Ok, well in your example, I wouldn’t call you broke either, as the debt is currently managed. However I’d call it high risk and I’d call your mortgage underwater. Your debts are more than your assets, so any disruption to pay, like losing your income or having an illness, or damage not covered by insurance and you would be in big trouble. Thats living beyond your means.
Usually the only reason debts would be higher than assets is a drop in home value or taking on too much debt in other areas. That’s pretty much what OP was asking. Why so much debt? Do you think it’s high risk?
I want to be clear that that was a hypothetical. And yes, it’s a precarious financial situation. But my point was that indebt!=broke, which it sounds like we agree on.
They often go hand in hand but are not the same. However, the point remains, that if the bank is giving money to cover spending you can’t afford and you’re in negative equity, you should be broke but aren’t, on someone else’s dime. So it’s not really different from the child who is broke and parents pay for everything.
I don’t know that your example is real though as I think banks wouldn’t lend in that fashion, or at least shouldn’t. It can happen when there is a housing crash. I think a large part that people are becoming broke is they are not accumulating assets from their pay. It goes on interest and rent. Historically it went to mortgage payments and people were more likely to own than rent,
Ok, well in your example, I wouldn’t call you broke either, as the debt is currently managed. However I’d call it high risk and I’d call your mortgage underwater. Your debts are more than your assets, so any disruption to pay, like losing your income or having an illness, or damage not covered by insurance and you would be in big trouble. Thats living beyond your means.
Usually the only reason debts would be higher than assets is a drop in home value or taking on too much debt in other areas. That’s pretty much what OP was asking. Why so much debt? Do you think it’s high risk?
I want to be clear that that was a hypothetical. And yes, it’s a precarious financial situation. But my point was that
in debt != broke, which it sounds like we agree on.They often go hand in hand but are not the same. However, the point remains, that if the bank is giving money to cover spending you can’t afford and you’re in negative equity, you should be broke but aren’t, on someone else’s dime. So it’s not really different from the child who is broke and parents pay for everything.
I don’t know that your example is real though as I think banks wouldn’t lend in that fashion, or at least shouldn’t. It can happen when there is a housing crash. I think a large part that people are becoming broke is they are not accumulating assets from their pay. It goes on interest and rent. Historically it went to mortgage payments and people were more likely to own than rent,