Written a while ago, but there still is no such thing as Good Debt. Anybody who tells you that, wants to loan you money. With the increase in interest rates, carrying Debt has proven to be a bad investment.
I watched our friend Preet Banerjee listening to the “Experts” on a CBC National round table talk about Good Debt. It made me realize I need to rant again. I watched the discussion. It made me realize I need to rant again. Preet was his normal Windsor Knotted sensible self. The rest of the panel drove me spare.
Let me be obvious: saying that there is Good Debt is like saying there are Good Car Accidents, read my lips:
All Debt is Bad
Good Debt is a Fallacy
I don't give a crap what these so-called experts have to say. As soon as you start thinking that debt can be good, you assume it is OK to build it up. You believe it won't hurt you.
Sugarcoat this as much as you want:
- Necessary Debt or Necessary Evil
- Debt is good for the Economy
- Leveraged Buying
- Consumer Debt
- Mad Money
It isn't good! One day I will write an NSFW post with my actual wording on this stuff (maybe Preet will let me back on his Podcast and I can do the real rant for this). Good debt? No and anyone who says otherwise is trying to sell you something.
Shame on all of those alleged experts on that panel, except for Preet of course.
DEBT SUCKS
Debt Sucks the life out of you, and you are stealing money from your future self. Learn to hate debt, want to get rid of it, and then you have the right idea, but if you rationalize that there is Good Debt, you can start sliding down a very slippery slope.
If you get a Mortgage, don't get comfortable with it. Treat it like you would a Cockroach or an Uninvited Guest (fill in your most unfavorite person here). You want to get rid of it, as soon as possible.
My list of debt commentary articles is quite long, so let's stick with the basics.
- Three Solid Ideas For Your HeLOC is a misdirection title. With interest rates going up, home equity lines of credit are becoming heavier anchors on your financial life.
- Pay Day Loans? Absolutely, positively NO! Go talk to a licensed insolvency professional before you do this.
- Surreal Paragraphs Found in Credit Card Bills, if you carry balances on your credit cards, you are in trouble. Look at their estimate for how long it will take to pay off the debt on minimum payments.
- A Mortgage Changes You, which is very accurate. When you get a mortgage, your life changes, and it will be a major element of your financial decision-making process.
- Make More by Reducing Debt with some elementary (maybe naive) arithmetic.
- Straight Talk on Your Money is not just a good book (and podcast). It explains how debt can get out of control quickly.
- Debt-shaming: Debt is Bad, but You Aren't having a poke at the "influencers" who say my commentaries about Debt being BAD is debt shaming.
- My coup de grace There is No Such Thing as good debt. Debt is a tool, like a chainsaw, and must be respected.
The problem with this is this lacks context and definition. There is no distinction made between consumer debt (even buying a home is consumer debt) vs using debt as a tool.
I agree that there are significant pitfalls with debt. And the problem is that most people do not know how to use debt properly. Most often, debt is used for gratification of some drive… to satisfy oneself, or someone else. But sometimes, even when there are good intentions, as in it is used as a “I WILL eventually have something to compensate for this loan”, all of these are the worst way to use debt, which is what most people think of when talking about debt.
What is needed is education about when and how to use debt. There is risk in all things. Even NOT using debt as a tool carries its own risk. It is about knowing what is a reasonable balance of risk vs benefits, and knowing when the risk far outweighs the benefits. That is where most people get it wrong.
So this conversation needs to be balanced with proper education about what debt is good for, as it does and can serve a purpose. It is just about knowing the difference. And so, terminology such as “good” vs “bad” debt is not about it being good or bad but about knowing when it is being used properly vs not. Though I agree that using these terms often lose their context, like broken telephone. Nevertheless, let’s not get hung up on the semantics.
P.S. Anyone who uses analogies like cutting off your arm that is caught, fails to recognize that debt can serve a purpose, unlike a caught arm. This just obscures matters and fails to take advantage of engaging in an intelligent conversation.
Education is always important, most folks seem to learn about Debt “on the streets”, and assume that consumer debt and mortgages are the same thing. I am known for my “over the top” cranky commentary, so I’ll stick to that side of the street.
