Got debt? Most people do. In response, certain financial advisors will tell you debt is evil, imprisoning and always the wrong choice. Most of those advisors, even the famous ones, have had a bad history with debt that ended in bankruptcy. After they tell you to avoid debt, they will hypocritically advise you to invest in a diversified set of stocks and bonds. I say hypocritically because stocks and bonds are forms of debt. If they weren’t, they wouldn’t be a good investment. So don’t let anyone tell you debt, or money, is inherently evil. Debt is a tool of leverage. If you use is properly, it can help you achieve more than you would on your own.
A lever is a simple machine. Think of a playground with lever-based toys. Put three kids on one side, and they can lift one parent off the ground. That’s the added strength of leverage. If you think of debt as a lever, you can use some money now to move bigger things later.
Consumer debt: a consumer don’t
Consumer debt, especially credit card debt, is not an even lever. We tend to buy things we want, not what we need with consumer debt. Once we’ve paid the debt off, the interest amount can leave quite a negative impact on our bank accounts.
Unless you live in the Student Utopia that is Denmark, you won’t get paid a stipend to attend your free adult schooling. Many once argued that education was worth going into debt. That’s highly debatable now. If you can save up for your schooling, take a few more years to finish. It’s annoying, but some people leveraged $50,000 or more just to get paid as much as a full-time welder. Beware the student loan.
Whether it is an apartment or a house, someone will argue to you that it ALWAYS makes sense to buy housing. There are no “always moments” in life; that person is wrong. If you’re considering a mortgage for either an apartment or a house, I would advise you think about the see-saw on the playground. Is there a way you can get some more friends on your end of the see-saw?
For single people, buying a place and getting roommates helps pay off the mortgage faster. For families, it may be a wise investment to buy a duplex (or two apartments). At first, this may seem like you are over-leveraging yourself. How am I supposed to pay two mortgages? But you aren’t paying both of them, you’re starting to use debt to invest. By leveraging yourself for a property you can rent to someone else, you can pay the mortgage on the rental, make a little money on top of that to help pay your half of the mortgage, and you may end up owning two pieces of property in the end. The crazy part is, your renters paid for most of it because you were the one who was willing to go into debt.
You see? Debt isn’t good or evil. It’s just a tool. So be responsible when you use this tool: a hammer isn’t always the best tool for the job, and debt isn’t always the best way to get what you want.