Debt is the most debilitating occurrence most people will have to go through in their lives. It is such a crushing weight of hopelessness and despair. Increasing interest rates and misleading credit limits are a cause of concern. We live on debt. We thrive on debt and there is hardly any education on proper ways to utilize it.
Growing up, we are told the stages of our live we need to reach. The milestones we need to achieve, from college, to your first car and your first house. All events that need debt to attain.
Financial Education is just not taught to kids and it has led to some disastrous results. Americans owe nearly 1 Billion Dollars in credit card debt. That is an obscene number and really showcases the decisions we make as a country. It is a consumer economy and we are all run by the advertisements we see from influencers and shows.
Debt is everywhere and seems to follow you endlessly. You go to bed thinking about (or trying not to think about) your debt and you wake up thinking about it again. Whether you can afford the next monthly payment or ways to get rid of it altogether. It’s an all-consuming monster that can swallow you up whole.
But not all debt is bad, surprisingly. Some actually can be considered the lesser evil if it helps you build wealth. In my opinion, all debt is bad. But it’s a necessary evil to survive in this world at times. If used correctly, debt can become a powerful ally in building wealth and financial freedom.
The Ugly Debt
Like I said, all debt is evil, but it depends how you use it. Even the worst of debt can be used to your benefit, if used correctly. Credit cards are the worst of the worst.
Yes, everyone has a credit card. We all need credit cards to help to build up your credit score to move on to bigger and brighter things, like a house. But the reality is we all suffer from debt because of credit cards.
The high interest rates on each card, along with the promise of amazing rewards if we keep swiping it. It’s a consumer world out there and the credit card companies back it all. They want us to keep spending.
Even while drowning in debt, I’ve had credit cards increase my limit randomly. As if to say I didn’t spend enough yet. The average American household debt is anywhere from $6,000-$8,000 and only getting higher year after year.
The average APR is about 15%, some even going up to 29.99%! If you have bad credit and more debt than you can pay off in a month, you’re put in a tough place. Instead, you should utilize your credit cards for reward points, insurance or small purchases to build your credit score.
Many people, including myself at one point, use credit cards as a crutch to support terrible spending habits. The credit limit is seen as money available to you, instead of seeing your total debt utilization, like a crazy budget fanatic would do (me).
The Bad Debt
Credit card debt can destroy people’s lives, but that’s not the only type of credit. Auto loans and student loans are not as bad as credit cards, but still bad. These types of debt can provide more opportunities for you and build on something better, but the use of them and the sheer volume of debt owed can be a problem.
Auto loans can be a terrible debt. You are essentially borrowing money for something that immediately loses value upon leaving the dealer’s lot. It’s like a ticking time bomb of value. The monthly payments and interest rates may seem low, but it’s still a payment for a car that will bring very little happiness to your life after the warranty wears off.
People often view student loans as good debt. I see it as both good and bad. Student loans provide an opportunity for a student to learn new skills to find a job that earns money. A good education provides a better prospect of a decent paying gig. Some may say that student loan was well worth it to find a dream job.
However, the freelance life is beginning to become more common these days. Learning skills online outside the confines of school is very likely these days. While medicine and law require the structure of a school setting, more creative jobs are opening up. We’re seeing more of a use for trade schools and free YouTube videos for training instead.
Also, there is no education around borrowing money for college. You are told to choose which college you want to go to, then worry about paying it off when you finish, without any guarantee you’ll even find a job. No one sits you down and tells you what to expect after graduation. That can lead to a lot of problems. Most people will be paying off their student loan debt well into their later years of life.
The Good Debt
Like I said, all debt is bad. But some are the lesser of the evils. Mortgage loans are the best loans you could take. This loan is tied to an asset that only goes up in value over time. Also, there are so many tax benefits to home ownership that it almost makes it worth it to take out a mortgage.
With the help of mortgage loans, you are able to start building wealth by gaining an asset. Even now, while work is shifting towards a more remote location, house prices are only going to continue to rise, making a home purchase even more valuable.
But you need to be careful. Don’t take out a mortgage on a house you can’t afford. Unemployment can ruin your chances of keeping a house before it going into foreclosure. So figure out what you can afford reasonably and work towards it.
Utilize Debt For A Better Life
Living a debt-free life is the dream. It means you are able to have true financial freedom without the weight of debt plaguing your inner thoughts. Those trying to build wealth should welcome debt, to build credit and leverage it to earn greater returns on your money.
I’m still scarred from my years in debt. I use it carefully and make sure it’s paid off by the next pay cycle to avoid building up an amount I can no longer contain. Debt can be like a snowball, slowly accumulating into a massive ball of crushing defeat. Ironically a debt repayment method I used is called the snowball method.
