Hey everyone, I got a great guest post for you guys. On personal finance blogs we often preach good financial advice that can help you improve your financial situation. Today, Jacob will talk about a time he got awful financial advice.
Have you ever received bad advice from someone? I mean… really bad, as in rotten eggs bad? Perhaps you took someone’s advice, applied it in your life, and only months later you realized that you were really stupid to follow what they said?
Well, I received some financial advice from my older brother that turned out to be just plain wrong. He told me that there was “good” debt and “bad” debt. He isn’t the only one that feels this way; in fact, you may have also heard that too. There are many financial writers and advisers that have been known to say this as well. They have their reason for saying it; however, I want to make a case as to why they are wrong with these two points:
Point #1 – Debt Implies a Future Commitment to Pay.
You may be saying, “Yes, we all know that debt implies a future commitment to pay. Why does that matter?” It matters, because in short…you are chained. You are in bondage.
You are a slave to something that can literally kill your financial life, hopes, and dreams. You are obligated to pay the balance PLUS interest NO MATTER WHAT HAPPENS IN YOUR LIFE.
You are making a serious commitment, one that should never be taken lightly. If something goes wrong today and you have to exhaust your entire savings account to stay afloat… that monthly payment DOES NOT GO AWAY. You still have to pay it whether you want to or not.
I guess if it gets too bad, you can always file for bankruptcy…but that in and of itself is horrible (and a topic for a different day).
Point #2 – Just Because You Have Good REASONS, Doesn’t Make it GOOD.
Obviously, we all know that there are times when debt is just really bad. Paying for toys with a credit card, then sitting on that balance for months would be considered “bad” debt. In addition, buying a $70,000 BMW when you only make $30,000 a year is just plain stupid.
Just because we have instances of debt that isn’t down right bad like the examples above, doesn’t make them good either. Furthermore, even though you may have good reasons and feel justified for taking out a loan, that doesn’t make that debt good.
I can hear the naysayers now… “So you’re saying I can’t finance my house? I can’t take out student loans to go to school”. No. I am not saying that. However, if you convince yourself that taking out a mortgage or student loans is good debt, think again! Good debt implies that everything will work out in the end… and it may not! You may have good reasons…but that will never make it good. You are still in bondage. You are still a slave to it.
What I’ve learned for myself is that all debt (and I really mean all) is bad debt, and I believe I have justified why I feel that way with the two ideas I presented. Stop viewing debt as good or bad. There are a host of reasons why we all take out debt, but it is never good! Paying cash for everything will always trump going into debt for the same item.
For me, my brother indicated that going into debt to go to school was good. I learned that he was wrong… I definitely had good reasons to take out student loans, but in the end it wasn’t “good”. It was a struggle to get out of debt. I had to work hard for three years, making difficult debt-reducing lifestyle changes, saving every penny I could find, and really clawing my way out of debt to get where I wanted to be.
The problem with the advice of “good” debt, is that it implies that all will work out in the end. Well, having good debt can turn out just as bad as having bad debt. My brother was wrong. The financial world is wrong. All debt is bad debt. Stop lying to yourself, and don’t let anyone else tell you otherwise.
Jacob Merkley is a full-time blogger who started in the accounting, financial, and retirement realms before switching to working online. Now he focuses on teaching others about Life Skills that put YOU in control, including the important principles of money management. He blogs over at PowerOverLife.