Personal Debt Is Not a Tool

Perhaps the single biggest reason that people get themselves into a deep debt hole is that they buy into the idea that personal debt is a tool that allows them to get things they want now rather than having to wait.

Want a house now? Get a mortgage.

Want a car now? Get a car loan.

Want to go back to school now? Get a student loan.

Want that pair of AirPods now? Whip out the credit card.

Want a bedroom set now? Sign up for the payment plan.

In every single one of those situations, a person is getting something they want – not need, want – right now without having to pay for it right now. Instead, the person that has to pay for it is their future self, and that future self is going to have to pay more than the sticker price.

Want a $200,000 house now? Sign up for a 30 year $200,000 mortgage at 4% and you’re putting your future self on the hook for $343,739.

Want a $25,000 car now? Sign up for a 60 month $25,000 car loan at 3.25% and you’re putting your future self on the hook for $27,120.

Want to go back to school for 4 years at $10,000 a year? Sign up for a 10 year $40,000 student loan at 5% and you’re putting your future self on the hook for $50,911.

You’re getting the picture. Get something now, pay more later.

Here’s the catch: it’s almost never something you need right now. Sure, you might be able to make a case for needing a student loan right now and possibly argue for a mortgage, but there’s almost no other debt that constitutes a need (I’m not really convinced those two are needs, either, but at least there’s a debate there).

Rather, those things are all things you want. You want that shiny car. You want that new bedroom set. You want those AirPods. You want that house rather than the apartment.

So, let’s change that picture a little. Let’s not look at debt as a tool to get what you want.

Rather, look at debt as a mousetrap with the thing you want being the delicious cheese baiting the trap. In terms of your finances, that’s a much stronger and more accurate metaphor.

You’re a mouse, and you want that cheese. It’s just sitting there right out in the open. All you have to do is go grab it… but then the trap comes down on you.

You’re a person, and you want that car/AirPods/bedroom set/house. It’s just sitting there right out in the open. All you have to do is go grab it… but then the trap comes down on you.

In both cases, all that’s really needed is a bit of patience.

The mouse can just wait until everyone goes to sleep and then raid the kitchen, free of traps.

You can start putting money aside for the thing that you want and when you’ve saved enough you can just go buy it out of pocket.

Yet, in both cases, when impatience wins out, the pain begins.

Don’t look at that credit card as a tool. Rather, it’s a trap, disguised as a tool. The same goes for that car loan and that payment plan and, often, that mortgage.

What do smart mice do when confronted with a mousetrap? They avoid the trap entirely, or else they figure out some way to get the cheese off of the trap without getting caught.

You should apply the same two tricks in your life.

Avoid the Trap Entirely

This is a better strategy for bigger items, things you might “buy” with a big collateralized loan like a car or a house.

Rather than buying the big item right now, you wait for a while and make monthly “payments” to a savings account or investment account instead.

For example, let’s say you want to buy a late model used car and plan to borrow $15,000 to do so. You have good credit, so you can get a 60 month loan for 3.25%, or $271 a month.

Here’s the thing: rather than spending $271 a month for 60 months on that loan, you can simply put $250 a month into a savings account for 60 months and buy the car with cash. That saves you $21 a month. Alternately, you could put $271 a month into savings and be there in 55 months, eliminating the last five “payments.”

When a mouse avoids the trap entirely and just patiently waits for the nighttime, the mouse almost always winds up with many more food options and a lot more flexibility when it comes time to get food out of the night kitchen.

When you avoid the trap entirely and just save up the money yourself, you almost always wind up with more money in your pocket and a lot more flexibility when it comes time to actually make the purchase.

Get the Cheese Without the Trap

This approach works better for smaller purchases, like the AirPods or perhaps the new bedroom set mentioned earlier.

Here, rather than just using debt to buy what you want, you simply make a few lifestyle choices to come up with the money. You eat very frugally at home all month and suddenly you can afford the AirPods. You sell a bunch of unused and unwanted stuff from your closet and suddenly you can afford the bedroom set.

In other words, if there’s something smaller that you want, it’s likely that the cash you need to buy it is already available in your life and you can free it up by just making some better lifestyle choices.

On the other hand, you could throw those $160 AirPods on a 29.9% APR credit card and pay $5 a month to pay it off… but you’ll be paying for 65 months and you’ll end up paying more in interest alone than the cost of the AirPods (yup, $324 total).

When the mouse finds a way to knock the cheese off the trap without getting caught in the trap, the mouse gets the desired feast right now without being entangled in the grip of the trap.

When you find a way to come up with the money to buy what you want without getting entangled in credit card debt, you wind up (again) with more money in your pocket over the long term and with the item in hand quite quickly.

Final Thoughts

Because credit is so available and loans are usually just a form or two away, debt seems like such a convenient option when we want something. Often, we swipe that card so quickly that we barely even think about it, or we fill out those forms while listening to a salesperson nudge us onward.

Financial success is about avoiding the trap of chasing those temptations.

If you can apply just a little patience and some willingness to save, almost any big expense you want in life will eventually be yours without signing your future over to a bank.

If you can simply cut a few expenses in the next few weeks, almost any smaller expense you want in life will be yours without increasing the balance of a credit card.

Debt sits out there like a well-baited mouse trap, waiting for the foolish mouse to walk onto it and take the bait… and then they’re caught.

Don’t be the mouse. Debt is not a tool that will help you get what you want right now. Debt is a trap that will entangle you and empty your wallet.

Good luck.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.