fff University: Being ‘Upside-Down’

You don’t want to be found “upside-down” unless you are spending a day at Six Flags (which I would recommend, and if you do go, you can usually get a coupon/deal off their website.) Anyway, being “upside-down” is a term meaning that you owe more on an item than it is worth (at market value.) For example, you finance your vehicle and owe $16,000 on a car that you could only sell for $14,000. In this situation you would be $2,000 upside-down.

The ability to get upsidedown is the most dangerous aspect of “secured” debt. [Secured debt means there is something standing for the money owed; a car, house, boat, plasma TV.] The financially minded person will NEVER borrow themselves into a situation where they will be upside-down. It is an awful financial position. Debt incurs a certain amount of risk, which can be minimized with an asset that can be sold in a “worst case scenario,” thereby eliminating the debt. For example, you can sell your house and pay off the mortgage. If you are upside-down you sell the item and still owe money. To avoid this position, a person should NEVER FINANCE AN ITEM THAT GOES DOWN IN VALUE (car, boat, ATV, pretty much any consumer good.) and NEVER BORROW MORE MONEY ON YOUR HOUSE THAN IT IS WORTH (No second mortgages, Home Equity Line of Credit, etc.) If you do these things you will always be able to liquidate your debt and escape “a pinch.”