The Worst Piece of Financial Advice I’ve Ever Heard

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.

Author Bio:

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.


23 comments… add one
  • Amanda @ centsiblyrich Oct 13, 2016, 8:19 am

    Great post, Jacob! We often hear the “good” debt vs. “bad” debt advice. One way or the other, it’s still debt – and has to be paid back!

    • Jacob Oct 13, 2016, 9:42 am

      You are right Amanda. And it’s just so hard to get out of debt…I am surprised that people still preach about some debt being “good”.

  • Jacob Oct 13, 2016, 9:44 am

    Stefan – thanks again for the chance to guest post here on your blog. I love what you are doing for all of us millennial. Keep up the great work!

    • Stefan Sharpe Oct 13, 2016, 3:04 pm

      No problem, thanks for the post!

  • Financial Panther Oct 13, 2016, 10:34 am

    I’m also of the belief that all debt is pretty much bad debt. There’s a whole lot of debate about invest vs. pay of debt thing. I’m pretty much like you – I value the flexibility of not having a fixed amount I have to pay every month, no matter what! Getting rid of debt also just makes life simpler.

  • Josh Oct 13, 2016, 10:44 am

    I disagree. Perhaps “good” debt is poor phrasing, but financing an investment property or your studies (payoff can very on study, so depends on the course) is a positive move to help millennials advance in their lives. Debt in itself may not be “good”, but it’s part of an overall positive process. It provides the immediate buying power required to advance in life.

    If you had to save up for your entire education, at entry level wages, you’d be putting your life on hold for well over 5 years on many cases. The extras money you will earn working at a professional level for 5+ extra years will more than account for losses of interest. The debt itself may not be “good”, but was incurring that debt a good move? Yes.

    • Jacob Oct 13, 2016, 12:44 pm

      Josh – thanks for reading. I appreciate your view point. You are right, other than the clearly stupid debt (like financing toys), there are instances where debt can be used for positive things. Your case about student loans is absolutely accurate. Using debt to increase your potential earnings over the long-term is a positive move.
      My problem is that I believe because the finance world terms it as “good”, then people tend to take it less seriously than the “bad” debt. But it shouldn’t be taken less seriously…ever. Debt is debt. Thanks for the comment!

    • Stefan Sharpe Oct 13, 2016, 3:08 pm

      I agree with you Josh, sometimes debt is necessary to advance in life. The average person could not afford college or purchasing a big ticket item such as a house. Obviously there are exceptions but the average person cannot. I see nothing wrong with debt if the person understands what they are getting into. I personally plan on being highly leveraged when I begin purchasing rental properties because they should technically pay for themselves and then some in the future.

      Appreciate you stopping by,

  • FinanciaLibre Oct 13, 2016, 10:50 am

    Hmmm… I think you make some fair points about getting overextended, and about how lots of consumption-oriented debt is damaging. That’s right on target.

    However, leveraging (via taking on debt) is a classic financial strategy for increasing return on investment. This is basic finance. While it’s true that loading up on debt increases risk, that doesn’t mean that all debt is bad.

    Rather, debt is deemed economically detrimental (or beneficial) on the basis of whether the cost of capital exceeds the incremental returns earned on the borrowed sum (or doesn’t). “Bad” debt costs more than it returns. Simple as that. Which means paying cash for everything can be much more costly than paying with debt.

    The concept can be carried over to mortgages pretty directly. I discuss this concept various ways on my site. And I discuss the concept of leveraging in my economics textbook. Your brother is right. As is finance. As is basic economics. With due respect to your core message here – that consumer debt can be troublesome (with which I wholeheartedly agree) – this is me telling you otherwise.

    • Stefan Sharpe Oct 13, 2016, 3:11 pm

      During my MBA classes we had to play a game and we those that wanted to win had to use debt to purchase plant capacity to exponentially increase their earnings power in the future. Those that could not figure out how to be leveraged properly failed while those that understood how to use it won. Debt is simply an accelerator in life for many. While it is certainly a burden it is necessary. Where people run into problem is when they purchase unnecessarily things they cannot afford or use debt to pay their bills aka debt to pay debt….

