Bill and Hillary have diametrically opposite points of view on debt. Bill views debt as an opportunity to generate cash to make up for past investment losses. He has asked you whether he should remortgage his house and place the proceeds in the stock market. He says that the present time may be appropriate to refinance because market rates for mortgage loans of 4.5% are well below his current mortgage rate of 6%. He wants to use an adjustable rate that provides an even lower 3% rate for the first year with rates thereafter 1.5% above the five-year Treasury rate.

Bill wants a 30 year mortgage because he said he doesnt expect to go anywhere and the annual repayments would be low. He said he was also thinking about buying a new car. While the existing one worked well, he was tired of it. If cash flows get tight, he isnt at all averse to using credit card debt. He says that whereas credit card rates are high, the overall impact is not great and people manage to pay money back. Hillary listened quietly with a pained expression on her face, occasionally shaking her head. She says she is afraid of taking on more debt and wants a budget to limit spending of all types.

Questions for Discussion 1. What do you think of Bills idea of borrowing to place money in the stock market? 2. Do you think that the couple should re-finance their mortgage? 3. Should they use the adjustable rate mortgage offered to them? 4. What is your recommendation on the 30 year loan? 5. Should the couple buy a new car? 6. Do you agree with Bills or Hillarys view on debt? Why? 7. How would you deal with the disagreement between Bill and Hillary?