Debt is a product that is bought and sold, NOT a tool to build wealth. I know some of you, especially those who have been classically trained in finance or similar fields, think I'm nuts by suggesting this. I'm sure your professors taught you that debt is like a double-edged sword, wielding power as a tool, or cutting you if used incorrectly. Or it's described as a lever to use in order to do things that we could otherwise not do, like buy a car, house, or go to school. I've heard it broken down by category: good versus bad debt. While all of these explanations and metaphors are nice they still don't change the fact that debt in any form represents risk. 100% of the homes foreclosed on have a mortgage (or two or three) on them. 100% of the cars repossessed have a car payment. The vast majoriy of the wages garnisheed are because of delinquent debts of some form or another. In case you're wondering, no I'm not trying to be a wise guy or make fun in any way, but let me remind you that debt never sleeps, it never goes on vacation, it never goes away until it is paid.
Debt has been very well marketed, popularized and accepted over the last half century. This is particularly true over the last thirty years. At first debt was a way to buy a house or possibly a car that we couldn't pay for all at once. Then came the student loan and the credit card industry. Now days you can't turn around without being hit with 'buy now, pay later' ads for everything. So let's talk about the different packaging debt is sold in. You'll notice that I didn't include 'good' in my description of debt. This is because of the reasons I stated above. I'm sure you all agree that some forms of debt are just flat out ugly. This includes payday loans and of course IRS tax debt. The interest rates of payday loans are notoriously high and breed a horrible dependent cycle that is very difficult to break. If you think that is ugly, try owing the government money. IRS debt is probably the worst kind of debt to be in. This is simply because without notice your checking account can be raided if you don't pay. While the government will work out payment plans if you go to them, they are unforgiving if they have to find you. This is the only kind of debt that you can literally be thrown in jail for not paying. If you are self-employed or a contract worker don't fool around with this and pay your taxes.
If that was 'the ugly', what do I consider 'the bad'? This would include all other consumer debt, credit cards, car loans, student loans. Again most of you would agree that credit card debt is bad. Some of you may be wondering why I lumped the ever popular car loans and student loans into the bad. Well, because of the mind set that is associated with them, that they are necessities of life. "You can't have a car without a payment." And "you can't go to college without student loans" are the mantras of the middle class. These two things hold you back from achieving real wealth on an average income. The average car payment in America is almost $500 per month. Simply by deciding to keep and invest that money, instead of paying it to the finance company over your working lifetime, you will amass some serious coin. Watch this for a more thorough explanation. It will totally blow your mind! Now as for student loans, I consider them bad for a few reasons. Like IRS debt they are not bankruptable. They are with you until either you pay them off or die. The other hidden dangers are that they are very easy for young college students to get and the delay in repayment while you're in school acts like a bubble that bursts with a vengeance six months after you graduate. I'm not going to go into all the details because that is a whole other topic by itself.
Last but not least, and the one area I will probably get the most flack for, the 'not so good' debt. This is of course the home mortgage. I know some of you are baching at the idea that mortgage debt is not good, after all the interest is tax deductible. While the idea doesn't make it entirely bad or ugly, doesn't make it good either. It is debt after all, and to be totally debt free is exactly that- FREEING. Again this is a big topic that I will cover in more detail another time. For now, I want you to stop and think for a moment. What would your life be like if you didn't have a mortgage payment? What would you use that money on? Dream a little bit. It's hard to imagine, but think of all the money you spend, give and save.
This process of getting out of debt isn't something that happens overnight. It takes hard work and dedication to achieve these things. I can tell you that having tasted the freedom of having nothing but a mortgage payment, it is worth the time and energy. I now look forward to the future to being completely free of the mortgage too. No matter where you are in life, you too can break the shackles of debt. I'm here to walk with you on your journey, one step at a time.
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