What Is Your Debt Philosophy?

While I am not a fan of carrying consumer credit card debt (yes, there are some people who don’t mind), there are three kinds of debt I don’t necessarily have a problem with. Going into debt to pay for a home, for an education, and even for a needed car are the only three times I feel it is OK to go into debt. Most people don’t have the income or savings to pay cash for their home, so they take out a mortgage for 30 years. Some people might want to get a better job, and might need to borrow the money to go back to school. And some people don’t feel comfortable shelling out $20,000+ in cash for a new car, so they might have to find a way to borrow some at a low rate. The only debt we have right now is our one car payment; our other car, my Jeep, was paid for in cash because it was a lot cheaper. The car debt is for another 4 years at 3.9%, so it’s not all that bad to take. While I use credit cards to pay for almost everything each month, I pay the balance off when it is due. This helps me get rewards points or miles, and keeps my credit history moving and current. However, some people have a different debt philosophy than me…

Credit Cards
Creative Commons License photo credit: Andres Rueda

Some folks don’t mind carrying debt because it allows them to live beyond their means. I don’t mean this is a good thing; rather, I believe that they think that because they can afford the minimum payments every month, it’s all good. After all, “living large” is the American way, right? Making the minimum payments for years on big screen TV’s, cars they shouldn’t buy, vacations they shouldn’t take – it all doesn’t matter as it allows them to have a make-believe lifestyle. That is their debt philosophy, and obviously it is a lot different than mine. I used to do some of those things, and paid dearly for it…and now you couldn’t get me to carry around consumer debt like that again just so I could play “pretend” around my friends and family. It’s not worth it.

Because of my own debt philosophy, I get to live the kind of life that I want – which was the ultimate goal. What’s your debt philosophy, and why do you choose to live by it?

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Comments (11)

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  1. I used to think that debt for all three of those things was ok as well (home, education, cars). While I’m not completely against it, my stance in the last couple of years has become a lot more anti-debt because I’ve realized just how much of a life changer debt can be. Debt is just this monkey on your back, something that’s always there, and adds a hidden level of stress to your life.

    I’ve now changed my outlook so that now I think the only way I would be ok with debt would be to purchase a house.

    We lived this one out in our last car purchase by paying cash for a used 2 year old car, and I can’t tell you how much nicer it drives than the last car that I had a 3 year loan on. Much more peace of mind knowing this car is paid off. It’s also amazing how much more we’re able to save/etc when we don’t have the monthly payments sucking our accounts dry..

    Education I’m on the fence for – I think in some cases, especially for some specialized careers you may have to take out loans – but for most people I think they can work their way through school, get grants, and go to cheaper in state, state universities to save money. That should make it a lot easier to not have to take out tens of thousands of dollars in school loan debt. I know how school loans have really crippled some friends of mine, and how it has changed their lives for the worse.

  2. David says:

    Great comment and points, Pete. I am with you on the car, but I also realize that many people cannot buy a car for cash. For instance, for us, we were in the middle of a move and without a job lined up – so we financed the car we plan on having for at least 8-10 years. Our second car we paid cash for. But in principle, I agree – if possible, definitely pay in cash.

    College too is like that – I hate seeing people borrow $100K to go into a career that pays $35K. The debt you take on must be worth the end result!

  3. I basically agree with you but I think people should do everything in their power to lessen or eliminate those debts as well. I also think it is okay to go into some debt to start a business, but you need to make sure you have a strong business plan and have put a lot of thought into it.

  4. Lynn says:

    I read a ton of pf blogs and you are the first to actually approve of all 3 debts I have. Home, School, and car. Although I am definitely ready to get rid of the car loan. I think they are OK as long as they are not in excess. A 30 year mortgage that is too big is a bad idea. Student loans for 100K when a job only pays 40K – bad idea. A 6 or 7 year car loan even at low interest – horrible. One of the reasons I hate my husbands truck loan is that we took it out for 6 years. Ugh. What a mistake. We are going to pay it off at the end of the year at around 4.5 year. I will only do a 3 year car loan from now on.

  5. dawn says:

    i agree with you on the 3 times it’s “acceptable” to finance a purchase, although speaking for myself, i’ve bought my last 2 cars new, paid cash and kept them forever. I plan to do the same in the future, except this time i’lll be looking at slightly used cars.

