Why Was Debt Created?

by Ron Haynes

debt It’s a chicken and egg type question – which came first, borrowers or lenders? Of course you really can’t have one without the other (legally, that is), but my instincts tell me that it could go either way. Just mention the word “debt” and many people automatically think of credit cards but those little pieces of plastic with the magnetic stripe were late to the party when it comes to debt. Debt has been around for centuries and many historians suspect it was one of the reasons humans created writing – to record financial transactions!

I’m always amazed when I write an article extolling the virtues of a debt free lifestyle. There is always a segment of the population that cries foul, insisting that debt is the path to wealth and riches … or at least cash back rewards. You CAN make money with the temporary cash that debt gives you. Debt can help you buy a home, provide an education, or finance a business, so there! I said it! But for me, debt was and has been indicative of five things:

  • A lack of money
  • Impatience
  • Discontentment
  • Poor planning
  • Short-sightedness

Debt indicates a lack of money

The ultimate “DUH” moment, right? I used debt because I was short of cash. If, at my next annual review, my boss said, “You’ve done such a fine job, we’re going to multiply your salary by a factor of ten and make it retroactive for the last six months. Here’s your check!” I can tell you right now, I know I wouldn’t be thinking about rewards cards, getting a home equity line of credit, or wondering what my credit score was. When I don’t need debt, I rarely, if ever, use it (and I’m not talking about credit card debt you pay off each month either). So my question to myself is: do I really “need” it at all?

Debt indicates impatience

I know it did for me. In almost every case where I used debt to finance a certain lifestyle, I was impatient and wanted it now. I used debt because I was unwilling to save to buy certain things. I wanted them NOW and was willing to pay the interest to satisfy my impatience.

Debt indicates discontentment

In addition to impatience, I was discontent with the results of my poor financial decisions up to that point, so I used debt to ease my covetous heart and to buy the things I wanted because I didn’t like the things I already had. Vacations, clothes, cars, you name it, I wanted to appear better off financially than I was at the time and I was willing to pay the interest to make myself appear successful.

Debt indicates poor planning

I’ve charged tires and transmissions, vacations and vet bills, clothing and car repairs, insurance and ice cream, and why? Because I didn’t prepare for those expenses by having an emergency fund or by making small monthly “payments” into a dedicated savings account. It was poor planning, plain and simple and debt with interest charges was the result of my failure to plan.

Debt indicates short-sightedness

How much would I have today if I had waited until I had the money, learned patience and contentment, and planned a little better? It all boiled down to my own shortsightedness. You may have read how I paid off over $120,000 in debt (true story) but the sad fact is that I went that far into the hole in the first place. The amount of interest I’ve paid would probably make me sick if I added it up.

But guess what? I still use debt! (though begrudgingly)

I just refinanced my house at 4.75 percent … why? Because of reason #1 – I don’t have the money to pay it off … yet. Since I have no other consumer debt than one small student loan (which I am attacking), my cash can be used to pay down the principle of my mortgage and free me from the burden of debt forever. I gotta tell you – it’s a good feeling to be THIS close!

Photo by Kath Walker Illustration

About the author

Ron Haynes has written 1000 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.

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I would add another one that contradicts one item in your list: good planning. Debt does serve a good purpose if you use it in a sensible way. We should not deride debt under all circumstances just because we have gotten carried away with too much debt during the last couple of decades. Instead, we should get back to basics which also includes incurring debt – most often in the form of a mortgage – that we pay off dutifully over time. There is nothing wrong with taking on debt if it is part of a sensible and well-thought-out financial plan.


I didn’t deride debt in all circumstances — “Debt can help you buy a home, provide an education, or finance a business.”

Regardless, debt indicates a lack of money and always indicates a lack of patience.

Barbara G Meyer

That is exactly what I was going to say. To wait until we have enough to buy a house outright is a bit unreasonable these days. But to buy with credit, used responsibly, means that we build equity even as we reduce our debt. It may not be perfect, but it is a system that can work, IF we use it responsibly.

Sometimes even credit card debt can be reasonable: if your refrigerator dies or your pet gets hit by a car or your car needs urgent repair, then short term debt (paid back ASAP) can be useful. It is true, it is better to have six months cash stash but if one is young and newly employed or just come out of a bad time or whatever, we may not have it.

Seriously, debt is just not ALWAYS evil. Student loans allow young people whose can’t otherwise go to college to get advanced degrees, as discussed already, we can buy houses we can’t otherwise buy out right, we can finance hugely expensive projects (I have heard of later to be famous movies financed on credit cards.) To paraphrase the NRA, credit doesn’t hurt you, you hurt you. If you buy a bigger house than you can reasonably pay back (and when I say responsible, I am NOT talking about interest only mortgages and other nonsense) or if you use it to buy expensive toys you don’t need, of course you deserve to get into trouble. But don’t just say all debt is bad. It just isn’t true.


I didn’t say ALL debt was bad, but I will say that NO debt is preferable, if for no other reason than peace of mind.

Do you ever wonder if home prices would be much, much less if debt wasn’t regularly used to purchase them? What about cars? University educations?

As a measure of inflation, track the price of gold for the last few centuries and you’ll see that it was relatively stable until the US government went off the gold standard and began using debt to finance its pet projects.

Like I said, I still use debt, primarily for my mortgage, but I’m looking forward to not having a mortgage at all.

Credit Girl

Personally, I’ve never seen “debt as the path to wealth and riches” because for me debt is the path to more and more debt over time.


Isn’t that the truth?

Rachelle Allouche

Good points. May I add one more?

Debt often means not understanding (or pursuing) financial options to minimize surprise costs. For example, we know of a couple that didn’t have an extended warranty on their car. And, they were hit with an outrageous bill when the transmission failed. They had minimal savings, so it put them into debt.

We have avoided this by getting car repair insurance. We have EasyCare, and it has covered mechanical failures that would have really hit our budget hard.

So sometimes, debt is caused by not knowing the financial options that are available.


Great point. Sometimes by not knowing, other times by ignoring!

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