Jason

I agree with this post – it’s a matter of what’s most important to you and how you allocate your effort and time in the short time we spend on this rock.

However, I think the comment sums it up nicely in the end… there’s a balance – buying everything in sight is dumb, but so is living in a cave and never spending a penny.

Some people get off on seeing a huge balance in the bank (or no balance on a debt ledger) whereas others are willing to accept the added cost of carrying debt in order to enjoy life the way they want to. Very personal choice, but what’s important is that people are educated enough to make the choice in an informed way.

Here here for balance! Great site, Ramit… keep it up!

Laura

That’s true and a well-thought-out answer, but you have to be careful when adopting an attitude like that about money or you may end up regretting it later.

I have a close friend who basically decides what experiences she wants out of life, and goes and buys them without regard for her salary or future earning power. She’s a part-time executive assistant (secretarial work) and a part-time waitress. She has bought a condo downtown that she lives in which is just barely within her means to afford, and she financed the downpayment with a loan because she had no money saved but wanted to own real estate. She owns a car that she loves. She doesn’t ever drive it because she lives downtown and doesn’t need a car, so she has it uninsured sitting in a parking spot that she pays a ridiculous annual fee for, and the car isn’t paid off yet. But she refuses to sell it because the car makes her happy. She also decided this year that she needed to travel for a year to “find herself” and she would regret it if she never took the time off to do this, so she is currently living the high life around Asia and Europe, financed entirely by a loan, and she is not bringing in any income for the entire of 2007.

I know she thinks it’s worth it now, but I hope she still thinks so when she’s 40 (she’s 28 now.) I’m very afraid for her that she’ll end up bankrupt with the debt she has taken on to finance her must-have experiences of a lifetime.

Araceli Romo

I agree that everybody thinks diferrently inregards to debt. I personally can’t wait to finish paying off my car loan. I pay as much as I can every month and limit myself from buying other things and at the same time I save a little in my savings account. I figure that if I keep it up and when my loan balance is low enough, I’ll transfer all of my savings to pay it off. That is my idea of balance.

Starving Artist

Amen! I’m personall buckling down for a year to get rid of my debt, but ONLY so I can live a better, more travel-filled life. I wanted to move about a year ago, and I realized I didn’t have the money to do it! If I get rid of all my bad debt, it’s about the same as giving myself a 20% pay raise, and I intent to do something fun with (some) of that money! Money is a means to an end.

Moneymonk

I believe in expanding your means, than living below it. My only debt is my student loans and I am currently paying it off. But I do not want to give up my lifestyle by rushing to pay it off so I take my time and find additional income to pay off the debt and also still have a life. You don’t have to live like a caveman all the time to get rid of debt .

Mike

Most of the comments I’ve read regarding this post (and the original post that this one references) discuss the personal results of financial decisions. But I’m also a firm believer in the social effects of spending versus saving. People in debt affect others around them. Bankruptcy not only affects a person’s credit, but it affects that person’s lenders, who suddenly have to bear the debt burden of the bankrupt consumer. And that cost is ultimately passed on to other consumers, through higher interest rates and penalties. Social programs that are set up to help low income people are also strained when more and more debtors apply for assistance, which ultimately affects the millions of tax payers who are taxed to pay for those social programs. I could go on and on but I will digress.

“A Million Paths” is right – debt is the new fat. Obese people who have health issues as a result of their obesity increase the cost of everyone’s health care. And it’s an easy problem to fix with a well implemented plan and the desire to meet one’s goal. Financial well being is just as easy to obtain… all you need is a well implemented plan and the desire to meet your goal.

Debt is a tool

I agree that careless consumer debt is very dangerous and often not used properly. On the other hand, debt itself can be used wisely as a tool. Student loans let you increase your earning power, if you pick a degree that will pay itself back and you pick an institution that doesn’t cost the same as a small mortgage for 4 years.

For example, I received a degree in engineering and payed for it myself. I didn’t have the cash after high school so I used student loans. I now have the bulk of my student loan debt locked in at a ridiculously low 2.5% (going down to 1.5% in 6 months).

Just remember that debt is a tool that when used wisely can advance one’s standing in life, but it is a trade off that you have to make.

LB

Yes, I know exactly how much my diplomas have cost and will cost. I probably know more than those who had parents that paid the tuition bills. I have tons of student loan debt from college and law school, and yes it is hard. But, my life would be much worse if I had never gone to college and law school. I’ve met people from around the world and I have a career – and in the end I did it myself.

I grew up in a lower middle class household in a rural county in Texas. My parents couldn’t afford to send me to college and white girls with two parents who work don’t qualify for the free money to go college. So, I took out student loans to pay for college and then law school. Yes, I could have stayed in my home town and gone to community college and then took a job at walmart like most of the people that I went to high school with. I wanted more for my life and I’ll be paying for it for a long time, but I’m okay with that. La-dida-da

J.R.

