Comments on: Good Debt?? There is No Such Thing

By: Make Friends, Earn Money

Make Friends, Earn Money — Mon, 23 Jun 2008 18:55:08 +0000

I agree that there is no such thing as good debt, but there is such a thing as necessary debt, a mortgage for example. I think the key here is being wise about what type of debt we take on and not borrowing beyond what we know we can sensibly manage to afford. I also agree that borrowing to invest is a big no no.

By: David Makes Cents

David Makes Cents — Fri, 14 Mar 2008 01:55:51 +0000

Sweet you paid for your own college too. I feel like I am the only one I know who has to do that. Every1 elses parents seem to pay for it. Or they are just taking out loans. I now have a higher level of respect for you.

I disagree, there is good debt. I would take $1,000,000 at 1% interest then just put it in the bank and get money off the difference. I know this is kinda silly, but hypothetically it is good debt. Some people actually make money like this by using 0% apr intro rates on cc and then paying it off when the intro rate expires. Its called credit card arbitrage. Its a little risky but some peeps make a few thousand a year from doing it.

By: Peer-to-Peer Lending and Bloggers Ethic | Moolanomy

Peer-to-Peer Lending and Bloggers Ethic | Moolanomy — Mon, 10 Mar 2008 13:03:15 +0000

[...] bad because it propagates myriad problems caused by credit and debt. In his words: “I’m not a fan of borrowing money and couldn’t in good conscience recommend these services to my readers. I’m a firm [...]

By: glblguy

glblguy — Thu, 20 Sep 2007 20:37:31 +0000

@Justin – I see what you are saying and see how it could work, but your point about paying on time is important and not something people in general are real disciplined on. I think Jon’s comment really backs up what you are saying.

@Jon – Great points Jon, and I do believe you bring a really interesting and good perspective. For me, this wouldn’t be something I would want to do, but I can see the attraction and how if you know what you are doing it could be a good investment. Thanks for taking the time to write such an excellent comment. Thanks also for the comment on the site, I appreciate it.

By: Jon - Art of Money

Jon - Art of Money — Thu, 20 Sep 2007 17:46:51 +0000

Thanks glblgy, nice site. I agree that a lot go broke, that is because they are gambling, not investing. An investor takes the time to get properly educated, studies every investment thoroughly and then factors all possible risks into an analysis if the investment. If the numbers make sense, including the risk factors, then debt or no debt it is a deal that is worth doing.
There are risky investments, but most of the time it is the so called investor that is the real risk.
Two nights ago in my investment club we had a proposal from a CEO of company with annual profits of 500 million dollars (the CEO was there in person). The company is a world leader in their business and the industry sector is extremely stable. He was offering a two year corporate bond that paid 14-16% annual return, paid monthly. In ten years of doing business, they have never missed a monthly payment or failed to return the investor’s capital.
I have 2 credit cards offers on my desk that will allow me to borrow the $25,000 @ 6.5% for 2 years. By my calculations I can make about $200 a month for two years by doing nothing. I like deals like this and I find them a lot less risky than having a job, for example. The risks of having a job are many, primarily to your health and sanity but high tax rates and layoffs or outsourcing are also risks that employees face.
Anyways, good post, excellent point of discussion. I just wanted to present an alternative view, which I realize is not for everyone. I have seen many times first hand that debt used as leverage, combined with financial education can lead to financial freedom. To me money is really a game, and even going broke is part of the game and not really to be dreaded. You can go broke, and I have come very close, and it is not the end of the world. Often people who have gone broke have a new appreciation of money and go on to do very well.

By: Justin

Justin — Thu, 20 Sep 2007 16:49:45 +0000

@glblguy said: What you arent factoring in is the risk.

I don’t think the risk in these cases is very high. If you are guaranteed zero percent interest rate for a certain period and you can get more than that in a savings account that is FDIC insured, the risk is very minimal. You just need to pay your bills on time. You always have the principal to pay it back should issues arise.

By: glblguy

glblguy — Thu, 20 Sep 2007 16:40:42 +0000

Jon, thanks for stopping by. I know people do it, and you can make money, but I disagree it’s good debt.

What you aren’t factoring in is the risk. I would also question any circumstance where you are “guaranteed” a return.

While it might be how some people get wealthy, I would argue many more go broke than get rich.

Really boils down to what you are comfortable with, and I just wouldn’t do it. But I am a low risk person, just learned that being risky generally more painful than rewarding.

By: Jon - Art of Money

Jon - Art of Money — Thu, 20 Sep 2007 04:14:58 +0000

I’m dating myself here, but a good number of years ago when banks were paying 14% interest, my sister in law who was going to college borrowed every penny she could in interest free student loans. Took the money and put it into a bank account. By her second year she was able to live off of the interest without touching the principle. After she graduated she paid the principle back, just before the interest free period expired.
Good Debt!
There are many circumstance where I can borrow at one rate and through financial skill and knowledge be guaranteed a return higher than the interest payments. That is not only good debt, it is the way rich people get wealthy in many cases.

By: glblguy

glblguy — Wed, 05 Sep 2007 20:41:39 +0000

Wanderer, thanks for jumping into the fray. I’m sure your comments stir come additional comments

By: Wanderer

Wanderer — Wed, 05 Sep 2007 17:19:56 +0000

Key Behavior #4: Understand That Credit Is The Opposite Of Saving.
We’re in complete agreement here. All debt is bad, some types “badder” than others. My take:
Credit Card Debt: Baddest? Perhaps. My word is STUPID (in all caps). Apologies if anyone is offended by that but I’ve a fair amount of personal experience behind that feeling (STUPID with zeros after it, as Dave R. says).
Car Loans: Same as credit cards. The loss in depreciation is just as bad as the hidden fees and other garbage involved in CC fees. As you need transport in order to be able to work and earn income, in most cases, buying cars on credit puts your very ability to earn a living at a certain degree of risk. I rank this one Baddest/Stupid as well.
Mortgages: Bad, but sometimes necessary. Simplest, shortest term possible, flat interest rate, 20% (or more!) downpayment, and don’t tie up more than a fourth of your budget in housing. It can often be a better idea to rent for a while, especially if you have other debt and stuff cluttering the water around you.
Student Loans: Insidious. Too easy! I firmly believe it is built into our psychology to assign value based upon difficulty of achievement. Having to work your way through school as you did, makes you appreciate the education more. I am a restaurant manager and do not have a degree. Three other managers in our restaurant have degrees, and I started out at the same salary they did. They earn what they earn now because of what they have achieved on the job, not because of what their piece of parchment from the university says. The value of education lies in the knowledge gained that can be applied in the real world. You can get that sort of knowledge just as easily in a Public college as you could from a ritzy private college.

Wanderer – Enjoy The Ride!