Is all debt bad?

[Godebt]

Don’t listen to this person. Saying you will always have debt is like saying you will always fail or be overweight or be a victim, etc. You can decide to be debt free & change your life. It’s not easy. Read again, it is NOT EASY. But like anything worth doing, if you chose to take it on & stick with it, it will be one of the best things you will ever do for yourself or your family. Check out Dave Ramsey & never borrow money again because you don’t need someone else’s money when you actually have money!

[nbob651]

I am just an average schmuck and I really don’t have any education for business - I have been around a while so here goes. I believe a mortgage loan for a home is well within the good loan category. A home is one of the best investments still. I purchased my home on a half acre plot of ground for $125,000 15 years ago and now it appraises for $289,000. That seems to have been a great investment. I also believe you should never buy a brand new car on credit. The moment you drive off the lot it drops in value. Yet if you purchase a two year old car the investment seems to hold better. I also believe investing in an education is well worth putting at least some of the cost on credit for your degree is still money in the bank. Your income will be much higher with a degree than without. This will sound impossible but between my 1/2 tuition and my teaching assistantship my Masters degree cost me about $5,000 on credit. I felt blessed several times over when it came to retiring because my Masters degree greatly improved my retirement income making my $5,000 investment feel like nothing. There is my two bits.

[Ovey]

Check out a guy named Dave Ramsey on podcast, YouTube, or his website. He's been a financial coach for a long time and has helped literally hundreds of thousands of people find financial peace. I've learned a lot from him personally and would definitely recommend getting his book "The total money makeover." Good luck sir!

[Jewell]

Regarding is all debt bad, what is considered good debt other than homeowner ship.

[DaveT315]

In general, debt used to purchase income generating assets is good debt.  Debt used to purchase consumable items, or depreciating assets is bad debt.  For example, debt used to buy an investment rental property that generates a positive cash flow is good debt.   Debt used to buy a car, pay for groceries, or a vacation is bad debt.   

Debt used to pay for education leading to a better paying job, career advancement and a greater income is considered good debt.  Student loans for a degree in a field with no job opportunity or a very low paying job is probably bad debt.  What kind of job will pay a philosophy major enough to live on and also pay off the student loans?  The debt incurred to obtain a PhD is probably bad debt if you end up being a cab driver.

The debt used to purchase a primary residence is bad debt but necessary.  A primary residence does not generate any income, but the debt service is a liability until the property is paid off.  Now you may argue that the primary residence appreciates and you realize a profit (income) when you sell.  In principle, I agree, but appreciation is not guaranteed and usually slow when it happens.  If you hold the property long enough, you should realize some appreciation but consider that you are paying interest on your loan while the property is appreciating.  If you hold the property long enough you might break even.  For example, if the house you paid $100K for 30 years ago is now worth $250K you see this as a potential $150K profit when you sell.  However, consider that you paid a total of $250K in principal and interest for 30 years to retire your loan,  You just break even at best.  There are a few real estate markets where this is not the case, but for most real estate markets, home ownership iis more expensive than renting -- especially if you sell and move in every few years.

[Waynejuntunen]

Taking out a mortgage is not a bad use of credit. However car loans are a huge waste of money. Car loans are a huge waste of money, live within your means. I made 32k a few years ago (not very much) I saved and saved and bought a 2k car. The following year I sold it for 1.9k and had planned for another car so I had already saved 2.5k. I was able to buy a 4k car. Needless to say my newest car I have ever owned was payed for with cash for a total of 8k. This following year I'm going to sale it an use my car fund of 6k to buy a 14k car. Get away from the red face child thing of wanting it now, now, now and save! Credit is than irrelevant if you use cash.

[Polno]

In general debt used in any form is bad. Buying a house, a car, credit cards, opening a business. It just never adds up. Do the math. A mortgage is going to cost way more than the house is worth. A car will depriciate. A credit card.... go ask a few millionaires if the have any. And then ask them how they became millionaires. I know you think you need that 7 dollar coffee in the morning but you don't. I know you think you need to buy new clothes for your kids for school but there are consingment sales with ralph Lauren stuff. I outfit my child whos 3 for 40 bucks a year. I set money into my 401k faithfully. I have saved an emergency fund for when things happen.im working on saving for a house in full. Averege income in America per person is 31000. Setting 10% aside for 401k leaves 27000. Minus bills and such( car payment is not a bill , you dont make one) you set up a budget and stick to it. You will save money. You just have to figure out whats an actually necessity and whats not. And yes i allow myself fun money. No debt is good. Im not by anymeans a bible thumper but one passage sticks out. THE BORROWER IS SLAVE TO THE LENDER.