Two comments:

The first is his interesting statement that “It’s just one more thing to be ashamed about and carry guilt about., and for other people to be pious about and to lord over other people about.” Look at most of the comments here. Some are seemingly bragging from one perspective, but looked at from another perspective they may just be -overjoyed- to be out from underneath the burden of debt. But it is a very interesting perspective from someone looking at the issue of debt. That sentence has a lot of implications in it for both sides of the coin.

The second comment is more about recognizing what debt actually is. Debt is a form of leverage. As we all know from physics, a lever can be used to effect the amount of force required to move an object. We normally think of it as something where we can use a small amount of force to move something heavy.

I.E. If you had $20 to invest, and earned 10% you’d make $20. If you borrowed another $10,000 on top of that $20, and earned 10% interest, you’d make $1,002 with the same amount of initial money. What’s the difference between those two scenarios? Risk.

We tend to look at debt as a “bad” thing. It can be bad. Some will swear it off as always being dangerous. “it can be dangerous”. But more importantly it IS a tool. And it goes hand in hand with Risk as well as return. Debt can not be accurately evaluated without also weighing those other two items (risk and return).

Make no mistake, a care free approach to debt IS dangerous and is how most of our society regards debt. The right way to evaluate it is through the lens of reasonable and responsible understand of debt and risk (and return).

detlvr

LB, I also knew how much my tuition was costing me. For instance, I knew that if I used student loans to pay for my $225/mo boarding room for 3 years, and I spread out the payments over 30 years like they recommend then I would be paying nearly twice that much even at a reasonable interest rate of 4.9%. And I didn’t even need to borrow money to go to calculus class to figure that out!

And to counteract your sob story I should point out that I also grew up lower-middle class and did not qualify for any free money due to whiteness and parental employment. So when I ran out of my own money I dropped out, got a job, played in a band, traveled the world, “met people from around the world” (do you honestly think that the only way you can meet people is to get a law degree?), joined the work force, and now I travel the world on the company dime and pull in more cash than I ever thought I would. All without owing money for a diploma.

Your quality of life is not directly proportional to the amount you pay Sallie Mae each month. Heck, I know several people with 5-figure student loan debt and they work at the proverbial coffee shop.

You just got suckered into thinking that student loan debt is “good debt”. Let me guess: you also went to an out-of-state school for “the experience”. Awesome. You’ll make a great consumer. Remind me to buy stock in Walmart.

If you want to go to Europe, fine. Go to Europe. Nobody is stopping you. Just don’t lie to yourself trying to make yourself feel better about putting into deferment the debt with which you bought your diploma which you’ve deluded yourself into thinking is somehow required for a higher quality of life. La-dida-da, indeed.

Ron

Forgive the assumption but this article appears to have been written by a twenty-something.

I am sure you truly feel your response to your debt and the issue of debt in general is right. And maybe for today it is. But what about tomorrow? You will be shocked when you turn around a few times and you are 40 years old (or older, in my case) with kids, a pending retirement, parents who may need financial help, etc. Life is going to happen to you whether you want it to or not and you have to be prepared for it. Your comments indicate to me that you feel it is important to live for today because life is short and you don’t want to miss anything. In reality, that is a perspective that leaves you unprepared for the unknown which will be happening to you everyday starting tomorrow.

Debt for certain things in life today is reasonable. But I think you became a little overwhelmed with your debt and decided to change the way you feel about it instead of eliminating it. I hope for your sake you will rein that in somewhat and realize that failing to do nothing (or just the minimum) is not the best choice for your future. Remember, virtually every financial decision you make in your 20’s will affect you in your 30’s, 40’s and beyond. And doing nothing is a decision requiring action (avoidance).

Ron

Ave

Sure, you think student loan debt is great. If you go to a state school and graduate with a little debt it’s not so bad, but those going to private schools now can often have over $180K of debt. That’s not so daunting if you make a BIGLAW salary of $160K – but the odds of getting those jobs are pretty slim. If you do, you racket up a lifestyle to hang out with your other law firm buddies who say that you have cheap debt, why would you ever pay it off. Heck, buy a condo, a car, and get married so you can enjoy indentured servitude to your firm. And, if you don’t get that job, well there’s lots of $50K starting law jobs. Good luck paying off your $180K on that salary.

A Million Paths

I’m the one that left the original post (whoa and was I shocked to find out that I’m up here).

