Good Debt, Bad Debt – Episode 12

While discussing the Greek financial crisis on FaceBook with some friends, I got to thinking about debt and how it can be used and abused. If you read Dave Ramsey, he dislikes almost all debt. But there is good debt and there is bad debt. Sometimes you can’t avoid debt. For example it’s really difficult to buy a house without taking on a mortgage. Student load debt can be good if it helps you get a degree in a field where you get a higher paying job. And there are some opportunity costs associated with not buying something. There is where using debt wisely can pay off. Starting a new business can be very rewarding, and most startups use loans to get going. Debt can be bad also, especially when the items purchased are unnecessary and depreciating. Here are some notes:

retirement age too early
pensions too much money
other entitlements
lack of industry
no planning or foresight
resistance of people to give up some entitlements
governments that are incompetent, corrupt, or are afraid to do the right thing vs. the popular thing

Good debt:
school loan
buy books on credit
take a course, get a certification
anything that leads to increasing your earning potential, or enhancing your abilities
decent clothes (not too fancy and not cheap crap)
Computer if you plan to use for learning
audio book subscription
tablet computer if you plan to read e-books and do other learning
the occasional experiment – try something new like piano, if you have good evidence it can pan out
improv comedy class
dance class, any class that makes you more intereting

Bad Debt:
new car
a cruise
luxury items
expensive consumer items like big screen TV, stereo, jewelry