[Unorunner9]

If you ever plan to use credit you need to have credit available . 35% of tour credit score is driven by Payment History, so in order to further enhance your credit profile and increase your credit score you need to have a credit product (loan, personal loan, line of credit, mortgage, auto loan, credit card. Etc that generates a statement with a balance monthly that would require you to submit some payment . What is required in each individual part is to use credit responsibly so as to have it reported favorably on your behalf. 

[Unorunner9]

35% of your credit score is driven by Payment History. So you need to have a payment reported to the credit bureaus on a monthly basis to show that you are capable of being on time with your payments . Getting a credit card is the easiest way to get and enhance your credit profile 

[Dark_Recruiter]

Debt is only bad if you cannot manage it. I have two credit cards and two bank loans under my belt and them alone put me at 710 credit. You just have to be smart as well as not put too much financial burden on yourself

[Gu 1]

No if you don’t have at least 2 credit cards you don’t exist and your FICO score will be under the minimum low so won’t get any loan,mortgage or any type of credit,unless you have cash to buy everything you need 

[Polno]

You do not need credit score to get a home loan. Find a lender who does manual underwriting and put 20% down. Remember  credit scores didnt exist until 1950 when the diners card came out. Its just one big scam to make someone else  wealthy. I ask all of you who manage your credit  so well "how much do you have in your bank account for emergencies?" Im guessing  not much. If we all had atleast  5k for emergencies  then stupid  companies  like earn in wouldn't  exist. Break the cycle people. 

[ari3sdog]

Yes. Nuff Said.  

[kdbyse00]

Think about it like this.

You take out a loan, now you owe someone X amount of dollars and you have a limited amount of time to pay it back. They officially have power over you (financial). Now say you gotta pay $250/month for a loan. Think about where else that $250 could go if you were not in debt. Also, you have to pay interest. I don't know about you, but I don't like paying more money than what I'm supposed to at all. Quick example, if you took out a $5000 loan, would you rather pay back $5000 or say... $6213 (random number but hopefully you get the concept)? Banks are a business at the end of the day, and if you miss a payment, then you're going to be in some serious trouble. They'll take away whatever you got the loan for, you're credit score is going down the drain, and in some cases, it could lead to a lawsuit (like when people buy cars that have been repo'd). I say the best thing for all of us to do is to stay out of debt. I think about how much money I could have had if I never would have gotten into debt, and now I'm changing that for my life and will use that to build myself up in life, especially now that I'm in college. So to answer your question, yes all debt is bad. The only person that really even half-way benefit from debt is the lender, and I say half-way because they loaned their money and we do have some people out there who try to be low-down. So try to avoid debt at all cost.

[DaveT315]

I agree up to a point.  Debt used to acquire income producing assets is good debt.  If what you are buying on credit does not produce income, that is bad debt if you carry a balance.  Financing the purchase of a rental property is good debt if the rental income is paying off the loan.  Using a credit card to buy groceries, a vacation, a restaurant meal, etc. is bad debt but only if you don't pay off the credit card statement balance in full each month.

Most would consider the mortgage on a primary residence a liability (because the asset does not generate income), but necessary debt to provide a roof over your head.  

There is no magic number of loans or credit cards for a good credit score.  What matters is your payment history and the length of your credit history and your % credit utilization.  I see a lot of posts in this thread that claim there is a limit on the number of loans and credit cards you can have for a high credit score.  I have 9 mortgages, and seven credit cards and two HELOCs that are treated as revolving credit lines.  My credit score last month was 843  with a credit history of on-time payments for the past 30 years.  My credit card utilization rate is under 10% right now only because I have some credit card balances at 0% APR.  These balances will all be paid in full by the time the 0% promotional rate period expires. 

A couple of years ago, one bank I use offered a 0% interest, $0 cash advance fee for a 13-month cash advance.  I used the cash advance to borrow $25000, then used the money to buy a few CDs at my credit union.  The credit union paid me 2% interest ($500) over the following 12 months.  I made minimum payments ($250) to the credit card balance then paid the balance in full when the CDs matured.  I just viewed that experience as receiving a $500 cash gift from my bank for being a good customer.  

The point I am trying to make is credit can be your friend if used responsibily.