From one of great classic westerns…
Take a quick Google of “debt”, devoted readers, and you will find a plethora of opinions about it. Some say that under the right circumstances debt is good. Some say that debt is always bad. And some say that it is ugly…necessary but not a good thing.
Good debt proponents argue that as along as the rate of return that you can earn is high (like say 10% in different financial markets), and the interest on the debt is low (say 3% on a home mortgage), debt is a great financial tool (in my fictional example above, investing would actually earn 7%, after subtracting the interest on the debt). I can’t argue with dark art of math on this, and if you have the mental faculties to make this work for you I applaud you. However, the risk associated with this approach would keep me up at night, as a relatively risk-adverse engineer.
Bad debt proponents argue that debt is always bad and you should always live within your means. This looks like life without credit cards (frozen in blocks of ice in the freezer), paying cash for houses, etc. Once again, I can’t argue with the numbers associated with this, and if you have the financial means and mental fortitude to do this I applaud you. However, since I am a risk adverse (and not a risk totalitarian) engineer, not taking some level of risk would keep me up at night.
The last thing the world needs is my unsolicited opinion on debt, but I’ll give it anyway. I don’t like it. I have it, but I don’t like it. I guess that throws me into the “Ugly Debt” category. I see it as a necessary evil for larger purchases as someone starting out in life (like homes and cars), but I put additional money into my payments every month to pay off my large purchases early to save money on interest.
I would encourage you, devoted reader, to think about your views on debt. We are all different, and I guarantee that we all have different opinions on this topic. However, it is important to know where you stand, and how to make your money work best for you.
Quote of the week, from The Good, the Bad, and the Ugly…you have to be prepared for anything:
There are two kinds of spurs, my friend. Those that come through the door, and those who come through the window!-Tuco, the Ugly