I’m pretty sure your answer will be no.

But what about consistently putting your money into something that would always cost you 3% a year? Does the smaller amount of consistent money loss change your answer?

It doesn’t for me, although I can picture a scenario where it might for some people.

But then…why is it that you’ll hear the opposite?

Why do people carry balances on high-interest credit cards, guaranteeing themselves a loss? Why do people say things like “I’m not in any hurry to pay off my student loans because they’re at such a low interest rate.” Or “It’s a bad idea to pay off your mortgage early because it’s tax deductible.”

The theory goes that it’s better to take the money you’d be sending to get out of debt faster and invest it instead.

Of course, it could be better to continue to owe many thousands of dollars (maybe even hundreds of thousands of dollars) IF you really are better off financially that way, and IF you’re comfortable with the additional risk that doing so brings.

Don’t blindly accept conventional wisdom

But don’t blindly accept conventional wisdom. Look at the reality of your own situation, and decide what’s best for you after examining the facts.

For example, if you’re keeping a student loan around, ARE you actually investing a ton of money each month? And more importantly, are you consistently making a greater annual return on that money than you’re losing on the loan? Or are you increasing your style of living instead?

And about those tax deductions

Sure, even student loan interest may be tax deductible. The key word there is “may”. The student loan tax deduction allows you to deduct up to “the lesser of $2,500 or the amount of interest you actually paid” — but only if your modified adjusted gross income is under a certain level and you meet various other criteria.

The same kind of considerations should be given to mortgage interest deductions. Take a look at your taxes. Did you itemize? If not, well, you’re not taking that mortgage interest deduction anyway. If you did, will you itemize again this year, or were you able to itemize last year due to some unusual events? If you’ve got a huge mortgage with a high interest rate, and you’re able to refinance, you could probably save more money that way than you’d save by reducing your taxable income.

Here’s a calculator that can help you look at whether or not deducting mortgage interest would save you any money. (If you can’t easily find the answers to the questions it asks, you probably don’t know as much as you should about your own financial situation.) I like the way Free Money Finance put it best though: the mortgage tax deduction is a consolation prize at best.

Personal finance is simple

Remember, when it comes right down to it, personal finance is simple.

Spend less than you earn, invest wisely, don’t use logic to justify emotional decisions after the fact, and don’t enter into complicated schemes designed to save you money. I can’t think of anything more complicated than the US tax code, myself. The best way to save money is to go ahead and save it from what you earn.

Of course, you’ve got to do whatever’s right for you in your situation. Just make sure you’ve examined it carefully, and gotten all the facts.

Some of you may know that this debt app is one of my side hustles — and that I’m truly passionate about helping folks get out of debt.

One of my favorite comments about it said:

I just paid off my first debt thanks to this app! I swear being able to watch my % increase and my amount due decrease really helped me stick to the snowball plan. Just mailing monthly checks, and reading the statements isn’t as rewarding as this plan. Now paying off my debt feels better than shopping!”

Did you catch that last part? Better than shopping. That really is awesome.

Updated version with new goodies

So I’ve released an updated version of Pay Off Debt for the iPhone and iPod Touch that has even more features to help people stay motivated.

How’d I come up with these? Well, I love to hear from people, and quite a few of the more than 30,000 users sent in suggestions and ideas that I took to heart. (After all, the app is for you, so incorporating the features that you want just makes sense.)

Here’s what made it into version 2.0.3:

• New graphics & layout – The original version of my app came out in April of 2009 — relatively early days for the iPhone — and so it used a pretty basic layout. This version includes more modern-looking graphics and an easier-to-understand layout; both of the Debts screen and the app itself.
• More information – One of the most-requested features was an amortization table. You see, many people would input their info, take one look at their planned debt free date, and think “That can’t be right! There’s no way everything could be paid off that quickly!”. Oh, but it can — if you’re taking advantage of the debt snowball method. The amortization tables for each debt will show you exactly how that’s possible.
• Better organization – Pay Off Debt contains a ton of info, so much so that the main screen was getting more than a little cluttered-looking. You can still see frequently viewed information right on the Debts screen, but you can also dive deeper now to view more details about each debt, and you can tap the Summary icon to get the summary of how you’re doing on your overall debt snowball. That includes your planned debt-free date, a chart of your entire snowball, and the estimated time left before you can do your scream.
• More resources – A big part of getting out of debt is staying inspired, so the app now includes a Resources section with links to blog post about getting out of debt, and an opportunity to get tips by email.
• Favorite features – Of course, favorite features remain in the app, like the ability to enter custom payments, view the history of payments for each debt, and to organize your debt snowball in the order you prefer

What does this mean to you?