  • Jacob Oct 13, 2016, 2:37 pm

    Thanks for your comment! Its good to hear from people with different opinions. You seem to understand economics and finances really well, to which I applaud you. The problem is that the average consumer doesn’t think about those concepts (like leveraging).

    Instead, they hear the word “good” and it implies that all will work out. It leads them into a false sense of security. My point is that the “good” debt has every opportunity to ruin, devastate, and crush your financial life just like the stupid, bad debt…If you allow it to. Of course there are good reasons and good debt, If used correctly. I just think that people think differently about it when they hear The word “good”. For me, all debt is bad. Now that I’m debt free, my money is working for me…not working to pay someone else.

    While we disagree, I still appreciate your viewpoint.

    • Josh Oct 13, 2016, 11:07 pm

      You’re definitely right in the sense that different people have different levels of understanding, and that’s exactly where people get screwed over. It’s the uninformed crowd that are mislead, spot on. On the fundamental level of ‘good’ vs ‘bad’ debt, I’m with you. Debit is a tool, it’s neither good nor bad in itself, it’s about the user and their decisions.

  • Dividends Down Under Oct 13, 2016, 4:21 pm

    I think along the same lines as Josh and Stefan. No-one should want to go into debt, but for a property or education it may be a necessary evil. I wouldn’t want it hanging over my head, though!


    • Stefan Sharpe Oct 14, 2016, 9:09 am

      If I had debt I would always try to make extra payments. Even though some may say it is not the most efficient it is a burden off the shoulders.

  • Financial Slacker Oct 13, 2016, 8:19 pm

    While I agree that debt in any form carries risks, that doesn’t mean that it should be avoided at all costs.

    Borrowing against your car to pay for your wedding is a bad idea. My friend did that and is still trying to pay it off.

    But I support the decision to borrow money to go to school.

    There are no guarantees that you’ll get a job after you graduate. And even if you do, there’s no guarantee that you couldn’t earn the same or more money without the degree.

    But for many, the money invested to earn a college degree pays for itself many times over.

    • Stefan Sharpe Oct 14, 2016, 9:10 am

      Well said Dave. I am a big fan of education, even with its current cost. If it continues rising this fast in the future it may be debatable.

  • Finance Solver Oct 14, 2016, 9:53 pm

    Hmm.. I will have to take the opposition approach. I don’t think good debt implies that everything will work out in the end, I think good debt implies that the debt is used as an investment, rather than buying material things that depreciate in value.

    College degrees, mortgages, etc. I believe that getting debt that gives more value than its cost is a sensible decision (although that value might never be realized) but it’s better than taking on debt to buy the 70k BMW!

    • Stefan Sharpe Oct 15, 2016, 10:36 pm

      That is a good definition you have there and something I agree with. Debt is an accelerator or gives you the opportunity to afford things you normally cannot afford.

  • Mustard Seed Money Oct 15, 2016, 7:55 am

    I agree that debt in bondage.

    When I finally paid off my mortgage and it was a huge weight off my shoulder. After that I decided that I would try to make decisions that would not require me to take on additional debt.

    The freedom for me not carrying debt definitely exceeds the benefits. I feel like I am freer to take on projects I like at work and not worry about climbing the corporate ladder. In addition I don’t think about losing my house due to illness.

    Having no debt has been amazing.

    • Stefan Sharpe Oct 15, 2016, 10:38 pm

      The psychological effect is sometimes underestimated. Yes it may not be as efficient but we are humans are definitely not rational. Emotions play a big part and going through life feeling weighed down is not something anybody should want.

  • Julie @ Millennial Boss Oct 15, 2016, 11:53 am

    Ah the ole Good debt versus Bad debt advice! I have been given that advice many times and unfortunately it led me to take out a nearly $30,000 car loan. I’ve since sold the car but I lost about $7k of it’s value when I sold it so soon after buying it. I do miss whipping around in my subaru though 😉

    • Stefan Sharpe Oct 15, 2016, 10:39 pm

      Subarus are great vehicles! They last a very long time and are highly reliable. While traditional financial people say a new car is never a good purchase sometimes it can be depending on the amount of years you get out of the car. But rarely does it beat buying a second hand.

  • Dennis @ NestEggRx Oct 20, 2016, 5:30 pm

    “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.”

    Perhaps it is technical, but this statement is not true in non-recourse debt.

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