Debt is Debt. Except When it Isn’t?

12 Oct Debt is Debt. Except When it Isn’t?


Debt is Debt no Matter How you Phrase It.

I love how there are so many different ideas about debt. Some people say debt is bad. Some people say debt is good. Some people say debt is a tool. Some say it’s bad but if you use it wisely it can be good. And then there’s the timeless “good debt vs. bad debt” theory.

Wow. Everywhere you turn there’s a different take on debt. I guess that’s the way of the world. As long as there are different people, there will be different opinions. The challenge for consumers is to sift through the different opinions and find the facts about debt.

Fact: debt costs you money.

I don’t think anyone can really dispute this. You can buy something today and not pay the full amount until later, but in the long run you will pay more than the original sale price.

Even with 0% interest loans, the debt is still costing you money. How? Well, with car loans the car loses value so you’re paying an effective interest rate equal to the rate of depreciation. And even if they didn’t depreciate, you’re still losing the opportunity cost to invest that money somewhere else.

If you have a no interest loan on something other than a car, it’s still costing you the opportunity to earn money by investing it for the long term. There is a cost to debt, no matter how you look at it.

Fact: debt costs you money.

Yes, I repeated the heading. It’s a reminder for those of us who want to argue how smart it is to borrow money to get a tax deduction. Here you’re paying interest on loans to save taxes on that interest. You’re justifying spending a dollar to save a quarter. How does that make sense? Yes, you’re effectively paying a lower rate on the debt, but you’re still paying interest. It’s still costing you money to borrow, regardless of the tax deduction.

Keep the mortgage to invest? Not this homeowner.

Some folks argue that you can borrow at historically low interest rates and invest the money. The theory is you’ll make more on the investments than you’re paying out. Well that sounds good on paper, but I’ve learned over the years that real life doesn’t always work out like it does on paper. There’s always something that comes up to mess with our best laid plans and theories.

I much prefer not having that mortgage payment anchoring me down and tying up my cash flow. I’ve got much more investment potential now that my mortgage is gone than I ever had before we paid it off. That’s cool in my book. Weird but cool.

I just hate debt. Period.

Maybe I’m ultra conservative, but I just don’t like debt. No matter how good it looks on paper or how fun it is to have something I want right away, it’s not as fun as being debt free. I don’t like the feeling of not completely owning my stuff. I don’t like the idea of always having to send some of my paycheck to someone else. I just like being debt free.

In my eyes, no matter how sophisticated you are with your debt, you’re still in debt. Debt is debt. Period.

What do you think?

 

20 Comments
  • Jon White
    Posted at 11:17h, 12 October

    I agree with you Matt. Debt is debt. It amazes me how we try to get cute sometimes and try to call it something else like leveraging, using other people’s money, or investing in your future, but at the end of the day it is still debt. If you don’t believe it is debt, try not paying it back and see what happens.

    • Matt Wegner
      Posted at 20:38h, 12 October

      Good point Jon. I appreciate your input as always.

  • Money Beagle
    Posted at 11:34h, 12 October

    Very well put. If you don’t like debt, there’s no argument in the world in terms of numbers that doesn’t make it attractive to get out of debt.

    • Matt Wegner
      Posted at 20:36h, 12 October

      Yeah, it really is less about the math than it is about how the debt makes you feel.

  • krantcents
    Posted at 18:33h, 12 October

    Debt for growing assets bothers me less. I am less than 6 years away from paying off my mortgage.

    • Matt Wegner
      Posted at 20:35h, 12 October

      I used to be ok with leveraging to grow assets but the older I get, the less comfortable I feel about debt of any kind. I’d just rather stay debt free.

  • MoneyforCollegePro
    Posted at 05:50h, 13 October

    I do agree with you. I think debt can have a legitimate place in our financial lives if managed very closely and leveraged well. However, the ideal situation would be to eliminate debt altogether, and be in complete control of your own financial life.

    • Matt Wegner
      Posted at 07:42h, 13 October

      I think the key phrase is “if managed properly.” So many people don’t have the discipline to manage it properly. It’s almost like giving them drugs and saying they won’t get addicted if they use it properly.

  • Little House
    Posted at 07:53h, 13 October

    Facts always outweigh ideals. So, yes, it’s much better to be debt free than to commit a portion of your paycheck to paying interest and tying up potential investment money. Someday I’ll be debt free.;)

    • Matt Wegner
      Posted at 07:59h, 13 October

      🙂 I used to say “someday.” One day I got tired of waiting for someday and started taking action. THAT day, my action turned SOMEday into TOday. You’ll reach the debt free stage – just don’t lose sight of the goal.

  • retirebyforty
    Posted at 11:20h, 13 October

    I also hate debt and we don’t have any consumer debt left. Unfortunately we still have the mortgage. We’re paying extra and it will still take years to get of that.
    Lastly, we also have mortgage debt for our rental home. I think this one is ok as long as the place is rented out.

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  • Debbie@money saving mum
    Posted at 01:53h, 28 October

    I agree with you. We are pouring all our spare money into the mortgage at the moment, aiming to pay it back just before our kids start uni. The sooner we are debt free the happier I will feel much better.

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