This is pretty much the quintessence of how many people get stuck in debt (it was certainly true for us): “…we were spending more than we made because we thought we would make more money later to pay it off.”

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  1. speedwell (propagandist and secular snarkist) says:

    To bind yourself to a promise to pay money you don’t even have yet is the definition of a nightmare for me. It may work for a business, but it’s not going to be the way I do business.

  2. Crazytree says:

    if you’re in debt… the fact of the matter is that you can’t afford half the shit you’re buying.

    sure the interest rates seems low… but you end up digging yourself into a grave one shovelful at a time.

  3. mantari says:

    Also… the more you are in debt, and the more money that you have directed towards paying that debt, the less nice things that you can buy. So you reach into your debt to make up for the shortfall, which makes matters worse, and ends up being a self-feeding loop.

    Because you don’t have much money left over after paying so much to your credit card companies, you end up charging the things you want, which makes the situation worse, which makes you more inclined to charge things you want, because you don’t have as much disposable income, because you debt is so high, so you…

  4. TechnoDestructo says:

    Uh oh….that’s what I’ll be doing for school….

  5. Crazytree says:

    there is good debt and there is bad debt.

    school debt [for the most part] is low-interest and tax-deductible.

    I have huge grad school debt but it’s at 3.75% and tax-deductible so I will just make the minimums now that savings rates are at 6%.

  6. nequam says:

    Debt should be avoided if possible (even if doing so is difficult). From a more practical standpoint, however, you should only use debt to pay for things that aren’t likely to be consumed before the debt is paid off. Homes, cars, lawnmowers, furniture, etc. have long life spans that most likely will exceed the length of your loan or the time it takes to pay off credit. It is critical, however, not to buy more than you can afford when it comes to these items.


    Education is another good debt candidate, especially because it cannot be taken away from you.


    Bad debt consists of transient consumables: meals, vacations, most electronics, etc.

  7. timmus says:

    “Bad debt consists of transient consumables: meals….”


    Um, wouldn’t that be in your good debt category, since by being a flab of fat packed in there between your femur and pelvis, it can’t be taken from you?

  8. TechnoDestructo says:

    @Crazytree:

    How’d you get 3.75%?

  9. Crazytree says:

    @TechnoDestructo: I shopped around.

    Refinanced all my Fed loans with ACS @ 5%. 0.25% discount for auto-payments. 1% discount after 36 on-time payments.

  10. olegna says:

    If this is a re-post, sorry, Gawker Media’s commenting feature is totally wonky, if you haven’t noticed.

    >> you should only use debt to pay for things that aren’t likely to be consumed before the debt is paid off. Homes, cars, lawnmowers, furniture, etc.

    I don’t agree. I think all unsecured lending should be avoided whether it’s a Happy Meal or a lawn mower. In fact, the Happy Meal will actually cost you less because it’s a smaller purchase which the lawn mower might take longer to pay off, costing you more interest and risking late payments.

    I think most rich self-made people will tell you to buy the car you can afford to pay in one lump rather than finance because borrowing to buy ANYTHING that depreciates over time (be it a washing machine or a Happy Meal) is a bad investment, period, regardless of how long you’re keeping it.

    Education debt is a special kind of unsecured loan, so I don’t consider that “bad debt” unless you borrow $20,000 for a degree in fine arts because of unrealistic goals of becoming the next Andy Warhol or something ;)

  11. not_seth_brundle says:

    I don’t see why it matters what the loan is for, as long as it’s something you would be buying anyway. What matters are the loan terms. If you would be buying a lawnmower anyway, or a Happy Meal, or a car, and have the cash, it could still make sense to take out a low-interest loan and sock the cash away in a high-interest savings account. This of course is only if you are responsible with money and WILL put the equivalent away in a savings account.

    Where people get into trouble is buying stuff they don’t need or wouldn’t otherwise be buying, just because they have access to credit.

    School debt is a special case because most people who take out student loans couldn’t afford the education otherwise.

  12. olegna says:

    @not_seth_brundle:

    Hence that’s why I said “unsecured debt”.

    Unsecured debt = credit cards (loans with no collateral)

    Secured debt = bank lonas (loans with collateral, i.e. the home you own).

