixes to finance. What you see is straight debt, I see as an opportunity to use the wealth of someone else to leverage myself into a successful venture.

The United States is full of people and businesses who are able to manage debt properly, and use it to their advantage. I understand this blog is not written for me…but I'm starting to see a lot of these personal finance blogs oversimplify finance to the point where they're teaching people to limit their potential. Can you imagine how many businesses would have failed to exist if it weren't for debt, such as small businesses started on credit cards? Are you going to tell me those people shouldn't have a sense of ownership in their businesses because they didn't have the cash to exploit a great idea when it was marketable?

There's nothing wrong with being SMART with your debt, but finance is not simple.

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