Well, if you’ve got an iPhone and would like to check out the new version of the app, leave a comment below saying so. I’ll choose a few folks at random to get a promo code for a free copy of the app.

Also, I’d love to hear your feedback, either in the comments, on your blog, and/or an iTunes review. And if you’ve already gotten out of debt (or even “just” paid off a debt or two so far — that’s a big accomplishment in my book) I’d love to get a guest post from you that tells your story for The Debt Myth. Shoot me over your submission if that describes you

I was given a copy of the similarly-named Til Debt Do U$ Part Life Planner to review and to give away to one lucky reader. The spiral-bound planner aims to help folks form good money management habits and get out of debt.

It combines a combination of weekly tips and suggestions with (often playful) monthly challenges and updates from show participants. Each week also includes a form you can fill out to track variable expenses (food, transportation, entertainment, clothing & gifts, and the “other” category) and check how you’re doing with that week’s budgeted cash. It doesn’t lock you in to a specific calendar, so you can start using it at any time. I think it would be helpful for folks who are just getting started with managing their money.

The giveaway

If you’d like a shot at the copy I received to review, just comment on this post with the answer to these two questions:

• What’s your biggest money-related challenge?
• And, if you had $5000 in debt and you paid it all off, how much debt would you have left? (Gotta include a math-based skill question per Canadian rules.)

And a rebate offer

Of course, if you’d like to buy your copy of the Til Debt Do U$ Part Life Planner, you can do so at any time on the Shop Frantic Films web site. The planner is $29.99 CDN + shipping & handling. MoneyCrush readers can get a $3 rebate by emailing the coupon below (along with your order number) to info@shopfranticfilms.com. Just save the image to your desktop and attach it to your email. (Offer is valid until January 1st, 2012.)

And now here’s the “fine print”: Giveaway ends at midnight Arizona time on December 19, 2011. Void in Quebec and also void where prohibited elsewhere. If you’re in my immediate family you already know you can’t enter. (Yes, Dad, you are immediate family.) The giveaway winner will be chosen by numbering the qualified entries and then using the True Random Number Generator to generate the number of the winning entry. If you win and don’t respond to my email or notice in the comments of this post that you’ve won within 7 days of the contest end, I’ll pick a new winner. Not responsible for late or misdirected entries. Also if you win, and you’re in Canada, you may need to pay tarifs or something at the border in order to receive the planner since I’ll be mailing it from the US– I don’t know what all is involved with that and you’ll need to accept responsibility for figuring that out if you want to accept the planner. I eat more popcorn in a week than most people eat in a month.

If you have serious credit card debt, you may or may not have heard the term “statute of limitations” bandied about regarding debt. But regardless of whether you’ve heard the term in this context before or are just now hearing it for the first time, the juxtaposition of personal debt and a term most of us associate with criminal law is likely rather confusing, if not a bit unsettling.

So what exactly does a statue of limitations have to do with the money you owe, and how does it affect your situation? Let’s find out.

Statute of limitations for written contracts

While there are many different types of Statutes of Limitations (SOL), ranging all the way from those that apply to oral contracts to those applying to professional malpractice, libel and slander, when it comes to credit card debt, the statute we’re concerned with is the one for written contracts.

Each state has its own SOL, which dictates the length of time you can successfully be sued for failing to pay back money that you owe to a creditor.

The clock, if you will, begins when you last make a payment toward your debt and runs for a state-specified period of time, ranging from three years in Alaska, D.C., Maryland, Mississippi, New Hampshire and the Carolinas to 15 years in Kentucky and Ohio.

The average SOL across all states is 6.35 years. Keep in mind, however, that the SOL clock may reset if you:

• Make a payment toward your debt (all states)
• Sign a document in which you acknowledge that you owe money in the first place (some states)
• Sign a document in which you promise to pay back what you owe (some states)

You should therefore obviously avoid doing such things, unless they are part of an official, mutually beneficial payment plan reached between you and your creditor that removes the possibility of a lawsuit.

Your debt collection rights

Ok, but what happens if you’re about to get sued for failing to repay money you owe, or this has already happened? What rights and recourses do you have then?