For the record, yes I’m a twenty-something: I’m 27. I don’t think that, really this is about me, so I’m going to be short on details, but basically all I’m going to say is that I my debt is all student loans, I live strictly within my means, and I don’t own a car or any large consumer goods, I brown bag it almost everyday, and that my trip to France though it I didn’t kill any more of my debt, I also didn’t wrack up any new debt (the beauty of working abroad).

The point of my original post, was to reframe the debate. I am by no means championing debt, I think debt is a trap, but I think that being obsessed with money, or with not being indebted is another trap. I’m a big, big, big fan of the simple living movement – of figuring out the things you really want in life and actively pursuing those things. Those things generally don’t involve a big house, a big boat, etc. In fact those things are usually what you pursue when you work a lot at a job that makes you unhappy, or are otherwise unhappy in your life – studies have shown that it matters less how much money a person makes, and more how much a person makes in relationship to his peers (you can be very happy earning very little as long as the guy next door earns even less and as long as you’re all above the poverty line). For me happiness involves helping others, being able to meet my needs, traveling, and having control over my time.

I’m not saying (as has been implied) that it’s important to live for today and to worry about tomorrow, when tomorrow comes, simply that it’s important to live for today with the realization that tomorrow may not come, but also that it might.

I likened debt to being fat, not because I believe that being fat has no health repercussions, but because people use weight to be bigoted: to deny people jobs, to judge people, to make themselves feel better, etc. And increasingly people are doing the same thing with debt, and just like some of the most vicious critics of obesity can come from people who used to be overweight, it seems as though some of the most vicious voices are from those who used to be in debt. And both are treating the problem at hand (i.e. obesity, debt) as a moral issue instead of as a health/financial issue.

People kill themselves over having too much consumer debt (I’ve heard of several college students who have done this, in fact) because of the morality and horribleness we’ve attached to debt. I am *not* saying debt can’t be a problem, but people should never, ever, ever, kill themselves over money, and the attitude that I’ve found in some of the responses on some of these posts are so horrible (how can they be so stupid etc) it just makes me, quite honestly, want to cry. And lost in all of this judgment it seems is the point of money: to live. I was not saying that people could, or should finance themselves to the hilt so that they can buy flashy cars, or big homes, or to paraphrase a quote “buy things we don’t need to impress people we don’t like”, I was simply saying that lost in all this criticism of consumer debt, is just the point of what money is for.

I said that “your life dictates your finances.” If you want to vacation at five star hotels, and live in a manhattan penthouse, you’re going to either have to have a lot of money or a lot of debt. If you want to live more simply you can have a lot more expenses and a lot less (even gasp) no debt. Everyone ignored that.

Debting Thomas, I own Frontline’s the secret history of the credit card. I use it when teaching financial literacy to inner city high school students

Lastly, hypatia, I’ve read several of the books that you’ve mentioned, and several that you haven’t. I’ve also seen the Dave Barry show. I politely disagree. The book that changed, my life, was Your Money or Your Life by Vikki Robin and Joe Dominguez.

P.S. I’m a girl

Abhishek

Debt is a way of living, not dying though.. Debt would let you buy something for tomorrow at today’s price.. Obviously, you pay interest, but there’s inflation too.

Debt is a way of organizing your finances for future or present needs.. Debt can work wonders, if you calculate your future cash flows appropriately.. Personally, I would not go for debt if I am not certain about my future cash flows. And given an option would surely love to fulfill my needs with my present balances. But if at all I go for it, it would be a tradeoff between “Wants” and “Compromises”..

Read “Rich Dad, Poor Dad”.. It’s a must read, if anyone hasn’t..

unclebond555@yahoo.com

About 2.5 years ago, I was owing 200k i.e two hundred thousand dollars in credit card debt … I almost went crazy . Minimum payments were almost 5k a month . I was making 5k a month so all my money was going to pay credit cards . My wife was working so that helped . I soon realized I would never get put of debt so I decided to declare bankruptcy but after doing a lot of research I found out that a lot of people that declare bankruptcy wind up in debt again . I decided to tackle the problem head . After thiinking I decided that I would take a 125% mortgage i.e borrow more money that my house was worth . I was able to get 125k @ 13% the payment was $1400 a month . I have since refinanced that loan to 6.6% and my house is now worth more than I owe ..
I still owe about 45k but that is not killing me . You wont get out of debt by working 2 jobs and making payments . You have to invest the money in an asset that will grow faster than the debt . I would advise people to look for a house with equity and buy it because it will swallow you debt .
My friend was owing about 80k and he decided to pay down his debt before buying a house . He is still paying down his debt buut he has been priced out of the kind of house he wants . I think that he should have bought a house that would have swallowed his debt ..
Dont kill yourself just buy a house that already has equity or look for one that you can fix up and increase the equity , Then refi and pay off all your debt then sell the house if you want ..I DID IT .