Does Anybody Really Like Debt? Envision Debt Freedom!

Debt is one of those things that you will almost certainly have to deal with at one point or another in your life.  And, if you’re like most people, it will be something you have to deal with throughout life.  Can you envision debt freedom or are you resigned to having debt?

Mortgages, credit cards, student loans, auto loans, the list of things that can add to your debt, are endless.

Good debt vs. bad debt

I’ve seen it said where some debt is considered good because it is tied to something that provides positive value.  The two types of debt most commonly associated with this are mortgages and student loans.


A mortgage is tied to an asset that typically appreciates in value over time.  Obviously what happened with housing prices recently is a glaring exception, but for the most part, homes will appreciate in value over time.  So, if you buy a house for $200,000, take out a $160,000 mortgage, the idea is that the house appreciates in value while you pay off the mortgage.  With the numbers I just listed, you would start off with $40,000.

If you make assumptions that your home will appreciate in value 3% per year, and you take out a 15-year mortgage around 3%, then after five years your home will be worth approximately $230,000 and your mortgage balance will be roughly $125,000, giving you equity of $105,000.  So, this ‘debt’ payment actually allows you to build positive equity (as well as positive net worth), so it’s seen as ‘good’ debt.

Student loans

These are seen as ‘good’ because the idea is that a degree will allow you higher earning power, eventually offsetting the cost of the loans.  If your degree allows you higher earning power equal to $15,000 per year, and you have loans that (including interest) cost you $75,000 over the life of the loan, your education will theoretically pay for itself over five years.

But is it really good?  The examples I gave are pretty straightforward, and in a perfect world, it would apply in a positive way to everybody.

We’ve all seen, though, that we don’t live in a perfect world.

Housing prices have collapsed.  If you took out a mortgage prior to the housing collapse, you likely saw yourself go into negative equity territory or lose a good chunk of any equity that you might have had.  For newlyweds, this could have been a huge burden.  Nobody wants to start married life like that!

On the student loan side, many graduates are finding that they can’t even get jobs, and if they can, they are making less money than people in their fields made even a few years ago.  If you’re suddenly making only $5,000 more per year but still have that $75,000 loan, that five year ‘payback’ period suddenly turns into fifteen.  Not so ‘good’ after all.

In reality, I don’t think there is necessarily such a thing as ‘good’ debt.  There might be some debt that is more favorable to have than others, but even the ‘good’ debts can turn bad in a heartbeat if things somehow go south.

Leveraging Debt For Income

One other argument for carrying debt lately has been to use the record low interest rates that we now have as a method to leverage against investments that can pay at a greater return.

If you have money to pay off your house, some will argue that you should take the 3% mortgage you can obtain, and use the cash to invest in the stock market.  If you’ve done that over the last couple of years, chances are this strategy worked out very handsomely.

As long as you can see an investment income higher than 3%, you’re coming out ahead.

But, again, there is risk involved.  Say the investment you choose goes down 20%.  Suddenly that 3% ‘return’ on paying off your debt looks a lot better than it did when you thought you were going to gain 20%.  As long as you understand that there is risk, there’s nothing ‘wrong’ with this strategy.  Especially if your investments go up!

The Psychological Component

From a dollars and cents standpoint, having debt offers a great deal of uncertainty.   This can all be managed according to your level of risk, and the tools you use to manage your debt.

However, one component that many don’t take into account is the feelings associated with debt.  Being in debt can drive some people crazy.  For others, it’s no big deal.

Believe it or not, there is a cost involved here, and it goes beyond the interest rate or the dollars and cents involved.

If you have anxiety about your debt every time you open a bill, there is a cost to you.  This anxiety could be costing you health, as your blood pressure could be going up, you could be losing sleep if you wake up thinking about your bills, or if you get stuck staying in a job that you might otherwise leave but for the fact that the paycheck is needed to keep the bills paid.

Don’t discount the importance of these things.

If these things don’t bother you at all, then you’re likely OK with keeping some level of debt.  However, if the things I just mentioned drive you crazy, then add that into the ‘cost’ of your debt.  Then, the true cost of having debt may work out differently.

What if you had no debt?

On the same level, some people may not have anxiety about debt per se.  Still, they can envision happiness and relief when thinking about not having any debt.  This is your first insight to what debt freedom could look like.