    Frankly I don’t think it’s possible to buy a $400 lawn mower on credit, then put $400 in cash in some interest-accruing mechanism, and come out ahead. It would be next to impossible to do that by financing a lawn-mower purchase or buying it on a credit card.

    You can’t get a low-interest loan without putting up collateral, in which case you would be borrowing a large amount of money against your home, then buying the lawn mower, then investing the rest and hoping to come out ahead minus the interest for the loan. Perhaps in that case, you might come out ahead.

    My point was that somebody said as a general rule only buy things you’re keeping for a long time on credit. My response was: it’s not what you buy or how long you’ll own it but rather the type of credit you’re using to buy it.

    Frankly I think advice that says “buy it on credit and invest the cash you would have spent” is not something that would pass the Dave Ramsey test.

  13. @TechnoDestructo: I’m at 2.5%, my husband at 2.75% for student loans.

  14. not_seth_brundle says:

    @olegna: I wasn’t singling you out, but now that you mention it, you also said:

    “I think most rich self-made people will tell you to buy the car you can afford to pay in one lump rather than finance because borrowing to buy ANYTHING that depreciates over time (be it a washing machine or a Happy Meal) is a bad investment, period, regardless of how long you’re keeping it.”

    Car loans are usually secured. Secured or unsecured, I don’t see why it matters that the thing you’re buying is depreciating. You owe the same amount of money whether the underlying asset depreciates or appreciates.

    Also, it’s fairly easy to finance the purchase of a lawn-mower at a low interest rate. Just put it on a credit card with a 0% (or close to it) introductory rate.

  15. humphrmi says:

    @Crazytree: Besides being tax deductable and low interest, it is also a good debt because it financing an investment that, if you can’t otherwise afford it without borrowing, will pay you much more over the lifespan of the “product” (your education).

  16. olegna says:

    @not seth:

    I guess I’m confusing two general pieces of advice:

    #1.) Avoid unsecured lending; and
    #2.) Avoid buying things on credit that devalue over time.

    Indeed, it is possible to sign up for 0% CC and buy a $400 lawn mower and pay it off before 0% turns into 22%.

    The thing is: most (not all) people who would buy a lawnmower on a credit card are going to buy other things on the same card, make a couple of late payments and eventually have $7,000 in unsecured debt and the $400 lawn mower will have cost $800 in real terms.

    But I can’t argue your point: I can theoretically apply for a 0% credit card and buy one white good item (washing machine, lawn mower, etc.) and pay it off before the 0% ends.

    In a nutshell: Lottery tickets are a tax on stupid people. Credit cards are a financial mechanisms designed to exploit stupidity. I was stupid. I know. I worked hard, paid of $28,000 in debt and today have enough money saved to buy a lawn mower in cash if I need one.

    PS – Despite my good credit score (which came from paying off $28,000 in debt in two years), i have no idea how to get one of these 0% credit cards people are always talking about. I’ve seen 0% transfer offers, but just how many 0% credit card are there? Not that I need one anymore — since I now pay off my bill within the month.

  17. SadSam says:

    My husband and I are in the middle of a serious debt (unsecured – credit cards and grad school loans) paydown this year. The first thing we did was commit to not adding any new debt to our debt and cut up our credit cards. Now I was always one of those folks who used her credit card for most everything and paid off the balance in full each month and enjoyed the free airline tickets etc. Once I switched to using my debit card for day to day transactions I noticed that I was a lot more mindful about my spending (because I was spending my money that was coming right out of my checking acct) and I end up spending a lot less each month.

    I think credit is a tool and I’m sure I’ll use it again to finance larger purchases like furniture (only on a 0% offer) but I’d rather just save up and pay cash.

    Re: 0% card, Citibank Simplicity credit card was 0% for the first year’s purchases. I only kept it for the first year so no idea what the interest rate is after that.

  18. I think most rich self-made people will tell you to buy the car you can afford to pay in one lump rather than finance because borrowing to buy ANYTHING that depreciates over time (be it a washing machine or a Happy Meal) is a bad investment, period, regardless of how long you’re keeping it.

    @olegna: Assuming you can afford to buy a car in one lump sum.