There Is No Good Debt and Bad Debt. Debt Is Debt.

Like nails on a blackboard, the mere mention of this notion that there is good debt and bad debt, irritates me. Debt is debt.

So I was reading this article on a law enforcement site about debt faced by police officers and it was trying to rationalize the old good debt versus bad debt argument.

The concept of good debt is a fairly simple one. Anything that will be worth more than the initial loan at the loan’s end can be considered good debt.

Now there is where I start shaking my head. That is not evidence of good debt, that’s evidence of an investment. The underlying liability is still debt.

Debt is nothing more than pledging future labor and income to repay a benefit that you receive now. A mortgage has to be repaid through hard work and donating a portion of your life energy towards earning enough to satisfy that obligation.

Let me give you an example. If you purchase a home and obtain a mortgage for $250,000 you will have to work enough hours to get paid a sufficient amount to repay that debt. If you make $50,000 a year you earn just about $24 an hour and after taxes and obligations you probably get to keep $18 an hour. At a 6.5% mortgage rate that mortgage will cost you $700,111.22 if we include some property tax and PMI.

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When you take on that mortgage you are pledging to the bank that you will work 38,895 hours over the next 30 years to repay your obligation. That represents almost 4.5 years of your life (38,895/8,760 number of hours in a year). Granted I did not factor in increases in pay or tax rates but for this illustration, it shows the point. And the point is that this obligation, that some label as a good debt, will still cost you 4.5 years of your life to pay for.

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The reason that debt becomes a burden is because we over pledge our lives in order to repay an obligation. At some point, those pledges of future labor to repay become such a large liability that you sacrifice your happiness and pursuit of pleasure in order to work to meet your obligations. You literally become a slave to the lender.

Now it might be that you are willing to sacrifice 4.5 years of your life to acquire that home, and that’s fine. But don’t justify it as good debt. Debt is debt. A pledge of future labor is a liability no matter what it is for and don’t go into debt and try to rationalize that it is a “good” debt.

Take a look at these two scenarios and tell me which one looks more attractive to you.

  1. Scenario 1 – A family takes on so many financial obligations that they must constantly work, harder and harder, to earn more money to repay their bills. They find themselves seeking new jobs that pay more or working longer hours, even though it does not bring them happiness. They must do this in order to repay debt they owe.
  2. Scenario 2 – A family shuns debt and instead finds sufficient income doing what they enjoy doing. They work less than their friends and take more vacations. They don’t need to earn as much to repay others for things they have.

I don’t know about you but I know which scenario is more attractive to me and that’s why I work from home, name my own hours and do what I want to do during the day. My days are my own, are yours?

Debt is debt. Stop trying to rationalize it.

If you would like to explore the concept of pledging life energy to repay obligations then you must read the amazing book, Your Money Or Your Life. The book is an eye opener and a life changer.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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