Comments on: No Such Thing As Good Debt?

By: Johanne

Johanne — Mon, 16 Nov 2009 07:09:28 +0000

During this economy, it’s quite hair raising to get into any kind of debt. It’s much easier to live life the old fashioned way where liquidity is more valued than credit.

By: traineeinvestor

traineeinvestor — Mon, 09 Nov 2009 07:43:56 +0000

While few would argue that debt is a double edged sword, my view remains that on balance debt is a good thing if used and managed appropriately.

In my own case the use of debt enabled me to buy more real esate as Hong Kong was emerging from the Asian crisis and SARS in 2004 and subsequent years than I could have without that debt. The use of debt has significantly improved our household balance sheet and accelerated our progress towards financial independence. Could it have worked against us? Possibly, but we had plans to deal with most of the things which could have gone wrong, including a further decline in property prices and rents and the loss of one job.

I lost a lot of sleep the first time I borrowed to invest. Once the rent started coming in, everything was fine. Now I suspect I would lose sleep over the loss of opportunity if I did not gear my investments. That said, once we quit working we will progessively deleverage as we will not have our salaries to fall back on.

By: Debt Free Living: 5 Attitudes You Need to Adopt for Success | My Super-Charged Life

Fri, 06 Nov 2009 11:01:30 +0000

[...] at The Wisdom Journal wrote a little about this in No Such Thing As Good Debt? I think he makes it clear that even what some call “good debt” can quickly turn [...]

By: Matt

Matt — Tue, 03 Nov 2009 23:47:24 +0000

I agree that Debt is a double edge sword. In the case of a mortgage (for example) you can pay the minimum on a house note over a long period of time and “invest the difference” and you can come out way ahead that just spending extra money to pay down the debt faster.

But it depends on the person, and whether they have the disciplined enough to control that debt, rather than vice versa.

By: Another Weekly PF Roundup » JoeTaxpayer

Another Weekly PF Roundup » JoeTaxpayer — Sun, 01 Nov 2009 12:04:14 +0000

[...] at the Wisdom Journal asks if there’s No Such Thing As Good Debt? Given the current state of the economy and insecurity regarding jobs, I understand and respect the [...]

By: Barbara G Meyer

Barbara G Meyer — Fri, 30 Oct 2009 15:51:14 +0000

Credit card chaser and Kitty both make good points: there are times when debt is the only way to get where you are going, and the end result will be more valuable than the debt (with houses that is not true right now, but these are very exceptional times.) The problem with most of us, is that we get to the point that we can’t afford to lose our jobs or change to a job that pays less but is more fun, because of that ball and chain of debt around our necks–even mortgages and student loans (which are otherwise good debt). So NO DEBT is the only really good debt because it is only be being COMPLETELY debt free, that we have real freedom. That is what Ron is saying, IMHO, and I agree 100%.

I use–frequently–my credit cards, all three of them. I pay them off automatically every month, and I pay NO interest or fees. And if my cards started charging them (and they won’t: I have 2 AT&T Mastercards I got years ago, which promise me NEVER to charge fees. The other is a low limit card for internet use only–but also no fees.) I will drop them like a hot potato and find others.

By: kenyantykoon

kenyantykoon — Fri, 30 Oct 2009 06:47:13 +0000

my view is that there is somethings as good debt- when in after the said time it gets you something that benefits you in the long run. like for instance a loan to start a business which after a while breaks even and you have an asset in your name. But the problem is that they can rapidly escalate into bad debts if if the calculations were off and at that point you will be screwed. But this should not make someone not take a calculated risk to develop your life because it may just go well. Bad debts kill you off slowly from day one- like a yuppie buying a new convertible bimmer on credit

By: Evelyn Guzman

Evelyn Guzman — Thu, 29 Oct 2009 11:51:47 +0000

This is an excellent article that puts one on the right perspective. We cannot delude ourselves thinking that the debt we incur is a good one for all the scenarios you painted for our benefit. The lesson learned is that not to take any debt, good or bad lightly. One should always have a cushion to fall back on when the going gets tough.

Evelyn Guzman

By: Ron

Ron — Thu, 29 Oct 2009 02:15:06 +0000

To my way of thinking, arbitrage isn’t really the same thing as good old fashioned debt. If you have the ability to borrow $50,000 at 3% and put it in municipal bonds at 5%, you’d be crazy not to. For most people, debt isn’t for appreciating assets, it’s for depreciating assets. Those bonds make money and create a positive cash flow. The car example, could do the same thing if you kept the money invested and earning interest while you made the monthly payments. All the examples you gave were for debts to buy (invest?) in an appreciating asset or, as in the car example, to allow your money to continue to earn interest.

Your comment “Whether or not debt controls you depends on many factors – type of debt (fixed or variable), payment amount, interest rate, whether or not you have the money to repay the debt at any moment.” sums it up quite nicely, especially that last phrase! I would wager that very, very few borrowers have the ability to repay their debt at any given moment. That’s where the worry creeps in.

By: kitty

kitty — Thu, 29 Oct 2009 01:27:46 +0000

OK I am debt free, and yes it is nice. But… If I had an opportunity to borrow at lower interest rate than what I can get on say municipal bonds, I’d do it.

If I had been 100% sure about upcoming inflation, I’d have taken some low fixed income debt as well. E.g. if I were to upgrade to a more expensive home for which I’d have cash, I’d choose a mortgage instead at current low interest rates as a hedge against inflation. If I were to buy a new car – don’t need one right now – and the dealer offered me 0% financing, I’d take it even though I have cash.

Whether or not debt controls you depends on many factors – type of debt (fixed or variable), payment amount, interest rate, whether or not you have the money to repay the debt at any moment.

As to student loans: taking 100K for a liberal arts degree is probably bad, but taking 100K for a medical degree is not (and is a necessity for anybody who isn’t super rich).

Whether or not to take the loan in cases when it is not a necessity is really an investment decision. As any investment decisions it could be a good one – i.e. lead to more money – or a bad one and lead to lost money. In some cases it’s a risk. But you are taking risk with other investments too e.g. when you invest in the stock market.