All Debt is Bad

There is no such thing as good debt. It is all bad. Certainly, there are some forms of debt that are less harmful than others, but all debt decreases net worth and takes money from people that they would have otherwise had.

Instead of good debt, it might be better to say acceptable debt. Acceptable debt would be debt that is used to purchase something that is genuinely needed, a home for example, that one would not otherwise be able to purchase. Also, the mortgage on this home would have to be within a person’s means so that they could pay it relatively easily while their home, in theory, appreciated in value.

The worst example of debt is credit card debt, or unsecured debt, to be more specific. This type of debt is debt that allows you to borrow money to purchase things without collateral value, such as meals, clothing, entertainment, and so forth. This debt is terribly damaging because it generally carries the highest interest rate and leaves you with little to nothing to show for your money after the purchase. Add in the fact that, if you pay minimum payments, it can take a lifetime to payoff, and you are really just throwing money away with unsecured debt.

The next worse type of debt is an automobile loan. This debt is extremely damaging to a person’s finances because they are usually paying a premium, as in interest, to afford something that is going down in value while they are paying it off. Even interest-free automobile loans are a mistake because, in the end, the car is worth much less than one has actually paid for it. Most people would be better served in saving up and buying an older used car and simply fixing it when it needs repair. You can perform a lot of repairs for $3600-4800 a year. This method, however, isn’t very popular because many people feel the need to seem as though they have more money than they really have by driving a fancy car, and they end up losing money to do it.

Other debts, such as student loans, are really a subject of much debate as to their benefit or harm to students. It is true that these loans help students obtain their degree and, theoretically at least, earn more money than they would have otherwise, but students can attend college without accumulating massive loans. It can be done! Students can employ such unheard of techniques as having a part-time job, studying hard and looking for scholarships, or using work-study programs. Even though student loans can help to earn a degree, they are still debt and are still harmful to the finances.

Actually, everything in this article is information that almost everyone knows, but is afraid to admit to themselves. But it is only through admission and acknowledgement of making these mistakes that people can begin to start paying off their old debt and avoid making new debt, which is truly the road to freedom.