How Far is Too Far to Live Debt Free?

by Lindy on June 16, 2011

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When EeBee turned six we threw him the obligatory childhood birthday party and invited everyone in his Kindergarten class to attend.

Being the person in charge at a child’s birthday party isn’t really my forte. So while I was trying to make small talk and be a good party host (while trying to hide my inner desire to sweat buckets), my very social mother was able to converse casually with some of the other party guests.

Later when the guests were gone she told me about her conversation with one of EeBee’s friend’s mothers. The family had just purchased and moved into a new condominium. Since their life goal was to live debt free, they had purchased the condo for cash. However, the mother expressed that it wasn’t in the greatest part of town.  And when she mentioned the cross streets, my mother confirmed – sketchy area.

This got me to thinking. They had two small girls, both under the age of six, and they were living in a part of town that isn’t so safe, all in the name of being debt free.

Are they taking debt-free living too far?

I get that paying for a house with cash and living mortgage-free is HUGE, especially with the current job market.  But is it worth it, if you don’t have to?

So I started thinking more about their situation to see if I could make any sense of it. Since I didn’t talk to them personally, a lot of my thinking is just pure wild guesstimating. But let’s say they have a plan. Say they purchased this condo as a foreclosure for $50,000 (it’s not an uncommon figure in my town these days). Now they live there rent free, and can funnel all the income they were once paying on rent to another new house fund.

How much do you think they could put away per month? $3500? Considering they probably don’t have student loans or credit card debt, both parents have good jobs, and they’re paying no rent, that might be a logical estimate.

$3500 per month would turn into $42,000 per year. In two years, they would have $84,000. If the market cooperates, and they can sell their current condo for a profit at $65,000, that would give them $149,000, which could easily buy them a pretty decent house in a nicer neighborhood.

If this is the case, their actions make a little more sense to me now. Two years in the sketchy part of town could equal a new house in the burbs for cash.

But say they didn’t buy the condo, and instead continued to pay rent until they had $149,000 saved up. Then how long would it take?

I come up with only three and a half years.  (My calculations are below, but they’re kind of boring so feel free to skip ahead.)

Let’s just say they paid $1200 in rent for an apartment, that would bump their house fund savings down to $2300 per month. Assuming they already had $50,000 (what they hypothetically spent on their condo at the beginning of scenario #1), they would need to save $99,000 more. At $2300 per month, it would take 3 1/2 years to save that much for a new house.

(Start reading again here –>) I don’t know about you, but I would much rather rent for three and a half years in a safer part of town, than live in a not so nice part of town for two years. But that’s just me and my snobby mortgage-loving ways.

Or possibly their saving budget is smaller and they are looking at 3 years in the condo vs. 5 years of renting. In that case, maybe it would make more sense. Either way, it brings up something to think about.

Would you live in a bad part of town (with or without kids) for two years if it meant living 100% debt free down the road? How about three or four years?

Where do you fall in the spectrum of “good” debt vs. no debt at all?

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  • without kids, yes; with, no (if I had a choice). but I’ll never buy another condo. we bought one for DD to live in while away at school and got nothing but trouble from the Condo Association. I’d even checked into their record prior to purchase…no troubles unearthed until AFTER we signed on the dotted line!

    • Lindy

      Condos do have their drawbacks, but also some nice perks, like no yard work.

    • Renee

      I agree with you Dmarie – we’re in a downtown condo right now and would advise anyone looking into a condo, whether good neighborhood or bad, to research it fully, think long & hard, and talk to some of the residents. The HOA has been a pain, we have noisy neighbors, our monthly fees went up 25%, and we are now underwater on the mortgage due to the real estate market. ugh.

  • The answer is no both before and after kids. I know it’s a no before because we paid a premium to not live in a sketchy area in graduate school. Fully half our income went to rent on tiny cruddy apartments (the first one was literally 100 sq ft, but in a nice neighborhood). So we’ll live someplace cramped, but not someplace potentially dangerous.

    I agree with Dmarie about condos. I’d rather rent!

    • Lindy

      Half of income going to rent – that sounds like us in grad school too.

  • Susanna

    I live in a so-so area – not great but not a total dump – but no kids. The school district I’m in sucks(didn’t realize that was the district I was in til too late so next move I’ll check!) I do think that if everyone lived debt free and within their means that there would be fewer sketchy areas – most of us would be in the same condo building probably!

