Let’s explore the big “D” word – Debt. What exactly is debt?
I would imagine that anyone who has found their way to this blog is able to navigate the intertwine and certainly knows what debt is. A quick Google search tells us that it is “something, typically money, that is owed or due.” This will be the definition we use for our purposes here. (However, I also like the 3rd option of “a feeling of gratitude for a service or favor”. Hmmm – service or favor!)
Okay, so we acquire debt when we borrow money from someone or a lending institution to buy something we could not afford to pay cash for right now. Or, perhaps we could have paid cash but decided to finance a purchase for a variety of reasons: cheap money available (low interest rates), cash flow (I can afford the payment), or my personal favorite, “that is the way everyone else does it” (the “American way” argument). Regardless, let’s pretend that we are part of the 69% of the U.S. that has debt, as described in this 2011 Census report.
So, is debt good or bad? I think I have read about 50 opinions going either way over the years from my obsession of performing a financial “debt-ectomy ”. Generally, the FIRE and PF crowd would tend to lean toward saying that all debt is bad, and “why the hell do you have it?” I am in that camp presently. I do have to say that my opinion has changed over the years from thinking it was good to take on debt, to my present state of running around with my hair on fire trying to put it out.
I Have Become a “Debt Serial Killer”
Alright – just to clarify, I have not actually killed anyone. I am just on a massive modified Debt Snowball – a murderous course of killing all my debt. I hate to admit it, but I have been in debt 38 fricken years! Notice I am not using any nice words to describe debt? I have to tell you that I was in for over $1.5 million at the peak.
Another debt payment method I have used is called the Debt Tsunami, where you pay your debts off starting with what you hate the most. So I have been on either a modified “Debt Snow-nami” or “Debt Tsu-ball” that I flip-flop on based on my mood, the time of day, and my present happiness level at work.
How Does One Rack Up $1.5 Million Plus in Debt?
I started years ago by buying residential rental properties for that “get rich extremely slowly and difficult path.” Only 38 years later I have almost arrived!
So I started out leveraging every penny I could to buy rental properties, wait for them to appreciate along with paying principal down, refinance, use that money to buy another highly leveraged property, wash/rinse and repeat. After many years of this, I woke up out of the fog with more loan payments to pay than my day job could possibly handle and a bunch of leveraged properties with little equity. This is not all bad if you are young, not too afraid of risk, and have a high paying job. (I plan on elaborating at length about this process in the future.)
Debt Is Bad… At This Point in My Life
I am now in my early fifties and “sick and tired” of being “sick and tired” of having debt. (Note: I am sick and tired.) We have aggressively thrown every extra penny at paying off debt – to the point of extreme in some cases. I fed the fire by reading a bunch of books and PF blogs that pile on why you must get out of debt or you are crazy. This further reinforced my behavior by hammering into my psyche that debt must go.
As you get older, further into your career, obstinate, lazy, and overall fearful that you don’t have enough saved, debt just adds to all those frustrations. I have worked alongside many people that have been 30 and 40 years into their careers with no hope of being debt free. To me, with a little planning and hard work, there is no reason not to be debt free when you retire.
I believe debt is on a continuum that must be set into motion by your goals and dreams. This could look much like a straight line on the graph shown, or it could have many peaks and valleys along the time line. The one thing that does not stop is time. We all determine by our actions how much debt we take on or eliminate.
I see that as I have grown older, my relationship with debt has changed. It is now my focus to reduce my debt burden. Our dream is to have the passive income from our investments to cover our living expenses and play.
Can Debt Be Good?
We will talk about that in part 2!
What is the Debt Answer?
It depends. To answer my own question of this blog post title: At this point in my life, “debt is bad” and something I have no intention of taking on again. For others it makes perfect, or mostly perfect, sense. If you are just starting out and need to take on debt for college or buying your first home, it may make perfect sense. If you are 75 years old, it might not be a great idea.
We have lived frugally for enough years to become mortgage free and soon to be investment debt free. This assures us of the important passive income cash flow stream we need to pay the utilities, eat, play, and feed the cat.