It seems like people get into splitting hairs with words and saying “debt is good if…” Blah. I agree. It’s all bad. Sure, sometimes you have little choice, but that doesnt’ mean it’s okay. LIke the guy who got his arm stuck under a boulder when he was hiking alone. Eventually he had to cut it off. It’s like saying “cutting your arm off is good if…” No, it’s never good. It’s never something you want to do. And if you must, well, then do it, but try to get that sucker back on as soon as possible. Just like debt. It’s never good, you never want it, but if you absoutely must, well, ditch that debt as soon as possible.
Yup, couldn’t agree with you more.
Your rant should be required viewing for my co-workers. All they understand about debt is how to accumulate more of it. What I hate is how the banks try to disguise debt by calling it something else when it’s just plan debt – the worst being those products that let you combine your mortgage on a line of credit. One of my co-workers bought this product three years ago saying it would save her so much in interest on the mortgage over time. Then she admitted last week that she hasn’t made a single prinicple paymenht in the LAST THREE YEARS! She just pays the monthly interest charges. But she is determined that this is not really a debt and will not accept that she’s falling further behind and right into the hands of the bank. Until people understand the simple concept that if you don’t want to have debt, you have to save and saving means not buying every little thing that catches your eye right at that moment, this will continue.
To quote the new En Vogue novel: 50 Shades of Gray… OH MY!!!!!
All debt is bad. Just ask the USA if their present government debt is good… Think they might have some choice words about that.
My present debt is to the CRA, and I have about another $380.00 and I am clear till next April. I have to collect $1700 by then to pay them on time. My Mastercard is a “pay as you go” card, so if I don’t have the funds to put on the card in advance, I don’t get to go!
I know I have that $1700 to pay in April 2013, so I am working to get it built up in an account in time for April, which is hard while trying to build up an emergency fund at the same time. Since Feb, my emergency fund got punched in the face, kicked in the nads, elbowed in the kidneys and also got thrown to the ground for good measure. Several emergencies came up including a trip to Ontario for a family funeral and car breakdown, and, and, and….
Yesterday, I put off paying a bill when I had the time to go deal with it till today when I really don’t, as my income gets put in today. OTOH, I was also waiting for that income to go into my account to ensure that there is sufficient funds to pay my rent in a few days. I had $360 in my bank account, and $1000 in my TFSA to pay for my rent in a dire emergency, but the two amounts together were not enough to pay both the rent and the due bill. Only in October will things begin to hopefully calm down so that I can start saving money again. Oh yay… Xmas is coming!!! Sigh.. Does it ALWAYS have to be on Dec 25th??? Saving for Xmas now… At least I won’t have any debt at that point… Hopefully… Debt is bad. ALL debt is bad.
What bigcajunman said… is on the money!
Nuff said!
Well spoken, and from the heart, thanks for your candor in this situation.
So all debt is bad for people, but government and corporate debt is A-OK, is that what you meant?
“Do Bond funds count?”
Yes, you own someones debt . . . the bond fund probably owns bonds from corporations who issue mortgages . . . which you are profiting from. So by owning them you are the problem.
I don’t believe I said Government Debt was OK, I did however say that currently it is out of control.
So the only problem with debt is that people are using it incorrectly? Is that your point?
Debt is not evil! I may only buy a house once in my life with cash and it will be at the end of a long career. Debt at a low or zero interest, if used responsibly is okay. I bought a refrigerator using zero interest although I have the cash, I would rather use their money.
Maybe, but if something catastrophic happens, and the money that you already had to pay off the refrigerator disappears, what happens then? You aren’t buying something you can’t afford, are you?
I must admit you made courageous comments, few will make about the experts point of views. Yes; being in debt stink. Any form of debt is a bad debt. By taking on any debt, we commit our future income to paying on a never-end amortization schedule.
Many people commit themselves unconsciously to financial slavery that has a begging but no end.
Courageous? Not really, I have lived under the shadow of debt for so long, I am kind of sick and tired of people saying being in debt is fine, it is NOT!
I take it you own no bonds at all, since all debt is bad . . .
Do Bond funds count? I think I should be a little more precise then PERSONAL DEBT for PEOPLE is BAD, although I do think Government Debt is now completely out of control as well. Bonds are kind of like Mortgages for Governments, aren’t they?
I think I would like to see that rant 😉 I love the unwanted guest analogy.
I don’t think in terms of “good” or” bad” debt — I don’t like to have any of it. However, there are forms of debt I conclude are necessary evils such as reasonable student loan debt and a mortgage on less home than the bank says I can afford. A mortgage isn’t “good” per se — but it may be a more doable option than paying cash for a home.