Comments on: No Such Thing As Good Debt?

By: Make Friends, Earn Money

Make Friends, Earn Money — Sun, 02 Mar 2008 19:34:45 +0000

The problem is that everything in the western world is financed by debt, whether it be our own or somebody else’s. Personally I take the view that debt in itself isn’t a bad thing, it’s how the person taking on the debt responds. For example someone taking a debt which they know they will never be able to pay back or which they know which stretch them financially, is just being irresponsible and making it all the more expensive for those who manage debt better. If we say that all debt is bad then by default we have to say that the right to own our own home is wrong, the right to work is wrong and the right to have a pension when we retire is wrong. Let’s face it all of these things are based on debt, where it be ours or another organizations. Debt is just another feature of the world we live in (and always has been) but it’s the individual’s attitude to debt that causes the problem.

By: Pinyo

Pinyo — Fri, 31 Aug 2007 19:30:01 +0000

Eric, you made good points. I totally agree.

By: Eric

Eric — Fri, 31 Aug 2007 18:53:00 +0000

I think I have to agree with you here Pinyo. Some debt, like a mortgage, is acceptable debt. Not good necessarily, and not necessarily bad, but depending on your financial situation, it can be a tolerable thing. Where I live, it’s roughly the same cost to rent as it is to own. If I were to rent, I’d be paying someone else’s mortgage, and building them equity. To me, that doesn’t make sense. You also have to consider that you can write off the home interest and tax payments on the house on your federal income tax. The key is not to get in over your head and get an exotic loan to keep your initial payments low.

By: Pinyo

Pinyo — Mon, 27 Aug 2007 01:30:01 +0000

glblguy – in an absolute sense, yes — good debt MAY give you leverage. There is inherent risk in everything, so good investment may give you positive return, good job may give you stable income, etc.

The reason I consider mortgage as a good debt is because the majority of us will NEVER EVER be able to own a house if mortgage does not exists. Do we have to pay for it? Yes, but at least it gives us a way to eventually own a house.

By: Sunday Morning Link Love | I've Paid For This Twice Already...

Sunday Morning Link Love | I've Paid For This Twice Already... — Sun, 26 Aug 2007 13:31:05 +0000

[...] Glblguy at Gather Little By Little posts his feelings on debt in Good Debt There is no Such Thing and then Pinyo at Moolanomy weighs in with his reaction in No such thing as Good Debt? [...]

By: glblguy

glblguy — Fri, 24 Aug 2007 19:22:09 +0000

Pinyo, shouldn’t it be debt MAY give you leverage? The thing about borrowing money for investments is, you are guaranteed to have to pay the 5%, but you aren’t generally guaranteed the return percentage.

I guess maybe I am just blind, but I can’t see how owing anybody money could be considered a good thing…

By: glblguy

glblguy — Fri, 24 Aug 2007 19:18:44 +0000

Matt Said:
Let’s say you get a loan at 5% but you invest that money which returns you 7%. You are EARNING 2% on your debt.

Of course it’s challenging to find situations like this (and there is some risk involved) but they are out there. Businesses do this all the time.

Risk, exactly. I think a better way to word this is, take a loan out at 5% and invest which SHOULD return you 7%. Oh, and hope that nothing happens to you that would keep you from being able to payback that money.

Too risky…I wonder what the % is of people that do this and succeed vs the one’s that don’t?

By: Pinyo

Pinyo — Thu, 23 Aug 2007 20:32:31 +0000

Matt, thank you for that explanation. I wrote in my other post, “good debt gives you leverage.” I think it’s the same thing you are saying.

By: Matt

Matt — Thu, 23 Aug 2007 20:23:44 +0000

Good debt is any debt that will pay off your loan and earn you extra money.

Let’s say you get a loan at 5% but you invest that money which returns you 7%. You are EARNING 2% on your debt.

Of course it’s challenging to find situations like this (and there is some risk involved) but they are out there. Businesses do this all the time.

By: plonkee

plonkee — Thu, 23 Aug 2007 19:28:29 +0000

In the UK the standard mortgage length is 25 years and no one gets a long term fixed rate. In fact, a long term fix is anything over 5 years. I’ve heard that its similar in Canada. Different markets call for different tactics.