Debt during inflation
I’ve heard it’s really important to get out of debt in order to prepare for the future. I am currently debt free and rent an apartment with my wife. We have no student loans, no car loans, and no mortgage.
Doesn’t the "get out of debt" advice only work if we’re headed toward a deflationary period? If there is inflation or hyperinflation, our rent will be raised in order to keep up with inflation. If our wages don’t rise as quickly, we could be in trouble. If we were to buy a house with a fixed mortgage, inflation would only help us to pay off our house.
Am I correct? What would be the benefit of getting out of debt in a inflationary period?
Deflation = debt terrible.
Inflation = debt fine and dandy (so long as it has a purpose and your interest is fixed and reasonable and you’re not just spending it of course).
As long as the debt has a fixed rate for the whole period, everything will be fine. If not than the interest rates will soar. With all problems associated with that.
I am not sure how fixed, fixed rates actually are. Especially in a deep inflatory enviroment. Better to keep to Chris’ advise: stay debt-free.
I’m just going to throw this out there…Does this make sense?
Theoretically, if you are well positioned in PM and you have multiple streams of income to ensure that and at least one of sources still exist, then keep the debt, ride the storm. When fiat currency completely plunges towards worthlessness, then flip some metal, and pay off the debt.
Per other sources, it appears that the only thing that will throw a spanner in the works on this theory is if the banks decide to hike the interest rates in an attempt to recover some of their losses.
So, what would be the best thing to do? Would you not put larges sums of money down on a loan and instead buy silver/gold?
Chris’ advise to be debt free is in fact sound advise. However, make no mistake – YOU ARE NOT DEBT FREE!
You pay rent – debt – that you do NOT control. In an inflationary period, you WILL pay more and your wages WILL NOT grow.
If you invest in a home now, you have an opportunity to buy at a competitive price, and lock in a very low (frankly an unrealistically low) fixed interest rate for the term of the note. Assuming you shop around and stay conservative, there’s no reason that you can’t own (PITI) for the same payment (Rent) you shelling out now.
So let’s say you wait. Real estate will probably go down. But, interest rates will explode. Now that cheaper house is more expensive because the rate has jacked the payment. But then you’re damned if you don’t, because the landlord has bigger bills and he’s jacking the rent!
Debt free is great, but not a 100% reality for the better part of the population. Instead of focusing on no debt ever right now, make that a long term goal and focus on GOOD debt vs. BAD debt choices. (while you still have choices!)