Comments on: Personal Finance 101: Is Debt Bad?

By: KC

KC — Tue, 11 Sep 2007 20:15:39 +0000

This doesn’t discuss student debt, which is nearly universal for college students. It is however, an investment in terms of jobs and earning potential, and certainly “good” debt.

By: Jim Lippard

Jim Lippard — Thu, 12 Apr 2007 23:43:37 +0000

To update my March 12, 2007 comment: In 2005, millionaire households (those with a net worth of $1 million or more excluding principal residence, of which there were 8.9 million such U.S. households) had average net worth of $2.2 million, of which $1.4 million was in liquid investments, and average debt of $165,000. See this reference.

By: hustler

hustler — Tue, 13 Mar 2007 09:41:48 +0000

I love debt…especially those 0% apr on balance transfer. I make thousands of dollars each year. For those 0% on purchases…i keep buying and only pay the minimum until the promo period is over. Love those debts.

By: plonkee

plonkee — Tue, 13 Mar 2007 09:01:41 +0000

Its definitely worth going into debt if the alternative is actual death. Although I suppose that could be considered money invested in earning more as dead people don’t get paid a lot.

By: Jim Lippard

Jim Lippard — Tue, 13 Mar 2007 05:10:53 +0000

“Debt with no interest or a very low interest rate. Any time you can get debt with an interest rate below 4%, it’s a good deal. If nothing else, you can literally take that money, put it in a high-interest savings account, and turn a profit.”

Don’t forget about taxes when making the savings account suggestion.

Inflation, on the other hand, will cut equally against the dollars saved and the debt itself–the dollars you pay back the debt with will be worth less than the dollars you took out in the original loan.

I totally disagree with the comment that “the more debt you are able to handle, the better off financially you are. Millionaires have millions in debt.”

The better off financially you are, the more debt you *can* safely and reasonably handle, but the reverse isn’t the case. And I doubt that most millionaires have millions in debt–rather, I suspect that a plurality if not a majority of net worth millionaires have net worths just over $1 million and assets just over $1 million, with very small amounts of debt. Look at the Forbes billionaire list–lots of billionaires are clustered in the $1-$2 billion range.

By: mg

mg — Mon, 12 Mar 2007 23:45:15 +0000

I don’t think debt is necessarily bad. Massive 5 figure debt (not including the mortgage!) was the only way that my wife and I could purchase our first property – we managed that debt for one year until we were able to complete renovations, revalue and resell for a $120,000USD clear profit. We used that profit to finance the deposit and costs for our next property. We applied business logic: take a debt and use it with a calculated risk to make a profit. It worked for us.

By: Jon Morrow

Jon Morrow — Mon, 12 Mar 2007 23:42:24 +0000

A few other situations when debt is good:

1) You’re trying to build credit. If you don’t have any credit, then you may have to take a high interest credit card or loan to build it. The same goes for rebuilding your credit. Just make sure you can pay it off anytime you like.

2) You are buying an asset for less than it’s worth. If you run across someone that has to sell their house, and it’s worth 30% less than you can buy it for, then sometimes it’s a good idea to take on debt. Just make sure you budget more than enough for payments.

3) The alternatives are worse. If you suddenly lose your job and don’t have any savings, then living off of your credit cards for a month or two is better than starving to death. Just make sure you have a plan for paying it off.

By: Quang

Quang — Mon, 12 Mar 2007 23:28:41 +0000

Trent, totally agree, a lot of people don’t like debt, but in actuallity the more debt you are able to handle the better off financially you are. Millionaire’s have Millions in debt. Donald Trump has Billions in debt. As long as your assets outweighs your debt, you are good-