Dear Dave: I’m debt-free except for my home, and I’m considering having solar panels installed on the roof of the house. It would cost about $27,000. I have $80,000 in savings, but the company doing the installation will finance it all for just 1 percent interest. It’s almost like free money. My electric bills average around $310 a month, and I thought this would be a good way to save money in the long run. What do you think?
Dear Michael: If you have to finance the project, my answer is no. My guess is the break-even analysis you’re trying to give me is the sales pitch your solar panel company gave you. That’s how they sell solar panels, but it doesn’t justify going into debt.
You told me you have around $80,000 in savings right now. Why not just write a check? Let me ask you a question. What if you could borrow $10 million at 1 percent interest and put it in the stock market? Would you do that? Of course, not. It would be way too risky, right? Basically, we’re talking about the same kind of thing. I made you feel the risk by scaling things up in my scenario. You’re not feeling the risk right now because we’re talking about $27,000 instead of millions.
This move wouldn’t bankrupt you, but wealthy people don’t do the kind of thing you’re talking about. Either pull the money out of your savings account and buy the panels, or don’t buy them at all!
Dear Dave: I make $48,000 a year, and I have $35,000 in credit card debt. I owe $25,000 on my home, and I was thinking about taking out a loan against my house to pay off the credit cards. Is this a good idea?
Dear Mike: I would never advise anything like this, unless it’s to avoid bankruptcy. Here’s the problem with that kind of plan. Most people who do that kind of thing don’t change their financial habits. In fact, they end up with a new mortgage and new credit card debt somewhere down the line.
You need to start building a track record of paying off debt. Cut up the credit cards, slash your spending, and start living on a tight, written, monthly budget. Prove to yourself that you’re not going to take out a mortgage and turn around and run up a bunch of new credit cards.
I want to see you not take on any new debt and reduce that $35,000 credit card bill dramatically over the next six months. If you can knock out half of it in a year, you can take care of the other half in another year or less. Then, you wouldn’t need a second mortgage!
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