For years I believed there were three types of good debt: student loans to pay for a college education, a mortgage to buy a primary residence, and a loan to start or expand a business.
Seems logical, right?
On average, college graduates out earn those who only obtain a high school diploma. Home buyers build wealth and fulfill their need for shelter. And as an entrepreneur, your income earning potential is unlimited.
For a while I thought, “No doubt about it; borrowing money to pay for these things is good.”
Fast forward a decade or so, and now, I have doubts.
As is often the case, my little brain gets to thinkin’. In an effort to strengthen the rationale behind my opinions, I start asking questions. Which may or may not result in complete rejection of what I once held as truth.
For the most part, a college degree puts you in a position to demand a higher salary in the workforce. If that’s the case, why not label other debt that helps you make more money as “good?”
Is it wise to use debt to pay for trade or vocational schooling? After all, your earning power tends to increase with education.
What about a home study course?
Would it be okay if I used my credit card to buy a few books that’d make me more knowledgeable in my field?
What about a conference that would allow me to meet influential players in my industry? You never know when a business connection will pay off.
Come to think about it, I need a new suit. You see, I’ve got an interview coming up*. The one I have looks outdated. And I really want to make a good impression on the interviewer. Normally, I wouldn’t think of using a credit card to buy clothes, but we’re talking about my dream job here.
By the way, I need a gym membership. Should I put that on my credit card too? Looking hot is good for your wealth. Didn’t you hear? Studies show unattractive and overweight people get paid less. If I could, I’d exercise outdoors but I have allergies. My neighbors would complain about the noise so I can’t workout at home either.
If it’s acceptable to borrow money to open or grow a business, does it make sense to invest in someone else’s business with borrowed money? I’m ashamed to admit it, but my friend is a better businesswoman than me. Perhaps it’s safer to invest in her than in myself.
So if it’s possible to make money by investing in a business that’s owned by one person, you can make money if you invest in a business that’s owned by millions of people? What’s your opinion on going into debt to buy individual stock? gold? art? vintage wine? real estate?
Oh! I just remembered. Mortgage debt to buy a home is good debt. Even Dave Ramsey, the hater of all money borrowed, deems mortgage debt acceptable. Never mind that real estate is an illiquid asset that’s expensive to buy, sell and own.
But why stop at a primary residence? I could buy an apartment building too. As long as the rent exceeds my expenses I make money.
You need housing; therefore, you can use other people’s money to get it. You know what else you need? Transportation, health care, food. Mmmm. Food. Even if money was tight, surely you wouldn’t mind if I had a modestly price, sit down dinner with my guy. I mean, I gotta eat.
And I refuse to put unhealthy food in my body. I only get one you know. I have to take care of it.
As for transportation, I’m not taking the bus, train or any other form of public transit. Too many crazies take the bus, and I ain’t trying to get stabbed while waiting for the bus to arrive. How do you feel about an auto loan?
Well, I guess that settles it, you asked “Is there any such thing as good debt?” Please. If you frame your argument right, with a bit of logic, a pinch of confidence and a whole lot of delusion, it’s all good debt. Well, unless you’re using a site such as this to obtain credit.
* I do not have an interview coming up. I was just trying to make point.