Debt is not the only thing that means future obligations and being forced to work. I also have a hunger snowman who wants me to eat every day for the rest of my life. Also a shelter snowman. And I have a snowman of sweat and smells (don’t ask me how to make a snowman out of that–sounds more like an anti-snowman) that wants me to keep taking showers all my life. I have a police snowman who expects me to be wearing clothes whenever I’m out in public.

Just because I have paid these things off in the past doesn’t mean I don’t have to keep paying them in the future. Which is the only reason I’m still working.

Here’s a different viewpoint. We have a pension for life (retired military) so DH sees no problem with carrying debt up to the limit of his life insurance. Drives me nuts. But if you have a guaranteed income, why not spend it when you want to as long as you can pay it off when the income stops?

Jacob, wondering what you think of taking on debt for school- I’m considering starting a master’s degree program soon and it will mean taking on about $16,000 of more debt. I expect the earn a bigger income that will easily pay for that, but at the same time I suppose I’m just obligating myself to many more years of work. What’s your take and/or have you written about student loans before?

Hi Jacob — I have the same question as Eden above, and generally what you think of investment as a somewhat justifiable *type* of debt. I would leap ahead and say that I think we LABEL things as investments far too often — ooooh, these $200 shoes are an “investment” in my sense of well-being… — and forget, as you rightly point out, that there *is* a bondage to debt. Denial, or blindness, is an all too common human habit of mind. But is everything black or white? If you invest in an education (say), having done a full analysis of your goals, including the projected outcome, isn’t *some* debt justifiable? Small businesses often also need capital to get started. Unfortunately the “financial ecology” of our culture is breaking down just like our physical ecology. In the old days, banks were very careful about who they lent to. Someone with a business proposition would have to go in, make a face-to-face connection with a bank manager, and lay out their business plan with all its details. So there was accountability, and a personal connection, together, not one without the other. Now banking regulations are falling apart, resulting in sub-prime mortgage mess and falling dollar– but the accountability and personal connection are lost. And credit cards are worse — a piece of plastic arrives in the mail, the 800 customer service number goes to India, and we aren’t accountable to anyone!

All that said, my underlying question is, is debt for a “true investment” really that bad? By true investment I would mean a plan for temporary “bondage”, but with a fully analyzed plan and map for not only payback but an assement of how the investment will actually INCREASE our ability to sustain our lives and give back, presented to someone else (or even a small group or family) for feedback, comment, and also accountability.

For example, Eden, have you actually assessed, using independent sources, what the likely long term outcome of your investment is likely to be, beyond the loan payback period? I read an article in the NY Times recently how people are being lured by culinary schools, with dreams of becoming chefs but at least the idea that they can always find work cooking. But these same students are being rudely awakened because the availability of chef or cooking jobs is not what they imagine and the earnings are pretty low. The schools don’t care, they just want their tuition. So the students are coming out with huge debts but are only able to earn low wages. Nobody held the students accountable to their financial fantasies.

Anyway, Jacob, I’m rambling! But you get the question. What about “true investment”? Thanks!

I love fight club references. It makes me want to swallow more than a pint of my own blood to see if I get sick.

To me, the 3 biggest single-item types of debt are (1) Student loans, (2) Car loans, and (3) Home mortgage.

One way I kept my debt under control was to pay off one of the above (student loans) before taking on another one of the above (home mortgage).

I always paid cash for the cars I bought even if I had one of the other forms of big debt. And, of course, I never had any other types of personal debt such as credit cards.

In 1998, I paid off my mortgage which I first took in 1989 and refinanced in 1992 (saving me hundreds of dollars each month). Been totally debt-free ever since.

In 2008 I retired at age 45.

Long ago, I bought an apartment just before I started studying, mainly from the slightly vague notion that it would be a better deal to pay off mortgage than to throw away rent-money. I would be locking myself into frugality and side-jobs but would be forced to “save up” by paying off on the apartment, and even though I could have lived more cheaply on rent, I would not have the same pressure to save up, especially since I would be living very cheaply in either case. I was naive and didn’t make any actual calculations but worked hard to avoid any student debt and, after 10 years, ended up selling the apartment with a nice profit.

Similarly when my wife got an offer to do her phd here in Sydney, I immediately supported this idea, from the viewpoint of it being a good investment (financially and personally), even though my own career might suffer temporarily and we would be chewing through our savings. This also turned out luckily, and after four months of minding our first kid, I got postdoc work here, my wife got her phd and then a postdoc, and now we both work in good jobs that we each enjoy and that are wel-paying, and with a little luck, we will both have tenure in a year’s time.

We have also tried to save up whenever we could, and this is yet another sort of investment, in delaying resource-use now in order to increase future possible usage. Yet another type of investment is buying stuff in bulk and on crash-sale, which can sometimes be a good idea even if you’re in debt.

In other words, I like the idea of investments, and they have worked out well (except for my stupid and not-to-be repeated forays into stocks 😉 ).

At the same time, however, I am very much against debt and have always strived hard to avoid it. My attitude has almost always been to save up and buy, rather than to spend and pay off, and I have for years wondered at people buying expensive houses on mortgages (that I put buying my apartment back then to young cluelessness – and a lot of luck in that it turned out well).

I was therefore quite surprised the other week to discover that saving up for a house is not always the cheapest strategy, nor the freest.
I had finally gotten my act together after all these years and spent 15min. writing a simple computer routine to calculate just how expensive it would be to save up X number of year while renting and then buy a house with the remaining mortgage to pay off.
It turns out that if you can pay off a full mortgage in a short amount of time (typically 6-7 years but dependant on the prices, income, savings rate etc.), then you will end up paying more in rent than in mortage interest.
Shocking! I’d expected the saving-method to be a clear winner in all but extreme cases. You might be bound for those 6-7 years but this lack of freedom would be offset by the freedom to live on your own terms, rather than potentially being kicked out by successive landlords. (Personally, if I were to buy a house, then I’d save up at least 25% even it were more expensive in the long run, just for financial insurance.)

Does something like a home mortgage loan count as bad debt to have as well? Thanks for your help!

@HSpencer I completely agree with you, except I use online bill payment instead. Saves me a stamp/check/and gas/mileage from going to the post office and back. I think this is more of a generational thing though.

HSpencer and Josh, I live just down the street from the bank which handles my CC. Most of the time, I simply walk to the bank and pay it in person, or I drive there on the way to doing other local errands. I don’t have to rely on the post office or worry about the bank misplacing my payment and claiming I did not pay it on time.

The cash-back thing does not concern me because I use my CC so rarely. I charged $655 in 2010 and $229 in 2009. I received a CC bill in only 10 of the 24 months, so paying a CC bill is a somewhat uncommon event for me.

Re: Credit Cards
What HSpencer said, but upon receiving the bill (electronically, I don’t want my account # floating around in the mail) I immediately schedule a payment on the day before the due date. I keep the balance in an online savings account so I get a little extra interest during the grace period.

To those inquiring, I would be cautious before incurring student loan debt. There is NO GUARANTEE that your add’l eduction will net you add’l pay. I have 2 family members who are recent grads that are living proof of this. I would, instead, pay as you go. It may take longer to finish the degree but at least when you do you won’t be stuck with a pile of debt to frame next to your diploma.