Monday, July 19, 2010

Is There Such a Thing as Good Debt?

by Jason Price

How much debt do you have?

Well, I’ve accumulated quite a bit of debt over the last 10 years. I suppose I’ve been a bit careless and now I’m starting to fill the pressure from it. I mean, I can’t make my monthly payments anymore. But…some of my debt is good, right?

It’s not all bad because I’m driving a car, I have a house to live in and I’ve got a great college education. It’s just these darn credit cards some recent emergencies and, uh, a little over spending that has pushed me over the edge.

I see.
Well, as you can see it’s pretty easy to rationalize having debt and one of the ways to do this is by trying to focus on positive reasons for having debt.

How Do You Define Debt?

First, what do you believe is the definition of debt? Basically, debt is defined as when you owe something to another. Interestingly, the Urban Dictionary defines debt as when you’re so bored with life that you just spend money to make your life seem more exciting. Ha ha.

Most people get a car or house loan because they wouldn’t otherwise be able to purchase them. Student loans are the same. Maybe you bought an education using a loan because you didn’t have enough cash to pay for your tuition, books, board, etc.

The Bible provides sound principles in describing debt and its impacts. I’ll note that nowhere does the Bible state debt is a sin, but it does give us a pretty good indication of debt and why we should avoid it.

The rich rule over the poor, and the borrower is servant to the lender. Proverbs 22:7
You were bought at a price; do not become slaves of men. 1 Corinthians 7:23

So, when we owe something to someone we’re really in servitude or slavery to that person. Our options are limited because we owe money we can’t use for another purpose if called to do so as Christians.

An Example of Bad Debt

I think most people would agree credit card debt is bad debt. Now, I’m not talking about a few charges on the card you pay off each month. I’m talking about debt. You have to roll the balance over from month to month because you can’t pay it off!

In other words, you’re presuming upon the future using high interest loans making it difficult to pay back and control. Just making the minimum payment alone will result in paying well over what you originally purchased in the long-term. Yes, there is no question; you should avoid credit card debt which is a great example of the slavery mentioned in scripture.

Good Debt?

But, back to our original question . . . Is there such a thing as good debt? In other words is that thing worth going into debt for if it truly brings you increased value in your life? You’ve heard the arguments for considering a house, car and school loan debts as acceptable forms of debt because they provide something of need or important value in return.

Houses provide shelter and most notably they are typically seen as investments and provide tax savings. Many homes appreciate in value growing your money for the future. As a homeowner you can save on taxes.

Cars provide transportation. While they depreciate in value, a car fulfills an important need for transportation. There are certain tax deductions now depending on the type of car you purchase and the car’s environmental friendliness.

Finally, student loans provide you an education. It’s common for parents and students to sign up for a loan for school because what happens if you don’t go to school? Your chances of working in a profession with a good salary and benefits are diminished considerably. Here we are in the interview – What’s your degree in? Uh, I didn’t get one. Oh, well, this job requires a college education! Actually, it probably wouldn’t get to the professional interview stage without the degree – although there are some exceptions.

What’s the bottom line?

I can’t agree any type of consumer debt is good debt. I’m not saying I wouldn’t tell someone not to go to school because they have to get a student loan, but I certainly wouldn’t say that’s a good situation to be in. I wouldn’t tell someone not to buy an affordable house to avoid debt, but I can’t say having a mortgage payment hanging over your head for 30 or even 15 years is a good thing. And I wouldn’t tell someone not to get a small $5000 car loan to provide necessary transportation for their family, but I couldn’t say owing the bank $5000 is a good thing.

Homes, cars, and school loans shouldn’t be used as excuses to go into debt. The more important question is what do people have to do to avoid such debts?

These three areas are such common forms of debt they’ve become the norm of our American society. Credit cards are frowned upon, but it’s okay to have house, car and school debt? Fundamentally, these things are debt. You own something to another and it boils down to getting something today you can’t afford using someone else’s money.

My belief is our society has to make a major shift to get the personal debt situation under control. Every child has a choice at some point in their life to work, save and plan for their future. Part of their plan has to include saving for such future needs.

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