Episode 193: Is Debt Really That Terrible

Today on the podcast I'm breaking down our relationships with debt and discussing the question, "is debt really that bad?"

When it comes to relationships with debt, people tend to fall in one of three camps.

1. Debt is evil, terrible, and should never be used

2. Debt should be avoided (most the time), but makes sense in certain circumstances)

3. Debt is a tool! Use it to your advantage.

Camp #1 that feels debt is evil, terrible and should never be sued is lead by the Dave Ramseys of the world, focusing on his framework of baby steps to save for emergency funds, focusing on the snowball method of paying off debt (except your house), saving 3-6 months expenses in a full emergency fund, then focusing on saving 15% of household income for your retirement, then save for your child(ren)'s college, then pay off your home early and start building wealth. I focus on the first four since children and a house are not the realities for everyone however I struggle with step 4 because if you have a mountain of student loan debt, you my not be able to wait 15 years of paying off debt to save for retirement. He focuses on cash only. My hot take is the Dave Ramsey method is simple, fool-proof and will give you results however it's like training for a marathon - not every method works for everyone but there's one that's the best for you. I also don't align with Dave Ramsey ethically so I don't subscribe to all his methods.

Camp #3 is the one that says that debt is a tool that can be used to your advantage. This philosophy is one I don't follow too closely and is generally straightforward, if you can earn more in interest or in an ROI than in the interest charged to you for the debt, then you should leverage it.

Camp #2 is a combination of camps 1 and 3, and I find this is kind of the societal norm. This is the people who believe credit cards are fine if used responsibly and don't carry a balance that comes with credit card interest. People in this camp will usually say low interest loans are okay and high interest ones are not. Camp 1 people would tell you this is what your emergency fund is for, but sometimes emergencies come up before you have your emergency fund built.

I asked people's opinions and thoughts on debt in my Facebook group and got a variety of different thoughts and feedback on debt.