There are different kinds of debt. You may borrow thousands for a college education which delivers returns many times more than your investment. That is not guaranteed, of course, but many working professionals would not be in the financial condition they are today without student loans. It is the great equalizer in an upwardly mobile society.
The same could be same for homes. Right now I am sitting in a home which has increased in value more than the historical norm, but there is no way I could have paid with cash - ever.
Auto loans are more challenging. Reliable transportation is a must in most cities for anyone who is employed. However, the auto industry is highly skilled at convincing us to buy a new car based on emotions rather than accounting. This is a personal decision for each person.
Avoiding bad debt is the key to lifetime financial prosperity and calm.
Not all debt is equal. Good debt can be a good investment and deliver returns for years to come. Bad debt simply put is for items which lose their value and produce a negative return.
And the problem with debt in general is not even the amount of the debt: it's the amount plus the compounding interest. This is the trap which has caught millions of Americans. It's subtle and powerful and hard to resist.
I am not talking about those who are in debt due to no fault of their own, and there is a lot of that kind of financial pressure in the US, whether due to medical situations, job loss, or other catastrophic events in life.
Every dollar spent paying off bad debt is a dollar which cannot grow in an investment.
And those who are caught in a bad debt cycle know the emotional strain caused by the stress and the sense of hopelessness as the bills keep coming in.
So what can a person do?
1. Get help, either a friend or mentor who can help you work through purchasing decisions.
2. Get professional counseling. There is a time for this, although it may be expensive on the surface.
3. Stop the cycle if you can. You may need to have a garage sell, downsize, or make drastic decisions depending on the severity of the situation.
4. Recognize that changing thought patterns is not easy, if your debt was caused by poor choices. Often that is not the case, but if it's true in your case, seeing the patterns is the first step to change.
This is an difficult area of life to master, but the rewards are significant for a person whose lifestyle avoids bad debt as much as possible.
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Disclaimer: The views expressed on this website reflect the personal opinions and experiences of the writer. Nothing in this article constitutes financial advice in any way. Information on this website should not be relied upon for investment or business advice. Please consult with a qualified financial professional before making any financial decisions.
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