Think about it.  If you have debt today, picture what your life would be if you had no debt payments?  No mortgage.  Zero credit card debt.  No auto loans.  No more student loans.

For me, I picture a weight being lifted off of my shoulders.

If you have similar visions, then there’s a sense of urgency that’s important to address.  Getting out of debt takes away a burden.  A burden that you might not even know you have!

In either case, whether debt is dragging you down or whether you can envision debt freedom, there’s good news. Every little bit you can do will help you in the long run.

18 thoughts on “Does Anybody Really Like Debt? Envision Debt Freedom!”

  1. Debt was a large part of my business! I owned income property and the mortgages were a necessary part of it. The only issue for me was getting the most leverage at the best interest rate. Of course, I understood the risks involved in leverage and had reserves for the unplanned. I thought I would always want this leverage, but as I get older I feel differently. I want to be debt free in retirement ( 5 years from now). .

  2. I kind of like debt for leverage, although this year I vowed to pay over $20K of ”good debt” because I am fed up to have that hanging over my head. Paying it early also motivates me to make extra money. Happy New Year!

  3. Gotta admit, I’m pretty terrified of leveraging debt. (even though I guess having a mortgage is one form…)

    I understand the principle of it, but I am a very conservative investor and would not be able to handle the thought of losing money AND paying loan interest. Good for those people who can stomach it though!

    (I think) I have a healthy respect for debt. I am aware of how much I owe, and how much it costs me to owe it, but I can justify some of those debts because at the time I had no other option (such as student loans)

    • I think how conservative you are tends to play in what level it ‘bugs’ you or not. I’m more along the lines of where you are.

  4. Great article. I am not really sure there are good debts and bad debts anymore. I just think some are less risky and others. I think the forclosure and student loan default rate can show us that.

  5. It is great that you brought up the psychological component of having debt. Having a lot of high interest debt is stressful.
    When I had student loans and credit card debt due to periods of unemployment, I was not sleeping well due to wondering how I was going to make the next payment. The moment I paid off this debt, I felt like a huge weight had been lifted off.
    My next debt attack is to aggressively pay off my mortgage.

  6. I took on student loans before, good thing they’re all paid off now. Now I just have a mortgage, a farm loan, an investment loan, and a line of credit. I have over $350K of debt all together and I plan to pay off some of it this year because I think I might have bitten off more than I can chew.

    • That’s a pretty big number any way you look at it. Good luck getting it to a more manageable level this year.

  7. I don’t necessarily like debt, but I recognize and appreciate it for what it is: a tool. Not so much these days, but I remember in the late 90’s into the early 00’s when you could get a high-yield savings account with 5% APY it was much better to buy things with deferred-interest plans, transfer the money into the savings account and come out ahead when it was paid off.

    To me, it’s no different than a car, medication, tools, etc. If you use it the right way, it could be of tremendous value, but if you use it wrong the results can be disastrous. It all comes down to personal accountability and responsible use.

    • You’re right. When we bought all of the furniture for our house, we had money for it, but I took the 12-month financing and earned the interest. The key is to have the funds earmarked and DO NOT TOUCH. Now, most places don’t offer those terms and the 1% interest you can earn hardly makes it worth the bother any more.

  8. I have written about exactly this topic, and I came to the same conclusions you did – while some debt may be technically considered “ok,” you’d almost ALWAYS feel better if you paid it off early or, better yet, figured out how to get what you wanted without taking on the debt in the first place.

  9. I don’t enjoy debt and I tend to agree that no debt is a truly “good” debt, but I would not be able to earn what I do now without student loans, and our house was a good investment. I’ll certainly be glad when they are paid off, though.

  10. I bet it is going to be pretty difficult to find the one who actually likes having a debt. But like Kim says in her comment: it is a great experience and the earlier you learn from it, the better. I agree that student loan is the best way to become more organized, learn how to budget and therefore become money-savvy. Thanx for the post
    P.S.: I can hardly call any sort of a debt a good debt;)

    • Very true although I think many students take on the loans without a real understanding of the payments that they’ll have and the income that will be needed to support this. By the time they get to learning this, for many people, they’re already in trouble.

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