    • Lindy

      That’s a good thought. And if we all were debt free that would mean we’d have more money to throw cool parties in our shared condo building. :) Thanks for sharing Susanna.

  • I have a lot to say on this topic so bear with me. I grew up in a “shady” neighborhood. I didn’t know this fact until I went to a private high school outside of town on a scholarship. The rich kids were the ones who told me I lived in a “dangerous” neighborhood. I didn’t think it was dangerous, we never had any problems, everything was fine. You have an alarm system, and it’s not like you hang out with the bad people in your neighborhood. Leave them alone, they leave you alone. SO I’m sort of questioning whether your opinion of this neighborhood is simply ignorance. All of my friends assumed there were drive-bys and drug interactions on every street corner and that wasn’t my experience at all. In fact, I heard about more drug deals at my uber-rich boarding school than I ever did while growing up in my neighborhood.
    My parents sold their house at the height of the market and moved to a much nicer neighborhood. However, for Eric and I, I don’t know how we’ll ever be able to afford a $500,000 mortgage. Which is the minimum a house in a nice neighborhood goes for around here. And we’re talking about a fixer upper. One of the ideas floating around would be to buy a house in my old neighborhood, so we’re not just dumping money into rent. Once we have kids, and before the time they reach school age, we would sell and move (about 7 to 10 years down the line). And we would have the money from the sale of the house to take with us. This is assuming a lot on the housing market. But for right now, it’s just a lofty idea.
    So basically, I’m saying, I doubt any parents would intentionally put their kids in harm’s way, and I’m sure the neighborhood probably isn’t as bad once you live in it, if you’re just looking at it from an outsider. I wanted to offer a perspective because I can definitely see it from their point of view : )

    • Lindy

      I agree that some “bad” parts of town can be a matter of perception, and that crime can occur in both nice and not-nice areas equally. And it depends entirely on the city where you live. The point of this exercise is for me to challenge my own comfortable box. Am I willing to venture out of it solely for the sake of debt freedom? For me, I think the answer is no. But that doesn’t mean my answer is right. :)

      I also didn’t mention in the post that the father of this family is a police officer. So they may have the safety thing covered.

      Thanks for sharing your perspective!

  • Yeah, I think I could manage it just fine. We don’t have any REALLY sketchy areas here in London but we’ve definitely lived in the cheapest housing possible. As a single parent it made the difference between being totally house poor or being able to take vacations, enable Kazi to become a competitive highland dancer and so on. She always had little neighbourhood girl friends and never realized we weren’t RICH.

    • Lindy

      I love that you chose the lesser house in order to live more.

  • Never would I want to live in an undesirable area, regardless of my debt status. Some things are more important than money, like life. Not just your ‘life’, but quality of life, and feeling safe and secure.

    I grew up a mile north of Detroit, and I saw plenty of crime. Never do I want to do that again.

    • Lindy

      Quality of life definitely is a factor here, and it’s my inclination to lean towards that argument as well. Though if it’s only for a few years…I don’t know. After your experiences, I can see how you wouldn’t go back.

  • I wouldn’t live in a sketchy area if I can avoid it. I assume sketchy means some gangs and drugs activities. I would rather rent in a bit better area because kids will be influenced by other kids and the environment.

  • Like Kris, I grew up in a town where people were literally murdered in the house behind mine. I actually remember hearing the fight the night before..two guys fighting over a girl, one guy ended up throwing a cinder block on the other guys head and killing him. My childhood friend’s mom got strangled in the park down the street. No, I wouldn’t do that again. I had no problem getting a mortgage to live in a decent part of town.

    It was the best my mom could do with the circumstances she was in and I’m proud of all she accomplished, but as soon as I could afford to, I moved her out of there…and ended up carrying 2 mortgages for a period of time.

    Like one of the other commentors said, there is a difference between living in a borderline neighborhood and an unsafe one. ie, don’t leave your bike unlocked or it will get stolen vs don’t ride your bike or you might be shot in a drive-by. I’m personally okay with a borderline neighborhood if that’s the difference between living within your means vs living with the fear of getting thrown out on the street because of being behind on your bills. Given the choice though, I went safer. People in bad neighborhoods are generally not nice to each other. It’s just not a happy environment.

