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Debt is Debt, Nothing Good About It

June 29, 2015

When it comes to personal finances, Mr. Saver and I have been called “extreme” in our views, and while to me, extreme seems like a synonym for awesome, it does make us wonder how we’ve earned this judgment (it’s really more of an insult akin to strange). We don’t clip coupons, we aren’t great at finding deals or cost-cutting, and though we’re frugal-ish, we don’t feel as though we’re going without. What we do have is one car, an apartment (until we have a 20% down payment for a home and a city we’d like to live), a budget, and a goal to become financially independent. We are building our wealth, but apparently, by not spending more money than we make, we’re extremists (*shoulder shrug).

These people who find our way of life weird are the same people who have mortgages, car payments on multiple vehicles, credit cards, debt, and stuff, or as we like to call it, “The American Dream.” How do they justify this overspending and overconsumption? It’s good debt.

WTF? What is good debt? If there’s good debt, then what is bad debt?

I saw these tweets recently that touched on this topic. When I read them in our Twitter feed, I started to hear circus music in my head and had to reread them. Here they are:

I always question the #financialintelligence of personal finance ‘experts’ who tell people to run away from #debt.

Personal finance experts should stop telling people to run away from #debt. They should teach them how to use #gooddebt to build #wealth.

Again, WTF?

Ask any one of the people drowning in their “good” student loan debt how that wealth-building is going, or talk to a family whose house was repossessed by the bank how well that “good” home loan is treating them, and I think you’ll find they are would love to run away from their debt. You simply cannot build wealth through spending all of your money, plus some of the bank’s, plus a little extra in interest. Certainly, as someone who’s goal is to retire early and become financially independent, my opinion centers itself on saving money and putting it work, but even for people who may not be interested in retiring before 66, I still think it’s ridiculous to barf consumerism for consumerism’s sake.

Spoiler: Potentially extreme opinion forthcoming: I do not believe in good debt. Nope, not mortgages, not education, not small business ownership, nada. I don’t think any debt is good. Sure, some might be better than other types of debt; for example, taking out a loan to buy a car or anything that depreciates in value or using debt as a substitute for cash, those options sure as hell aren’t good.

Sure, there’s more reasonable or responsible things that you can spend your money on that may or may not yield higher advantages down the road, but it’s still not your money that you’re spending, and you’re going to have to repay it (and more).

According to David Bach, author of the Finish Rich book series and founder of Finish Rich, the financial downturn changed these original perceptions of good debt and bad debt.

“Good debt and bad debt is almost a myth that we were sold for 20 years,” Bach says. “[Now] there’s just debt. For the most part, debt is basically bad and difficult. It comes down to the interest rate.”

Yes, Mr. Bach, debt is bad and difficult!

The Catch-22 of debt is that one needs to go into debt to be considered a credit-worthy borrower with the ability to pay off large loans. Rod Ebrahimi, founder and CEO of ReadyforZero, a website that helps people plan to get out of debt, says establishing a good credit score is imperative for transitioning out of college.

“A good debt you could have had through college is a credit card you had going into college and never carried a large balance,” he says. “It may actually make sense to have some history.”

I disagree with this. So often “good” debt snowballs into major levels of bad debt, quickly. Unless that college kid is going to pay off that bill in full every month, it is not good to encourage spending without accountability (by that, I mean the terrible feeling of handing over cash or seeing it immediately withdrawn from your bank account like with a debit card).

Why is it so extreme or novel to not buy something you don’t have the money for, ergo can’t afford?  If you practice patience, save your money, and wait to purchase things you want or need (even a car or clothes) until you have the cash reserves to pay for it, then you wouldn’t even need a credit score. While that certainly is extreme (especially in regards to big purchases like a house), it makes this idea of good debt vs. bad debt moot. You won’t have any debt if you don’t borrow money and buy things you can actually afford. In the long run, this financial strategy will in fact save you money and build wealth (no interest fees, no overconsumption, less stress, more happiness).

Whether you consider it good or bad, better or worse, debt costs you, so how can that ever be good?

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