What is debt?

I think it comes down to being in financial bondage and having unnecessary debt. Revolving credit is rarely a good idea.

If I buy a home, I certainly owe the mortgage company. But am I living outside my means? Well, some people do, but we should not. In my case, a $500 a month mortgage payment is certainly less than my $850 a month rent payment. With all the additionals (insurance, utilities, taxes on the house; parking and utilities at the apartment), it's still a lower financal commitment each month. I'm not in bondage. That, and by the time I could have saved enough money to buy the house I'm looking at now, it will not be enough to buy even a parking space. If I put away $300 a month toward paying cash for that $100K house, it would take me nearly 28 years (334 months) to come up with that $100K. At which time that $100K would maybe be a down payment on that same house. And I would have wasted over $300K in rent (and that's at today's price)! So in the time it took me to raise that $100K, I have spent what I would have paid for the house, and still own nothing. Renting is a form of revolving debt. It's most often wasteful.

Buying a new car? Usually a bad idea. A car is a liability anyway, and when you're done paying for it, you have something that is worth far, far less than you paid for it.

Other than the big ticket items like a house or a (preferably used - which doesn't mean old, mind) car, anything you can't pay off in a year is no good. Appliances, furniture, electronics -- all of it. And many of those are the things that are worth it to pay cash for.

My understanding is that it's sinful to borrow what you cannot repay, or to borrow for things you do not need. Credit cards? Unless you're paying it off each month, it's bad debt. Why? Because it usually means you're living outside your means. But that doesn't mean credit cards can't be used responsibly! In fact, having a credit card and charging only what you can pay off in a month can be a good way to build better credit (which will make you eligible for lower interest rates on those big ticket items you finance). Some people say that you shouldn't charge things like groceries. But I've seen people charge things like that and pay off the bill at the end of the month. They've helped their credit rating without really owing anything. I think the idea behind "don't change groceries" is that you shouldn't live off your credit cards, which is certainly true (living beyond your means).

We should never be in a financially crippling situation. We should not be in financial bondage, which does not mean not borrowing. If you lost your job tomorrow, you should have your financial house in enough order to not suffer (not to be confused with not having to scrimp a little or a lot) for 3 to 6 months. That said, you shouldn't really save money if you've still got outstanding high-interest debt. You'd be wasting money that way. But having a reserve can really save us from going into bad debt. Better to have a few hundred you can spend on car repairs (and upkeep) than to have to finance a new one if yours peters out and you have no cash. Usually it's smaller things than that, like the small appliances we have - it doesn't seem like too big a deal to finance a new fridge if ours dies, but if we had enough cash to get it fixed, we could avoid more debt, particularly if you set aside a bit each moneth for when you really do need a new fridge.

This is a biggie for me. My father was in serious debt (mostly because he maxed out more than a few credit cards to gamble with the cash advances), and I had some credit card debt of my own. I now have no credit cards, pay cash for everything, and have a small (but growing nest egg). I do have some education debt, and I'm paying off at twice the allowed rate (5 years instead of 10, fewer if I can swing it). I own my car outright. I'm in good financial shape (other than still renting, but that should change within a year).

It's tricky. Really. We should strive to be debt-free.

http://www.learnthebible.org/debt_free.htm
http://www.learnthebible.org/Owe%20No%20Man.htm
http://www.intouch.org/myintouch/exploring/studies/FSSG_92339.html
http://www.maninthemirror.org/alm/alm16.htm
http://www.crown.org/library/viewarticle.asp?id=29
http://www.crown.org/library/viewarticle.asp?aid=SCTXT&id=7

[ October 29, 2002, 12:58 AM: Message edited by: stubbornkelly ]

 

Debt is, in simplest terms, what you owe.

We live in a debt-driven economy. It is VERY hard not to be in debt. Think of it as a game with getting rid of all your debts (car and house included) as the goal, and work towards it.

We cannot help the economy we live in, but we can sure help how we deal with it. If you MUST go into debt for a house or car or whatever, know EXACTLY how you are going to get out of it! And, if I can add some personal advice here, only go in debt for those items you literally cannot be without. And you would be surprised at how much you can be without!