  • Suzy

    I don’t think living debt free requires that you live in a sketchy part of town. I think this was just the decision this particular family made, but I believe that in most places you can find less expensive real estate in non-sketchy areas. So, I believe that you can do both. You can live debt free, and you don’t have to live in a sketchy area.

  • Shannon

    I have always lived in what suburbanites call the “bad part of town” – usually for a love of old houses and living cheap. I have never felt threatened. In fact the best neighborhood I ever lived in was considered by most everyone else in the city to be the worst part of town. Usually, this opinion is formed because passers-by believe all of the disheveled people on the street during the day- when all the working folks are gone – are the only ones who live there. In reality they are just a small part of the population. And, people see on the news that some gang banger shot another gang banger and for some reason believe that they themselves could just as easily be shot. Sure there may be more criminals around, but they are still a small part of the population. It seems like nonsense to me that people will pay so much more to live in a neighborhood without diversity. I want my children to know and understand all kinds of people and I want to live somewhere where neighbors talk and hang out together, and walk and know the shop owners – which somehow doesn’t happen in the suburbs. I will always live in a sketchy neighborhood!

  • Ann

    It’s nice to think that you can if you can afford to. Some people really don’t have much choice. These days, they may not have been able to “afford” a credit card, and “debt free” is the only way they can really afford to live. I’m planning on staying in MY “sketchy” neighborhood until my current home is paid (roughly 5-6 yrs), then saving like mad to get something better. But I have to stay because I can’t afford otherwise.

  • Jason

    Interesting topic…. For me, there is nothing more important in the world to me than my wife and children (and it’s not even close). Therefore, while I do not necessarily believe that some of these places are actually unsafe to raise a family, it simply is not worth the risk to me, however small it may really be, in order to save myself from debt regardless of the amount of time involved. Of course bad things can happen in “nice” neighborhoods as well.

    I was raised in what some would call “the bad part of town” like another commentor. I too never knew we were poor until I grew up and out of the house. Now that I have a family of my own, I chose to go with less house in a nicer neighboorhood. Nicer = newer, smallish homes in a gated community. When I travel for work, I like the peace of mind that comes from knowing in what environment I have left my family in my absence. Maybe it is false peace of mind, but hey, whatever works…. Right?

    I am a HUGE fan of carrying as little debt as possible (I save and pay cash for everything except my mortgage), but, for me, this is non-negotiable. If we were talking about necessity or pre-parenthood, my answer would likely be different. On the other hand, I seem to have turned out okay without the white picket fence as a child…….

  • Depends on how sketchy the part of town is. I live in a sketchy area, but I consider it an investment in an “emerging” area … I hope/suspect/pray this area will be more valuable in 5 years.

  • Patti

    I just turned 56. My husband is employed and I am not. I am not very employable (skills, attention deficit, holey resume etc). We decided to put our funds into a lake house in 2004, and as it turns out with the economy and my lack of employment, it is only allowing us to get by with nothing being saved. It’s fine if my husband keeps working, however, it’s hard work for his age. So, we are trying to sell our house. The number I am hearing, Real Estate has lost 33%, give or take. And with that perspective in mind, I am looking at Ecuador to retire. We can’t afford this Country any longer. The taxers, banker F’ers and other big biz want what you have $$$$. IF YOU DO ANYTHING WITH BUSINESS–READ THE FINE PRINT–TWICE! The thought of banking online makes me crazy….just reading the fees, regulations and other. Example: we have 2 very small IRA’S and at Aurora Bank they charge $20 a year maintenance fee. My Bank (a different one) charges $50 to rollover your account to a different institution and when I questioned them on this, (they had to get back to me); they said they would give me the check to deposit at another institution but if it was handled wrong I would be responsible. OK Fine! How many people don’t ask and don’t even notice the fee. When I worked at another bank (we’re up to three now; they had there fees in a separate booklet. The one that really makes me crazy is that (this was just a month or so ago that I heard this on MSN online), a bank claimed a mortgage holder didn’t have homeowners insurance (she did). They purchased her a policy and charged her $33,000. Normally her policy was about $1,000. The last I heard is that she’s stuck. So she will have to fight this with an attorney.
    Basically, innocence is DEAD and we’re screwed!

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