  6. Enrique S says:

    I have no mortgage, but do have a car lease. I suspect that when the lease is up next year, that I’ll buy a used junker to get me back and forth to work. So my debt philosophy has definitely changed.

  7. Tyler says:

    “Education I’m on the fence for – I think in some cases, especially for some specialized careers you may have to take out loans – but for most people I think they can work their way through school, get grants, and go to cheaper in state, state universities to save money. That should make it a lot easier to not have to take out tens of thousands of dollars in school loan debt. I know how school loans have really crippled some friends of mine, and how it has changed their lives for the worse.”

    You have to have money as a factor in your choice of school and career, but saying “Just go to a state university and get grants to save money,” is not a realistic statement. I went to a state university, received scholarships, had internships and on-campus jobs, and still walked away with $20,000 in federal student loans. But I am in a career that I have already paid those loans back, and the school I went to was half as costly as other choices, and the education I obtained is of tremendous value. It’s not black and white, which is how I interpret your statement.

  8. Melissa says:

    My debt philosophy is very much the same as what is written in this post. (Though my car will be paid off at the end of the year…1.5 years early)

    I was fortunate not to have student loans from undergrad but I went to grad school (at a state school) full time (as required by the program) and worked part time and still HAD to take out student loans to pay tuition and “get by”. I do NOT regret that debt for a single second and wouldn’t change my decision to go back to school, as my education was extremely valuable and my salary (4 years after graduation) is nearly triple what it was before getting my Masters. I’m actively attacking the debt and that’s all I can do…look forward and try to make wise decisions on optional lifestyle choices.

  9. @Tyler: my statement isn’t black and white, that’s why I said that I was on the fence with that one. I was merely pointing out that a lot of people go the most expensive route when it comes to undergraduate education when there are a lot of things that people can do that will reduce the costs, or eliminate them altogether. I just don’t think it’s a good idea to not think about the consequences of the school debt that you’re taking out. I have one acquaintance for example that went to an out of state school (a very good school) to get an art degree, and ended up racking up in excess of 40k in school debt. He’s still paying it off 10+ years later and hasn’t really used his art degree that he paid so much for.

    Why not go to a community college for 2 years, then transfer to a state school? Why not work while you’re in school? Why not think about these things in advance and get grants, scholarships/etc through hard work?

  10. marci says:

    I’m basically a cash person. Paid cash for the last house and truck. Don’t believe in 30 year mortgages – but ok with 10-15 years and double payments. Don’t believe in 5-6 yr car loans, but would ok a 2 yr loan. And education? Nope – pay as you go. The price of the student loans is just too large these days compared to the salary at the end. Definitely community college for 2 years. Sometimes that’s more than you’ll ever need.

  11. LiveDebtFree says:

    I agree with most of the comments and respectfully disagree with the logic of this article. The problem with consumer debt begins when pundits and broke financial advisers begin telling the masses that “debt is good.” Debt, any debt, typically means that you are broke and are making no progress toward accumulating any wealth (because you’re putting all of your money toward items you can’t afford in the first place and nothing toward securing a financial future). If your philosophy leans toward being comfortable with debt this usually just means you are comfortable being broke. Financial pundits need to begin teaching the truth about debt, especially to our younger generation–that it’s possible to live a good life, own a home, become educated and drive a car without it. There are plenty of ways to become well educated without student loans. Did you know that the majority of student loan debt is not even applied to tuition? Students use the majority of student loan monies to maintain a working class lifestyle (i.e. keep up with the Jones’) while they are going to school. As for cars, an asset that depreciates the moment driven off the lot, there is no logic in throwing money away like this. There are plenty of reliable used cars that can be purchased relatively inexpensively. We live in a culture of instant gratification and the value of saving up and paying cash for reliable transportation has been lost. Our culture has become a slave to leases and loans. I won’t get into the logic of owning your home outright because the vast majority of the population cannot even conceive this.

    Imagine what your life would look like in 30 years if you socked away an extra $500 a month instead of paying for a depreciating car or a high-priced education. At %12 growth per year in 30 years you would have 1,621,755.64. Let’s start teaching the masses the value of compound interest, good budgeting and saving and stop perpetuating a “debt is good” philosophy.