If you’ve been reading since I started in February 2010, then sorry for repeating myself a little. I get asked pretty regularly via email about my take on debt and credit cards. Today, I’ll tackle the debt one, lol.
My View of Debt
I simply don’t think of any debt as good debt. This doesn’t mean that I treat all debt the same, but I don’t see any of it as a good thing. For example, the big debts seem to be student loans, credit cards, mortgages, personal loans, and car loans right? Generally credit cards are called “bad debt”, student loans and mortgages are referred to as “good debt”, and car loans seem to depend on the person talking.
Sorry, but I think that they all suck…credit card debt just sucks the most because it usually has higher interest rates than the others. That is how I judge debt…it all sucks, and the higher the interest rate, the more it sucks.
Tackling Our Debt
Does this mean that I flog myself daily for having two mortgages? No. But it does mean that I am actively trying to kill both of those loans. We have the rent house mortgage down to $23,000 and our new home loan is around $206,000. I hate them both. And I hate the rent house one more simply since it is at 4.5% while the other one is at 4%.
We are aiming to pay off the rent house mortgage by the end of this year, and then my own personal Eye of Sauron will turn onto our current home loan (yep, there’s some love for Lord of the Rings fans…). Realistically, we may not be able to pay off the big mortgage until sometime between 2022 and 2027, but I will probably try to find even more extra money to send that way since all loans make me feel icky. I don’t like owing anybody money and I much rather own my stuff outright than know it’s not really mine yet. That’s the control freak in me.
Won’t I Lose Better Opportunities?
This is usually the point that someone will bring up the lost opportunity cost with the money I use to pay off relatively low-interest debts.
We do invest in other stuff too. Our Roth IRA’s are invested in several different ways, we have a Scottrade account that is invested in a handful of different high dividend yield stocks, and we have rental income. Could my debt-paying money make more if we threw that into the mix as well? Maybe, but a guaranteed 4% return makes me happier than a 0-12% maybe.
Would I take out a 3% interest loan and invest the money in a guaranteed 4% interest return if I could? Yep. But I have yet to find 100% guaranteed returns higher than an interest rate of a loan I could take. In short, yes, there is always an exception, but I haven’t found it in the real world yet.
Do I sometimes see loans as a necessary evil? Yep. If you really need a car to get to and from work, and you don’t have the means to buy a car outright, then you will most likely look into a loan option. I am not judging – we’ve done it twice ourselves. But my view is that a necessary loan doesn’t make it suck any less. It doesn’t make it “good debt”.
Please take this post as it is intended – my personal view on the subject of debt. I totally am not judging anyone else’s views at all. Speaking of which, do you think there’s good debt? Did I miss a point? Feel free to share.