The “Good debt vs. Bad debt Myth”

About a week ago I commented on Twitter about an article I found titled “Good Debt vs. Bad Debt”.  While reading the article I shook my head several times and chuckled at some of the things that were mentioned.  I believe that the good debt vs. bad debt is a complete myth that sadly is becoming more and more prevalent and an accepted view-point in America today.

I have mentioned before why I believe Good debt is a myth and that is because the greatest wealth building tool is your income.  When your income is instead going to the banks in the form of interest it is more difficult to save and invest to create wealth.  Debt also adds the equation of risk into the discussion.  Anytime you add more payments there is a greater risk that you will default if you lose any of your income due to job loss, illness, or medical emergency.

There are a few quotes from the article that I especially wanted to touch on:

“What we would normally consider bad debt can turn into good debt in certain circumstances,” says Catie Fitzgerald, a personal finance coach and registered investment adviser in Henderson, Nev. “If you use debt to buy a car that gets better gas mileage than your old vehicle, you could end up better off financially.”

Going into debt to get better gas mileage is NEVER a good way to go.  To make up for the interest you would have to pay and the depreciation you would lose on the car, you would almost have to drive to Mars and back to break even!

“”If you take a home equity loan because you have 17 percent credit card, and you go with a 6 percent loan that’s tax-deductible, that’s good debt.”

The problem with this quote is not the mechanics of what he is describing but rather that they are trying to make debt an interest rate problem rather than a behavior problem.  The real problem is that the person could not afford to make the purchase and they borrowed on a credit card to buy it!  Debt is a habit issue not an interest rate issue.

“”This is the most advantageous time ever to be in debt,” says Manning, “in terms of opportunities to get low-interest loans or to renegotiate or refinance.”

Not quite.  Obviously with the high unemployment and foreclosure rate this is NOT the time to be in debt.  Low interest rates are no help whatsoever if you cannot make your payments.

The myth that debt can be of tremendous assistance in building wealth is marketed everywhere in America today.  However JW’s Financial Coaching teaches differently in that you are the greatest assistance in building your wealth and by getting and staying out of debt (even if it is “Good” debt”) you will develop financial disciplines that will change not only your financial future but also your family tree.  To find out what services we offer that could help you in your situation please visit our services offered page.

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