Debt isn’t always bad
“Americans (and the government) are in serious debt. How should one think about debt? What is debt?
“Debt is spending future income today by borrowing money for which you are penalized by paying interest to the lender. That’s right—you are spending future income today. The lender now has a claim on your future wages. In ancient times the collateral for debt would often be family land or members of the family who were then enslaved to pay off the loan. Debt is slavery. The creditors own you (your future wages).
“But not all debt is equal.
“Bad debt is when you give in to the temptation to run up a credit card to buy a nonnecessity which your can’t afford with your current income. For example, that great pair of shoes you had to have or that awesome new video game. Many people are hardwired to think about today and can’t envision the future consequences of their foolish monetary decisions.
“Good debt is when you prudently consider taking on debt to buy a house, a car, or other large purchase. A good rule of thumb for considering whether you can afford a mortgage payment is about 30 percent of your gross monthly income. Many businesses need a line of credit so they can finance their inventory or make payroll.
“Be thoughtful about taking on debt. Do you earn enough to pay back the debt in the time required? Understand the terms of the loan. What is the interest rate? How long do I have to pay it back?
“We all can be impulsive at times but ask yourself if this purchase is a ‘need or a want’ when you are about to pull out that credit card.”—John F. McAvoy