Debt can be bad, even when used with good intentions.
I graduated in 2009 with absolutely no job prospects in my field (English). In fact, I felt like I had no job prospects period. While it didn’t take me long to find something to do – for the summer I worked at a restaurant and in retail – I stumbled on my first full-time career almost a full year after graduation.
A lot of my full-time paycheck went to paying the minimum payments on my student loans, which totaled around $40,000 at the time. I didn’t pay for housing, since I lived at home, but still squandered much of my paycheck on other things, like eating out (even though mom would cook great dinners!), or buying clothes I didn’t really need. But hey, I was paying cash for these things and not racking up debt, so it was all good, right?
I was living with the myth that student loan debt is good debt. After all, since I had managed to avoid bad credit card debt, I was doing pretty good!
There is a problem with attributing good and bad qualities to certain types of debt.
In my case, it led to contentment with my situation, making me feel as though I was somehow just fine with owing more than my yearly salary for an education I was not using. I was sure that I was fine, because if my debt was “good debt,” then I was good.
Debt can be bad, even it purchases good.
I don’t regret my decision to pursue the major I did in college because it brought me to where I am now: in a career I really, really enjoy. Taking on this debt was also a learning experience, and although I regret both not working to pay it off sooner, and looking for ways to take on less debt, my student loan debt purchased a good thing.
My student loan debt is bad, though:
- They cost me a lot of money every month, even during months I only make minimum payments.
- The interest rates on some of these loans ensure that I will be paying almost double the original loan value if I only pay the minimum payment, thus essentially having me waste all the money that could go toward my husband’s dream Nissan Z.
- These loans aren’t going anywhere anytime soon; with earliest estimated payoffs in 2022, becoming content with these loans means I’m a prisoner for years.
This “good” debt suddenly doesn’t seem so good. While it bought me a good thing – the education I needed for my dream job – the debt itself is downright horrible.
Credit card debt can be good.
Credit card debt has a bad reputation, probably due to the normally high interest rates, and because credit cards seem to attract purchases we later regret. But occasionally credit card debt can be great, as long as it is used well.
As I have mentioned before my house is a fixer-upper, so I often try to make extra money to complete projects we need to take on. However, sometimes there is just a fantastic deal at the home improvement store that we can’t pass up.
My husband and I were able to purchase new appliances in one swoop using a 0% interest credit offer, making the decision to buy a new washer, dryer, refrigerator and stove a bit easier. Since we had the money to pay off the loan before the end of the grace period the credit didn’t cost us anything. The debt was good because it was free, we could afford to pay it, and it kept an otherwise dormant credit card active.
The purchase was also good because the new appliances saved us money:
- The washer we replaced had been leaking repeatedly, costing us more in repairs than it was worth.
- Our old dryer took over an hour and a half to try our clothes; our new dryer takes 45 minutes.
- By purchasing a larger washer and dryer than we originally had, we can do fewer loads of laundry each week.
- The new washer is also water-saving, thus lowering our water bill.
What about a mortgage?
Buying a home is generally seen as a good purchase. There are many reasons for this, such as it being an investment in the future, a chance to turn a profit, and every payment is going toward making the house your own, whereas with renting you are paying for something you will never own. Mortgages can also have very low rates, especially now, so the debt doesn’t seem as urgent when compared to other debt with higher interest rates.
Mortgages are also usually gigantic in comparison to other debts. My mortgage is much higher than my student loan debt, and although the interest rate is low, the mortgage promises to eat up a large chunk of our monthly pay for 30 years. While it’s possible to shorten a mortgage by taking on a higher payment for 10, 15 or 20 years, or by making an extra payment each year, mortgages generally take a long time to pay off and are not high on many people’s to-pay-off list.
All debt has the potential to be bad.
I believe that anything keeping you from living the life you want is bad. Attributing good and bad qualities to our debt is something that needs to stop. Instead, we need to reassess our lives and ask:
- Is this debt preventing me from getting what I want out of life?
- Does this debt, however “good” it may seem, force me to work more when I don’t want to?
- Can you be grateful for what you do have, or does your debt make you feel dissatisfied with life?
Have you fallen into the misconception that some debt is good and some is bad? Do you believe that debt has the potential to be good?