Debt Isn’t A Bad Thing

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I’ve read in a lot of places, from mainstream media to little bloggers like myself, about how debt is such an evil thing and I wonder how our financial markets would’ve fared if the concept of debt and leverage never existed. We wouldn’t be as prosperous as we are now, that’s for sure, because debt is not a bad thing! In fact, debt is a good thing. It allows you to do some of the things you might otherwise not be able to do, such as buy a house, go to college, and buy a car.

However, like many things in life, it’s good in moderation and when appropriate. I don’t think anyone can make a good case against getting a mortgage and buying a house (though I have tried). I also don’t think anyone can make a good case against going to college (again, I’ve tried). However, anyone can make a case against using a credit card and carrying a balance so that you can keep your three a day Starbucks habit. That’s where the moderation and appropriateness tests come into play and that, also, is up to your own personal preferences.

Ultimately, debt is important because allows you to do the things you want to and should be doing. It allows you to leverage some of your future in order to enjoy something now. While you can’t buy a home outright, you can still enjoy it while paying a fee to do so (interest). The only problem is that you can’t leverage the future so much that when it does come, and it will, you find yourself struggling to keep up. That’s why you must exercise moderation.

Appropriateness is a matter of personal opinion but even if you fail this particular test, being moderate in your debt accumulation will leave you in a good enough situation that all won’t feel lost. So you go through life spending on transient things, let’s say you go to movies all the time, and rack up a little credit card debt. While you have nothing tangible to show for the debt, if it’s kept in moderation it’s not something that will be a life changer. A few thousand dollars of credit card debt, while still bad, isn’t something that will play with your psyche… twenty thousand dollars of credit card debt will require much stronger fortitude to overcome.

So, don’t approach the idea of debt as something that’s evil and loathsome, think of it like a tool that can cut both ways and use it with care.

{ 7 comments, please add your thoughts now! }

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7 Responses to “Debt Isn’t A Bad Thing”

  1. Moneymonk says:

    “While you have nothing tangible to show for the debt, if it’s kept in moderation it’s not something that will be a life changer”

    If you can manage your debt, you are in a comfortable place. But I have to stick to my guns…..

    Mortgage and College- I don’t mind borrowing money for, at least you have something to show for that debt. Because these are two things that can make you money.

    Credit cards, loans places I cannot defend this debt. These things have not made me money.

  2. Tricia says:

    I think you nailed it right there with saying “moderation” and “appropriate.” Many things can be used for good or evil depending on how you use them and debt is the same way.

    Thanks for the link love 🙂

  3. ed says:

    I agree with MoneyMonk. Borrowing to finance a home or education is ok cause in the long term, it should increase your networth or the ability to generate income. That’s the plan anyway.

    Credit cards debt are finance killers. License loan sharks in my opinion. The trouble with credit card debts is once you are in debt, you slowly get used to having debts. And over time, you get used to carrying larger and larger amount. Until your income can no longer support that debt, people wake up in cold sweat.


  4. Kevin says:

    Like any type of investment a person needs to consider the risk involved when taking on a loan. It is strange that people would take out an adjustable rate mortgage when interest rates are at their lowest, and they can only afford the payments when it is at the lowest interest rate!

    College loans are good but giving young people a lot of money 2X a year is a hard lesson for them. I speak from experience. When you are racking up your credit card using a few thousand you got scholarships and loans is an easy way to get rid of your debt. Luckily I finished school so I am more likely to make enough money, but taking out loans and not getting your degree is like paying for a mortgage halfway and walking away from your house.

    Other loans such as credit cards, car loans, and any loans offered by electronic and furniture stores are the dumbest types of loans. When people use loans to buy these items they usually spend more than what they could afford. If they did it the old fashioned way and saved up to buy the item then they would really see how much they are spending. There are people out there that get a new $30,000 car on a $60,000 a year income. I don’t know what they are thinking! I would never buy an item on credit that costs less after you bring it home than before you left the store with it.

  5. Star Money Articles for the Week of July 16

    Here are some recent interesting posts from the MoneyBlogNetwork and beyond: MightyBargainHunter talks about your home’s value and your net worth. Five Cent Nickel gives his historical net worth numbers. Blueprint for Financial Prosperity thinks debt …

  6. Neal says:

    Jim, I tried to sign up for your RSS feed but I got an error message. Neal

  7. Gregory Hawkins says:

    Debt is a good thing. Buying and spending is the lifeblood of our economy.Smart financial people understand the importance of practising the concept of OPM (other peoples money) The key is debt managment. If I won the lotto today I would not eliminate my debt I would just reduce it to minor levels. This would give me the stronger position to bargain with banks and lenders. After all my money is better off working for me rather than being invested and spent on my personal needs.

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