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We ve all done it. We ve all bitten off more debt than we can swallow:
borrowing to go to school, borrowing to buy a house, borrowing to pay for that
nice holiday to the Caribbean. As we move to a cashless society, it s even
easier these days to just pull out our credit card to pay for croissant and
coffee rather than digging around for change. In many ways, debt is all about
convenience.
But what happens if we always struggle to pay the bill at end of the month? We
turned to question-and-answer-site Quora for some advice on whether it is
really a worthy goal to be debt free. Here s what some respondents had to say
about borrowing.
What kind of debt?
That burning question is missing an important qualifier: the type of debt
incurred, said Konstantinos Boulis. Consumer debt must be avoided like the
plague. When you buy anything worth $100 and you pay it back in one year you
will pay on average about $120. This is just dumb. You not only bought
something that you probably didn't need but also paid 20% more.
Investment debt, he continued, is a whole different game and you should be
making controlled decisions on what to invest in and what not to. Getting a
mortgage in today's market with a 30-year APR [annual percentage rate] of 3.5%
is probably a very good move given the right circumstances.
If you still think that debt is evil then that's ok, you will be able to sleep
better at night, he added. It's just that the bed may not be that comfortable
and your house smaller than what you wanted.
A useful tool
In some cases, debt should be embraced as a way to create an awesome life,
according to Jeremy Karmel. For many people debt is an extremely useful tool
for achieving that goal.
Karmel cites the cost of education as one place where debt is justifiable. If
you want to be a doctor or a lawyer and you don't come from an extremely
wealthy family, good luck trying to do those things without borrowing money for
school.
Taking on a lot of debt is a HUGE commitment he continued. You should really
have a realistic plan for paying it back. That said, for many people borrowing
is extremely freeing, it lets them pursue their dreams years earlier than they
otherwise would have been able to.
Unmissed opportunity
You should buy things you need at the time you need them most, said Vivek
Nagarajan. I borrowed money to buy a motorbike, he said. I borrowed money to
go live in a faraway country to marry the person I loved. I borrowed for
various things that gave me great joy, like taking a month off and riding a
motorbike in Ladakh for 18 days. The list goes on.
All in all I have been in constant credit card debt since the past 10 years,
he continued.
But, my income has always been enough to cover my payments, and while I may
have paid a premium of 20% or so overall due to interest and fees, my income
has grown by a factor of 10 or 1000% since 2003, so the math works in favour of
buying now and not worrying later. Had I postponed my purchases until I had
saved up it would have been much too late and a huge waste of time.
Age appropriate?
Marc Bodnick made the point that the appropriateness of debt can depend on your
age. While you are young and just getting started in your career, debt is more
acceptable. But over time, once you have greater earning power, you should
avoid it. Debt is constraining. It keeps you from being able to make long-term
good choices about your life. You want to be able to take lots of risks and
fail (more than once) and debt keeps you from rolling the dice.
Running the numbers
It all depends on whether your return on the money is greater than your cost,
Gil Eyal said. Simply put, if you could borrow at a 2% rate and be guaranteed
to make 5%, you should strive to be in as much debt as possible, he said.
This actually isn't that far-fetched. If you are a great real estate investor
for example, you would always try to finance part of your deals with low cost
debt, knowing you are making money on other people s dime and spreading your
own over more deals.
A cultural view
Jett Fein offers a different perspective. It depends on how you think about
debt, he said. Different cultures have radically different views on debt. The
Tiv of West Africa have one of the most interesting perspectives on debt that
I've encountered: they view indebtedness as a good thing because it implies you
will have continuing and long lasting interpersonal relationships.
Becoming a slave
Some respondents take the higher moral ground, saying you should avoid debt at
all costs. Debt is slavery, said Brian Fey. It is better to die a free man
than to live as a slave.
Phil Bradford sums it up with a verse from the Bible: The rich rule over the
poor, and the borrower is servant to the lender.
And Amadasun Efe compares debt to climbing a mountain with a backpack full of
rocks. The bigger the debt gets, the bigger the rocks get, he wrote. Soon
enough the force pulling you down will be more than you can overcome, and then
it's all downhill from there.
Everybody else is moving up faster than you are because they don't have
anything holding them back. In a sense, they are free. You on the other hand
have become a physical and mental slave to the boulder of debt that is crushing
you. All you can think of is how to get rid of the weight on your back, because
it has become an unhealthy obsession.
Now freedom, Efe said, is another thing altogether. Suddenly [you are] in a
state of mind where everything seems possible. Obstacles are merely a
construct, not a reality; and you can think uninhibitedly. Clearly you are in a
better place. A worthy place. A place where you are truly in control.