Well, the first thing you need to know is that debt collectors are not legally allowed to threaten a lawsuit unless one is seriously being considered. Second, you not only have the right to dispute your debt, but you can also sue debt collectors in state or federal court if the situation warrants it. Third, while time may be on your side, you have to speak up for it to really matter. In other words, you can still be sued even after the statute of limitations expires, but the lawsuit will be dismissed if you prove to the court that your debt is older than your state’s statute of limitations.

Other than that, you don’t have many concrete rights, but it is important to keep in mind that:

• The SOL of your state of residence at the time you entered into the contract with the credit card company will typically apply.
• If you entered into a credit card agreement while living in a state with a short SOL, then moved to a state with a long SOL and were subsequently sued for outstanding charges, you will be able to make a compelling argument that the shorter SOL should apply, as you entered into the contract with the understanding that it would be legally relevant only for that particular period of time.

Is it a good idea to wait out the statute of limitations for debt?

Ultimately, we only suggest waiting out the statute of limitations for debt you are unable to repay if you have exhausted all other options. If your creditor will not accept any deal that you can afford (DO NOT agree to any payment plan that you cannot sustain comfortably), and you have a large amount of unsecured debt, then a consultation with a bankruptcy attorney may be the logical next step. If that proves fruitless, only then might waiting out your state’s statute be your best bet.

Should waiting out the statute of limitations for debt be the road you end up taking, make sure to stick to your guns and know that you have rights because debt collectors will likely try every trick in the book to induce a payment and reset the statute of limitations clock.

We refinanced from a 20-year fixed at 4.625% to a 5-year ARM / 30 year at 3.25% — dropping our interest rate by 1.375%. It also dropped our required monthly payment to around $215 a month.

Yeah, that’s a ridiculously low monthly payment. That’s part of the appeal of adjustable rate mortgages that start at very low rates, I guess.

Why we chose an ARM

While I wouldn’t normally think adjustable rate mortgages were a good idea, as with anything it’s important to consider the individual situation before making a decision. In our case, worst-case scenario is that we’ll have the mortgage paid off before it adjusts for the first time 5 years from now.

Which brings me to the real reason our payment is so low: our mortgage balance is also very low. We’ve been working hard to get it paid off completely, and it shows, because we don’t have that much left to go. We ended up borrowing $49,500.

Tying up loose ends

$1324.50 of that will be immediately applied as a principal reduction. The difference between what we borrowed and what we owed was due to a last-minute discovery. The credit union’s calculation of what we needed to borrow to didn’t take into account the fact that we’d already paid our taxes and insurance, so they needed to give us a credit (which we opted to have go straight to principal.) It pays to go over the HUD-1 form carefully and question anything you’re unsure of.

I’m happy with our refinance because we’ll be paying less in interest — and every little bit of savings helps. That will help us to pay off the mortgage ASAP, because even more will go to principal as we continue to pay our old monthly payment (+ extra amounts).

Debt to household income percentage

To find out your debt to household income percentage, add up the amounts of everything members of your household owe (including things like the mortgage, home equity loans, student loans, car loans, credit cards, etc.) Then add up the total amount of money everyone in your household makes per year. Divide the amount you owe by the amount you make to get the percentage.

For example, if the total owed added up to $200,000, and your total household income added up to $100,000, you would divide $200,000 by $100,000 to get 2. That would mean that your household owes 200% of what it makes. As another example, if you owed $52,000 and had a household income of $100,000 a year, your debt to household income percentage would be 52%. ($52,000 divided by $100,000 equals .52.)

It’s not at all uncommon to have a percentage of way over 100%, if you have a mortgage. The higher the percentage, the more risk you’re taking on. Creditors look at the amount of risk you’re taking on too, when deciding whether or not to lend you more money, and what interest rates they’re going to charge. The bigger a risk you are, the more it costs you to borrow money.

Debt to income ratio

For example, if you’re applying for a mortgage, the lender will take a look at your debt to income ratio — which is not at all the same as the debt to household income percentage. The DTI ratio basically looks at how much money you are paying out each month to service debt and then compares that with how much your gross income is for that month. So you’ll almost certainly get a very different percentage if you calculate that.

Why consider these?

In either case, the numbers help to measure risk. The debt to household income percentage is more dramatic, because it’s going to spell out in black and white just how much you owe compared with how much you earn. In either case though, the higher the percentage, the less money you have available to do things that might be more interesting than sending money to creditors. So it’s something to think about.

What’s your debt to household income percentage?